Quantitative Methods Used in Salary Administration

INTERPRETING SALARY SURVEYS

With a myriad of free compensation benchmarks available on the Internet, employees may find skewed salary information, making the salary planning process much more difficult for employers. In setting salary structures, employers not only have to take into account factors such as competition, cost-of-living increases and unions, but also employee-provided free compensation benchmarks (often inflated) from the Internet. For this reason, accurate analysis of survey data is very important in the development, administration and monitoring of salary plans.

In the following sections, we will discuss some of the tools that are commonly used to interpret salary surveys, including:

• averages
• medians
• modes
• maturity curves

Averages

An important aspect of salary surveys is measuring the average pay of the positions surveyed. There are several types of averages:

• arithmetic mean
• geometric mean
• weighted average

Arithmetic mean

The arithmetic mean is the most common form of average. It is simply the sum of all the observations divided by the total number of observations.

Remember: An observation is a discrete event to which the value of a variable has been assigned; several observations can have the same value.

For more information on arithmetic mean, refer to http://davidmlane.com/hyperstat/A15885.html .

Example of arithmetic mean. A salary survey reports the following for the position of Chemist in one city:

What is the average pay for this position as reported by the above survey?

The average pay for the position of Chemist, as reported by the above survey, is $83,912.