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Pay bands, compa-ratio and spotting compression

July 2026 · 7 min read

A pay review comes round and the same three questions arrive with it. Is this person paid fairly for their grade? Who is sitting outside their band? And - the one that gets missed until someone resigns over it - is pay compressed, so that people who have been here for years earn barely more than the person who joined last month? Answer those three well and a pay review is a controlled, defensible exercise. Answer them by feel and it becomes a series of individual arguments you are destined to lose.

The tool for answering them is a set of salary bands and two derived measures that most spreadsheets never bother to compute. None of it is advanced. It is just structure applied to numbers that are usually left loose.

Start with the bands

A pay band is three numbers per grade: a minimum, a midpoint and a maximum. The midpoint is the anchor - it represents the market rate for a fully competent person in that role, and everything else is read against it. Set the bands once, deliberately, and every other figure in the review should point back to them, re-calculating the moment you adjust a band. The discipline that makes this work is refusing to hard-code anything a band can drive; the instant you type a status in by hand, it stops being true the next time a band moves.

Compa-ratio: one number, fairly read

Compa-ratio is a person's salary divided by the midpoint of their band. It is the single most useful figure in the whole exercise because it puts everyone on the same scale regardless of grade. A ratio of 1.0 means paid exactly at the market anchor. Below about 0.8 usually means underpaid for the role - a new joiner still ramping, or someone who has been quietly left behind. Above 1.2 means paid well over the anchor, which may be entirely justified by performance and scarcity, but ought to be a conscious decision rather than an accident of history.

Read as a distribution across the whole population, compa-ratio tells you things a list of salaries cannot. A team clustered low is a flight risk. A team clustered high is a budget that will not stretch to the next hire. A wide spread within one grade is a fairness question waiting to be asked. Colour-band the ratios and the pattern is visible before you have read a single name.

Compression is the risk a plain band table cannot see: everyone is inside their band, and yet the gap between grades has quietly closed.

Compression: the risk that hides in plain sight

Pay compression is when the difference between what one grade earns and the next grade up shrinks to almost nothing. It creeps in honestly - the market rate for new hires rises faster than the raises you give existing staff, so a fresh joiner at the bottom of a higher grade ends up on nearly the same money as a seasoned performer in the grade below. Everyone is technically inside their band. Nothing looks wrong on a band table. And then your best mid-level person works out that the newcomer they are training earns what they do, and starts answering recruiter messages.

Catching it requires comparing across grades, not just within them - checking whether a lower grade is already paid what a higher-grade new joiner would start on. That is the one calculation a plain band table does not do, and it is precisely the one that predicts resignations. A flag that surfaces it turns a slow-building retention problem into a line item you can fix in the review, while it is still cheap to fix.

A necessary word on the data

Pay data is among the most sensitive information an organisation holds, and it must be handled that way. Keep the file access-controlled and share it only with the people who genuinely need it. Just as important: the calculations in a planner tell you where pay sits relative to your bands - they do not tell you whether a pay decision is lawful. Any change you make must be checked against your equal pay and pay-transparency obligations, which differ by jurisdiction and change over time. A compa-ratio is an input to a fair decision, not a substitute for the judgement, and where a decision is finely balanced, take proper reward or legal advice. The workbook does the arithmetic; the responsibility stays with you.

Used that way - as structure and early warning rather than as an oracle - a band planner turns the annual pay scramble into something closer to an audit. You open it, the exceptions are already flagged, the compression risks are already named, and you spend your time on the handful of decisions that actually need a human, instead of rediscovering the same three questions from scratch every year.