Certified Human Resource Professional (CHRP) Practice Exam

Why should an organization conduct a compa ratio analysis?

1. To understand the distribution of employees within pay ranges

2. To create a competitive pay structure

3. To participate in a salary survey

4. To evaluate jobs

The correct answer is: To understand the distribution of employees within pay ranges

Conducting a compa ratio analysis is essential for organizations to understand how employee salaries relate to the established pay ranges for their positions. A compa ratio is calculated by dividing an employee's salary by the midpoint of the pay range for their job grade. This analysis reveals whether employees are being paid in line with the organization's pay philosophy, helping identify those who may be underpaid or overpaid relative to the intended compensation structure. By assessing the distribution of employees within pay ranges, organizations can determine if they are maintaining equity among employees, ensuring that those in similar roles with similar experience and performance levels receive comparable pay. This can support efforts to attract and retain talent and can facilitate necessary adjustments to improve employee satisfaction and morale. The other options, while related to compensation strategy, focus on different aspects. Creating a competitive pay structure is a broader goal that may utilize compa ratio analysis but is not the direct reason for conducting this specific analysis. Participating in a salary survey provides external benchmarks but does not directly assess internal pay structures. Evaluating jobs tends to involve job analysis and job evaluation methodologies rather than an analysis of existing salary distributions.