Compensation specialists are experts in determining appropriate pay levels within an organization. The organization depends on their expertise to determine how to pay employees in line with its compensation strategy.
Company X decides to set its pay target for electrical engineers at the median. There is a wide distribution of pay for electrical engineers, so Company X determines that using median salary over average pay represents a more accurate snapshot for comparison. The compensation specialist will then search all available salary surveys for median salary information.
Consulting companies, professional groups and industry associations collect and publish confidential salary survey data. They collect the data based on one point in time and distribute and/or sell the information annually. However, the Internet publishes online salary information at no cost. It is imperative that the compensation specialist verifies the quality of salary data being used. In this case, the specialist requires that the surveys include median salary data.
The compensation specialist collects the following median salary information for electrical engineers from a variety of sources: $39,000, $49,700, $49,800, $55,400, $57,000, $62,000, $50,200, $50,700, $102,000, $68,900 and $72,300. The median salary for electrical engineers in the public sector is $49,000 and the median salary for electrical engineers in nuclear energy is $102,000.
The compensation specialist compiles the data to determine the median salary for electrical engineers from all industries. To calculate the median salary, the specialist must align the reported salaries in high to low or low to high order. The salaries now read: $39,000, $49,700, $49,800, $50,200, $50,700, $55,400, $57,000, $62,000, $68,900, $72,300 and $102,000.
The median salary is calculated by dividing the observations (salaries) into 2 equal parts. Because there are eleven salaries observed, one-half contains the lowest five and one-half contains the highest five. The salary falling between the two halves is the median. The median salary in this example is $55,400. If there had been only ten reported salaries, the specialist would calculate the median by averaging the 5th lowest and the 5th highest. Using ten salaries, the data now reads: $39,000, $49,700, $49,800, $50,200, $50,700, $55,400, $57,000, $62,000, $68,900, $72,300. The median is the average of $50,700 and $55,400 or $53,050.
Published salary surveys usually report average and median salary data as well as other statistics. The information is often extensive. When using multiple surveys, the compensation specialist aggregates the targeted data and calculates the overall average or median salary depending on the direction of his organization's pay policies.