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A compa-ratio (short for comparative ratio) is calculated by dividing an employee's actual salary by the midpoint of the salary range or market median for their job. A compa-ratio of 1.00 (or 100%) means the employee is paid exactly at the market midpoint. Values below 1.00 indicate the employee is below market — a compa-ratio of 0.85 means they are paid 15% below the midpoint. Values above 1.00 indicate above-market pay. Most compensation practitioners consider a healthy range to be between 0.80 and 1.20. Employees below 0.85 are at elevated flight risk; those above 1.20 may be limiting their own advancement opportunities since raises would push them into the next pay grade.

The most widely respected salary surveys are the BLS Occupational Employment and Wage Statistics (OES) — free and comprehensive but published annually with a 6-month lag — and the SHRM Compensation Data Center. Consulting firm surveys from Mercer, Radford (Aon), and Willis Towers Watson are considered gold standards in corporate HR but require paid subscriptions. For technology roles, Levels.fyi provides real-time, user-reported compensation data with high granularity by company, level, and location. Glassdoor and LinkedIn Salary are useful for general benchmarking but have self-selection bias. Using three or more sources and blending their data reduces the risk of any single source being unrepresentative.

Geographic differentials reflect the fact that labor costs vary significantly by location. A software engineer in San Francisco commands 40–60% more than the national median due to high living costs and intense competition for tech talent, while the same role in Des Moines might be 15–20% below the national median. Geographic differentials are typically expressed as an index (national = 100) and are applied to national survey data to arrive at a local market rate. Sources for geographic indices include ERI Economic Research Institute, Mercer's Geographic Salary Differentials, and the BLS's regional wage data. Many companies are re-examining geographic pay policies as remote work blurs the lines between local and national labor markets.

SHRM recommends conducting a formal compensation benchmarking review at least once per year, ideally 3–4 months before the annual merit cycle begins so results can inform raise budgets. In fast-moving talent markets — particularly technology, data science, nursing, and cybersecurity — more frequent reviews (quarterly or semi-annually) may be needed because market rates can shift 10–20% within a single year. Point-in-time benchmarking should also be conducted whenever a company is hiring for a new role, experiencing high turnover in a specific job family, or expanding into a new geographic market.

The market percentile represents where an organization chooses to position its pay relative to competitors. Targeting the 50th percentile (median) means the organization aims to pay exactly what half of competitors pay more and half pay less — a meet-the-market strategy. Targeting the 75th percentile means paying more than 75% of competitors — a lead-the-market strategy. Leading the market is more expensive but reduces time-to-hire and improves retention. Companies with strong employer brands, unique cultures, or non-monetary benefits (mission, flexibility) can often attract top talent at the 50th percentile. High-growth tech companies and financial services firms typically target the 75th–90th percentile for revenue-generating and technical roles.

Yes — salary benchmarking is a critical component of pay equity analysis. By establishing market midpoints for each role, organizations can identify both external underpayment and internal disparities. A pay equity audit compares employee salaries within the same job grade and level after controlling for legitimate factors like experience, performance, and tenure. If statistically significant gaps remain that correlate with gender, race, age, or other protected characteristics, the organization faces potential liability under the Equal Pay Act, Title VII of the Civil Rights Act, and state pay equity laws. Many states (California, New York, Colorado, Washington) now require pay transparency in job postings, making regular benchmarking and internal equity analysis essential for compliance.

Salary range spread is the percentage difference between the minimum and maximum of a pay grade, typically calculated as (maximum − minimum) ÷ minimum. Ranges for entry-level and hourly roles are usually narrower (25–40% spread) because there is less variation in the value contributed. Professional and managerial roles typically have 40–60% spreads, while senior executive ranges can exceed 80% to accommodate wide performance variation. The midpoint of each range should correspond to the market median for a fully competent, experienced incumbent. Minimum represents the hiring rate for qualified new entrants; maximum represents the ceiling beyond which the organization expects employees to progress to the next level.