A system and method for controlling gear ratio changes in an automatic transmission includes an electronic microprocessor, an electronic memory accessible to the microprocessor, solenoid-operated shift valves, pressure actuated friction clutches and brakes, a variable force solenoid-operated valve, a torque converter bypass friction clutch, and control algorithms that produce output signals to control the state of the solenoid-operated valves. The vehicle speed and engine speed at which upshifts and downshifts occur, according to a standard gear shift schedule, is compensated for loss of engine torque at conditions that differ from the conditions at which a reference shift schedule is defined. Vehicle speed is compensated for torque variation with reference to the ratio of current calculated engine torque divided by current engine output torque.