As compensation professionals know, a compa ratio (short for comparative ratio) is used to measure how an employee’s pay compares to other employees in the same role.
While this measurement helps compensation professionals see how their employees stack up against the market, it’s also valuable to compare compa ratios within your own organization to ensure alignment with the overall compensation strategy.
In this analysis, we explored compa ratios for new hires vs existing employees, and then zoomed in on R&D roles to see how this takes shape at the department level. Let’s dive in.
What is a compa ratio?
First, a quick primer on compa ratios— they are calculated by dividing an employee’s base salary by the salary range midpoint for their job, and are typically expressed as a percentage.
A compa ratio of 100% means an employee is paid exactly at the midpoint of their job, a ratio above 100% means they’re paid above the midpoint, and below 100% means they’re paid below the midpoint. In general, a compa ratio between 80% and 120% (or 0.80 and 1.20) indicates an employee’s salary is competitive for their role.
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Internal Analysis of Compa Ratios
Analyzing compa ratios within your organization can be a valuable exercise for compensation professionals, as it can help you identify areas where your compensation strategy may be out of line with the market.
To explore this concept, we examined compa ratios for new hires compared to existing employees, with new hires defined as employees who started in their role in the last 12 months. The dataset includes 15k new hires and 51k existing employees. The box and whiskers show the 10th percentile to the 90th percentile, with the median compa ratio highlighted in the white box.
New Hires Tend to Have Higher Compa Ratios Than Existing Employees
Next, we looked one level deeper and analyzed job families within R&D to explore variations by role. This dataset includes 2.4k new hires and 7.4 existing employees, all at the P3 level.
Companies Tend to Hire AI/ML & Data Science Employees at High Compa Ratios
New Hires Have Higher Compa Ratios
The data shows that the median compa ratios for senior roles (P4-P6) are above 100% (1.0 ), and that compa ratios for new hires are higher than those for existing employees. For many compensation professionals, this likely aligns with what you would expect to see—especially in tech.
One explanation is that when the market moves quickly, employers may give more competitive offers to new hires to account for demand in the market. New hires also tend to negotiate in the offer stage, which can increase their pay levels compared with a more tenured existing employee who has stayed with the company and received smaller, incremental pay increases over time.
When we dig into the R&D findings, we see that AI/ML and Data Science roles are likely to be hired at compa ratios greater than 100% (1.0). The median compa ratio is 1.05 for new hires in AI/ML, and 0.97 for existing employees. This can indicate a “hot job” in the market, and given the extremely competitive market for AI/ML talent, it’s likely that companies need to extend offers at a premium to attract these candidates.
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