Which of the following applies in response to the HR Director’s request?

The Terrain company has introduced the role of a Chief Compliance Officer (CCO) and is at a loss on how to compensate this role fairly. The HR manager has compiled a couple of metrics that may help solve this problem. However, the HR Director has instructed the HR manager to specifically find out how the compa-ratio metric can be used to determine compensation within the company.

Which of the following applies in response to the HR Director’s request?
A . compa-ratio is used to measure internal compensation practices against external benchmarks.
B . compa-ratio is used to identify areas of inequity between traditional salary grade levels.
C . compa-ratio is used to calculate what merit pay increases should be given to outstanding or longest-tenured employees company-wide.
D . compa-ratio is used to determine the extent to which an employee’s remuneration is consistent with
the company’s pay policies.

View Answer

Answer: A

Explanation:

A compa-ratio is one of the most common metrics for pay. Simply stated, a compa-ratio compares an individual employee’s salary to the midpoint of a given salary range. Compa-ratio is used to determine the competitiveness of pay. Since it is used to determine the degree of pay to the midpoint or "market rate", it is helpful to compare "internal and external" benchmarks.

With compa-ratio, HR compares what the company is paying for a job, versus what other companies are paying to ensure the pay is competitive.

The "midpoint/market rate" is the average pay of all companies, so in order to determine if pay is competitive or equitable to the competition, HR uses compa-ratio to compare a job’s pay to the "mid-point/market rate".

Note that companies do not break down pay policies to include metrics such as compa-ratio.