What does it mean when the compa-ratio is below 1?

• A. The employee's salary is exactly at the midpoint of the pay range.
• B. The employee's salary is above the midpoint of the pay range.
• C. The employee's salary is below the midpoint of the pay range.
• D. The employee's salary is above the maximum of the pay range.

Answer: (C)

Verified step by step guidance

1. Understand the concept of compa-ratio: Compa-ratio is a metric used in compensation management to compare an employee's salary to the midpoint of a predefined pay range. It is calculated as the employee's salary divided by the midpoint of the pay range.
2. Interpret the compa-ratio value: A compa-ratio below 1 indicates that the employee's salary is less than the midpoint of the pay range. This suggests that the employee is being paid below the average market rate for their role within the organization.
3. Analyze the implications: A compa-ratio below 1 may signal that the employee's pay needs to be reviewed, especially if their performance and experience justify a higher salary closer to or above the midpoint.
4. Compare other scenarios: If the compa-ratio is exactly 1, the employee's salary is at the midpoint of the pay range. If the compa-ratio is above 1, the employee's salary exceeds the midpoint, potentially indicating higher pay due to exceptional performance or tenure.
5. Apply the concept to the problem: Based on the options provided, the correct interpretation of a compa-ratio below 1 is that the employee's salary is below the midpoint of the pay range.