Final answer:
A compa-ratio less than 1.00 indicates that an individual's pay is below the market rate or the established pay scale for their position. It is calculated by dividing the individual's salary by the midpoint of the salary range for their position. The compa-ratio is an important tool for identifying pay disparities and potential labor market discrimination.
Step-by-step explanation:
A compa-ratio less than 1.00 suggests that actual pay is below the median or average pay level for a given position in the market or specified pay range. Employers use the compa-ratio to evaluate their employee's pay relative to market rates or established pay scales. A compa-ratio can be calculated by dividing an individual's salary by the midpoint of the salary range for their position. For example, if the midpoint salary is $50,000 and an employee earns $45,000, then their compa-ratio would be 0.90, indicating they are paid less than the market rate.
When discussing errors such as the Type I error, this occurs when one incorrectly concludes that an average salary is below a certain threshold when it is not. A Type II error, conversely, involves incorrectly assuming the salary meets the threshold when it does not. Understanding and calculating the compa-ratio can help in identifying such disparities and ensuring fair and equitable pay practices.
In the context of earnings gaps by race and gender, compa-ratios may clearly depict whether certain groups are systematically paid less than others, helping to highlight labor market discrimination. It is a key measure in pay equity discussions and can illustrate the degree to which an organization aligns with market standards or reveals internal inequalities.