How do organizations compare actual pay to pay structure?

Question

What will be an ideal response?

Answer 1

As part of its management responsibility, the HR department should compare actual pay to the pay structure, making sure that policies and practices match. A common way to do this is to measure a compa-ratio, the ratio of average pay to the midpoint of the pay range. Assuming the organization has pay grades, the organization would find a compa-ratio for each pay grade: the average paid to all employees in the pay grade divided by the midpoint for the pay grade. If the average equals the midpoint, the compa-ratio is 1. More often, the compa-ratio is somewhat above 1 or below 1. Assuming that the pay structure is well planned to support the organization's goals, the compa-ratios should be close to 1. A compa-ratio greater than 1 suggests that the organization is paying more than planned for human resources and may have difficulty keeping costs under control. A compa-ratio less than 1 suggests that the organization is underpaying for human resources relative to its target and may have difficulty attracting and keeping qualified employees. When compa-ratios are more or less than 1, the numbers signal a need for the HR department to work with managers to identify whether to adjust the pay structure or the organization's pay practices. The compa-ratios may indicate that the pay structure no longer reflects market rates of pay, or maybe performance appraisals need to be more accurate.