Certified Human Resource Professional (CHRP) Practice Exam

Why would an organization's overall average compa ratio be below 1?

1. The organization is underpaying its employees

2. The organization's employee compensation is not competitive

3. The organization has many new employees

4. The organization's pay ranges are narrow

The correct answer is: The organization has many new employees

A compa ratio measures an employee's salary against the midpoint of the pay range for their job. A ratio below 1 indicates that, on average, employees are being paid less than the midpoint of their respective pay ranges. When an organization has many new employees, it often means that these individuals are typically at the lower end of the pay scale, as new hires might start at entry-level wages or at the bottom of the designated pay range. This situation can lead to a situation where the overall employee salary average drags down the compa ratio, particularly if many employees are new and earning lower salaries. In contrast, the other factors mentioned—such as being uncompetitive in compensation or having narrow pay ranges—imply broader systemic issues with wages and may not directly point to the average being below 1 simply due to the proportion of new hires. While underpayment and narrow margins can also contribute to low compa ratios, the specific effect of having a significant number of new employees provides a clear reason for the average to be below the midpoint.