The formula commonly used by compensation professionals to assess the competitiveness of an employee’s pay level involves calculating a “comparatio.”

Comparatio is the employee’s current salary divided by the current market rate as defined by the company’s competitive pay policy. For example, if an employee earns $45,000 and the market median pay level for that job is $50,000, the employee has a comparatio of 90%.

A company’s salary range midpoint, which serves as a proxy for the targeted market rate, can be used as an alternative denominator in the comparatio equation.

A talented employee whose pay has lingered at a comparatio of 90% is at risk of seeking employment with competitors at a higher pay level that is perceived to be more equitable. The company interested in retaining this employee would consider raising the employee’s pay level closer to the market median pay level.

If the company doesn’t want to 100% of market for this job, for example if the employee is not fully proficient in the job, it might still make sense to pay the employee at 95% of market. In this scenario, the company might be willing to raise the employee’s pay by $2,500 to insure against the greater cost of hiring a new employee.