Written by Salary.com Staff
Paying above the Median Salary for a specific job title and industry can encourage your employees to stay in your organization.
When job seekers are looking for industries to start their careers, salary is a crucial consideration to them. Before they browse job openings, they might turn to reports on the usual income in a particular job to estimate their earning potential. This will tell them what job families can pay high and which companies are leading the job market in terms of compensation. A reliable report on the usual earnings that an employee can get in a given field is the Median Salary.
In this article, we will learn how to calculate the median salary and how it can help companies price a job that will be attractive to employees.
What is a Median Salary?
The Median Salary is the amount that falls in the middle when you arrange all salaries of a certain job title or industry in numerical order, from lowest to highest. In a group of employees with similar job titles, the median salary is the midpoint figure where half of the sample in the group falls below the amount and the other half earns higher pay. It gives you an estimate of the general wage that your employee is earning, considering that they all have the same level of work experience.
How do you calculate the Median Salary?
In a list of salaries for a given job title, if the total number in the data set is an odd number, you simply have to arrange the figures in numerical order, from the smallest to the highest pay, and identify the middle point to determine the Median Salary. For example, data collected for the annual wages of a Production Revenue Accountant I are as follows: $52,071, $56,547, $61,463, $67,038, and $72,113. The median would be $61,463 because exactly half of the salaries are lower than the median and the other half are higher.
However, when the total number in a data set is an even number, you simply take the two middle figures, add them together, and divide by two. Let’s say, the aggregate data collected of OR Nurses’ annual incomes in the US are $68,636, $76,630, $85,410, $94,420, $102,623, and $144,110, the Median Pay will be computed by arranging the list from lowest to highest pay, getting the two middle figures, adding them together, and then dividing them by 2. We will get $89,915 as the Median Pay, an amount in the middle of the list of OR Nurses’ annual incomes.
Salary.com’s Salary Wizard is a tool that helps you see how much an employee should be paid with its resource of salary information for similar jobs in the job market. When pricing for jobs in your company, this tool can provide you with updated information on the Median Salary of specific job titles.
How is the Median Salary a reliable gauge to determine competitive pay?
When planning compensation, the Median Salary is an effective starting point that can help employers form better decisions around salary structures for each employee, job title, and even for the entire company. Some employers may calculate the Mean Salary of a given data set of incomes but the Median Pay provides a more accurate measure of central tendency because it discounts the extremes that may skew the results to make it look like it is normal to earn more. In reality, wages differ among employees in the same job family and industry because they differ in years of experience, educational background, skills, and performance. In a typical corporate setup, a few senior executives get higher pay because of their scope of work and level of work experience, and their wage might create a significant gap between that of the average employees who are in the same age group, years of work experience, and scope of functions. The high pay of these executives will be an outlier and will give misleading results if an employer uses the Mean Salary because this method of reporting does not consider extreme variation. In this case, pursuing the Mean Salary might lead the employer to overspend on compensation.
CompAnalyst is a tool that allows employers to price jobs fairly and with confidence. With its large pool of reliable HR-reported data, you can pull salary information from the market to compare wages across companies and industries and calculate a Median Pay on which you can base your compensation plan.
What are the factors that affect Median Salary?
Three primary factors that affect Median salary and can provide insights into the difference in pay among employees.
- Occupation
One factor that affects the Median salary of employees is their occupations. Certain professions have higher median salaries because they require a higher level of education and specialized skills. Working conditions of a job also affect the Median wage where the inherent danger, health, and safety risks demand a higher pay to compensate for these hazards.
- Demographics
Another reason why the Median wage differs is the age, sex, and education level of an employee. People who are older usually earn a higher Median wage because they have been likely working for a longer period and have gained more experience in their field. In the 2023 third-quarter report of the Bureau of Labor Statistics (BLS) about the Usual Weekly Earnings of Wage and Salary workers, we can find the women’s-to-men’s earnings ratio and it tells us how much a woman earns compared to their male counterparts working for the same job. It also allows us to deeply understand the gender pay difference as the data intersects with race and ethnicity. For example, the BLS reported that white women earned 82.9 percent as much as their male counterparts, while Black women earned 91.5 percent compared to their male counterparts, telling us that there is a lesser difference in the gender pay difference among the Black employees compared to the White employees.
- Location
An employee’s Median wage can also differ depending on their location. Some areas in a country offer higher salaries for positions because of higher demand. The cost of living in a location plays another factor in increasing or decreasing the Median Wage of a specific job.
Highlighting the Importance of Median Salary to lead the market
An employer can lead, lag, or match the market when paying their employees. If your company can gather market data on the median salary of similar jobs in a specific industry, you will be able to build a benchmark salary that you can confidently offer to a potential job candidate without spending more money on paying significantly above the competitive rate. If the compensation philosophy of your company is to lead the market, then the ideal salary you should offer must be higher than the median pay. When employees know that their organization is paying them above the median pay, it will be less likely for them to leave because they are confident that they are receiving fair pay from the organization. This is especially important if you want to retain the top talents of your company. Keeping them around means you get to maintain high productivity from your employees, and this will contribute to the success of your business operations. In addition, having data on the median pay will also help control payroll costs to keep your company’s compensation level sustainable.
