While Compa is a widely-used industry term, a primer can be useful, and compa(eq) definitely needs an introduction.
The term "Compa" or "Compa ratio" is widely used in the industry to denote the ratio of an employee's salary to the target or center of their salary range.
Employee salary: $90k
Salary target: $100k
Compa ratio: 0.9
We use compa ratio throughout Compaas to provide a single-measure view of how far an employee is from their target salary. Often we highlight especially low or high compa ratios.
We call it Compa($) to show that it's calculated using only cash (often but not always the base salary). That's normal, but we also calculate Compa(eq) as equity-adjusted compa ratio for every employee. Compa(eq) is calculated from:
- An employee's salary
- An employee's stock option and/or RSU grants that they are vesting this year
- The company's estimated or actual stock price
- The salary band target salary for that employee
- How much equity other employees in the same salary band have this year
Now we can see if the same employees who have low compa($) and might be falling behind on salary, are actually well-compensated with stock options.
In this case, Ellen Landers has a lot of stock or options at a low price, compared to her peers, so her compa(eq) is actually fairly high.
If an employee's compa(eq) is lower than their compa($), it may mean that they don't have stock. Since they are compared to their peers, if their peers do have stock, this would make the individual's compa(eq) lower.
What values should compa($) and compa(eq) have?
Although ratios and "target salary" imply that 1.0 is the right value, 1.0 does not always indicate right value! It depends on a company's philosophy and compensation decisions.
In some companies, early employees are brought in at the low-end of the salary range in most cases. Newly-promoted employees are also given only enough of a raise to bring them into the lower part of the salary range for their new role. In these companies, a cluster of new employees may have a low compa ratio average like 0.89. Conversely, a team with a bunch of employees who have been doing the same job for a few years, would tend to have salaries near the top of the salary range and thus an average compa ratio more like 1.12.
What compa($) is too low? What compa($) is too high? We don't have a hard and fast answer for this either. In fact, a compa ratio that is "too low" for a salary band with a narrow range, may be perfectly find for a salary band for a wide range. It's also quite common for salary band ranges to get wider at the more senior levels of employment, meaning there's more discretion in pay and possibly more variance. In this example company, an employee in the job grade "Ops level 1" with a salary of $50k would be have a compa of 1.13, yet be out of the range. On the other hand an employee in the grade "Ops level 6" with a salary of $141k would also have a compa of 1.13 and be well within band.
Where we wanted to show a "sweet spot" for compa ratios, we used the range from 0.85 to 1.15 as a moderate range - not very tight, not very wide.
But the sweet spot is just to draw the eye and help give some context. It's not intended as a rule.
What number tells me who is out of band?
Since compa doesn't explicitly tell you whether an employee is out of band, we created different visualizations to show which employees are out of band.
Also, in some places we show band penetration (employee's salary as a percentage of the way from bottom to top of range) instead of compa ratios. This is especially helpful where Compaas helps companies communicate about total compensation to managers and employees throughout the company.