Why the Salary Midpoint Formula Is Crucial to Getting Pay Equity Right
Written by Stephan Duncan
May 23, 2019
The salary midpoint is the middle point of a salary range’s minimum and maximum. The salary midpoint should represent a fair and competitive salary based on market pay levels, and should indicate your internal salary progression for individual employees is reasonable and promotes pay equity.
What does it mean to be paid at the salary midpoint? How is the salary midpoint formula is calculated? Why is salary midpoint important? How does the midpoint formula impact the salary midpoint differential? We’ll answer all these questions
What Does Being Paid at the Salary Midpoint Mean?
A salary range, or grade, encompasses the minimum, midpoint, and maximum rates that a business is willing to pay for a job within the range. The minimum and maximum rates typically represent entry-level and highly experienced employees within a pay range.
Many employers develop and start new hires below the salary midpoint. This practice gives employees an opportunity to grow in their profession, and within their pay range. An offer lower than the salary midpoint doesn’t mean that the employee in the role isn’t fully functional. It is important an initial job offer is as close to the midpoint as possible so it can be enticing and competitive, and offer the employee room to grow and receive a merit increase without creating salary compression.
How Do You Calculate the Midpoint of a Salary Range?
To calculate the salary midpoint formula, take the sum of the range’s minimum and maximum and divide the sum by two. That will give you the midpoint for your range.
For example:
Why is the Salary Midpoint Important?
The salary midpoint formula represents what HR professionals and their company believe to be a fair price based on what competitors are offering.
The salary midpoint formula helps format your salary structure’s pay progression, detailing how an employee can increase their compensation as they move up in your structure. For instance, when you’re using the market pricing method for your jobs, you can take pricing information on certain jobs with similar market midpoints and group them together into specific grades.
Using the Midpoint to Calculate the Salary Differential
The salary midpoint formula can also be used to calculate the salary midpoint differential. This calculation stems from the difference between the midpoints of two adjacent grades, and it’s expressed as a percentage increase.
After you use the salary midpoint formula for two adjacent salary grades, calculate the difference between the higher and lower midpoints. Then, take that difference and divide it by the lower of the two midpoints to get the differential. This will give you the pay progression’s percentage between the lower grade’s midpoint to the higher one.
For example:
Why is the Salary Midpoint Differential Important?
When you calculate the salary midpoint differential, it shows the progression from one grade in a structure to another, often increasing as the job hierarchy ascends.
The higher the salary midpoint differential between two grades, the higher the mid-point progression between those two grades. How the midpoint differential increases between adjacent grades showcases how pay increases between two grades in your salary structure. This helps showcase whether there is reasonable pay progression and if there needs to be any adjustment between ranges. It also helps answer whether your midpoints are within close proximity to the market price of your jobs.
Why Constant Midpoint Progression Should be Maintained
You should maintain your salary grade midpoint changes at a consistent rate. Over time, various occupational clusters in different grades grow closer or spread farther apart as your employee base changes. By making adjustments to maintain reasonable salary progression within a structure’s grades, you are preserving internal pay equity in your organization.
A consistent midpoint progression in your salary structure means there is equal and consistent pay increases between salary grades as employees move up from one range or position to the next. Consistent midpoint progression also helps when you give job promotions or salary increases to employees.
Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.
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