Salary Range Midpoint

What a salary range midpoint is

The salary range midpoint (منتصف النطاق الأجري) is the point at the centre of the pay range of a job grade. The organisation adopts it as a reference against which it measures the pay of everyone who holds a job in that grade. It sits in the salary structure as the target pay for an employee who has mastered the work of the grade, with a minimum and a maximum on either side of it.

It is a figure the organisation decides, not a figure it observes. The average of what the grade’s employees actually earn may come close to the midpoint or lie away from it, and the midpoint stays where it is for as long as the structure is unchanged. So the first question in building a grade is where this figure should be placed.

Where the midpoint figure comes from

When an organisation builds its midpoint on the market, it starts from jobs that are easy to match with jobs in other organisations, each known as a benchmark job. It then examines their pay in the data of a pay survey, which presents pay figures spread across percentiles rather than as one number. After that it decides at which point of this distribution it wants the midpoint to fall.

Suppose the market median for a benchmark job is 10,000. If the organisation decides to stand at the market median, the midpoint is 10,000. If it decides to stand at 95% of the median, the midpoint is 9,500, and at 105% it is 10,500. All three figures are arithmetically correct. What differs is the decision: where the organisation places itself against the market, and whether it means to be there. That question is the subject of external pay equity.

Jobs that have no counterpart in the market have their midpoints set by their relative internal value, and that is the work of job evaluation. The grades then receive a ladder of midpoints whose upper end connects to what the market says, and the remaining grades fall into line beneath it according to their internal order.

Is the midpoint the average of what employees earn?

No, and confusing the two spoils the analysis from the start. Take a grade with five employees earning 8,200, 8,800, 9,400, 10,100 and 11,300. Their pay totals 47,800 and averages 9,560. If the midpoint of the grade is 10,000, the employees’ average sits 440 below it, and the midpoint has not moved.

The midpoint is a figure the organisation set in order to measure; the average is a figure it measured. Dividing the second by the first gives the compa ratio when it is calculated for a group, and that ratio describes where the group stands against the midpoint without describing the midpoint itself. An organisation that makes the midpoint the average of those present takes its reference from the same thing it wants to measure, and then measures with it.

What happens when the midpoint moves and pay does not

The midpoint has two distinct movements. The first is a movement of the structure: the market changes and the organisation updates its midpoints. The second is a movement of the individual: a raise is decided for a particular employee. Neither movement obliges the other.

Imagine the market rose by 4% in a year and the midpoint was moved from 10,000 to 10,400. An employee earning 9,500 received no raise. The employee’s ratio to the midpoint had been 0.95 and became about 0.91 (9,500 ÷ 10,400), although no decision had been taken about the employee. To bring the employee back to 0.95 of the new midpoint, pay would have to become 9,880 (10,400 × 0.95), a raise of 380. To bring the employee to the midpoint itself, the raise would be 900 (10,400 − 9,500). So the amount needed follows the position to which the organisation decides to return the employee; the midpoint alone does not fix it.

Raise decisions are taken in a salary review, a cycle in which a fixed sum is distributed. If the structure is moved in the same cycle without calculating the effect on that sum, the cycle carries a cost that nobody intended.

How the midpoint changes the cost of correction

Imagine that the organisation has a rule that nobody’s pay should fall below 0.90 of the midpoint of the grade. That midpoint is 10,000, so the lowest acceptable pay is 9,000. The employees are the same five as before:

• 8,200: the ratio is 0.82 and the employee needs 800.
• 8,800: the ratio is 0.88 and the employee needs 200.
• 9,400, 10,100 and 11,300: the ratios are 0.94, 1.01 and 1.13, and these employees need nothing.

The monthly cost is 800 + 200 = 1,000, which is 12,000 a year, or about 2.1% of the total pay of the grade (1,000 ÷ 47,800). If the midpoint then moves by 4%, the lowest acceptable pay becomes 9,360 and the need becomes 1,160 + 560 = 1,720 a month. The cost has risen from 1,000 to 1,720, an increase of 72%, and the ratio of the third employee has fallen from 0.94 to about 0.90. Moving the midpoint alone, with no decision about any person, raised what correction requires by that amount. For this reason the effect of a move on the budget is calculated before the move is approved, not after.

Where a new employee starts relative to the midpoint

The point of entry is a position within the range that is decided at employee grade placement. Take a new employee offered pay at the midpoint in a grade where the employees who joined earlier are still at 0.88 of it. An inverted gap then arises between the older and the newer employee, which is the situation called pay compression. The midpoint helps with one question: what justifies the newcomer starting above someone who came before? If a written answer exists, such as proven experience or a scarce skill, the decision can be defended. If none exists, it is the decision that will appear in a complaint a year later.

On which pay the midpoint is calculated

The midpoint is built on a defined pay base, and each employee’s pay is measured against it on the same base. If the base differs, the judgement on the same person differs. Take an employee whose basic pay is 8,000, with allowances of 2,400 added, so that the total received is 10,400. If the midpoint is 10,000 and is set on total pay, the ratio is 1.04. If it is set on basic pay alone, the ratio is 0.80. These are two figures for one employee in one grade, and the difference between them, 0.24, comes entirely from the choice of base.

For this reason the structure records what enters the measured pay and what does not, and every employee is measured in the same way. How pay is split between what is fixed and what varies with results is a separate question, the pay mix, and it does not remove the question of the base.

Where the employee stands against the midpoint of the higher grade after promotion

A promotion lifts the employee into a grade whose midpoint is higher, so pay can rise while the ratio to the midpoint falls. Suppose an employee in a grade with a midpoint of 10,000 earns 10,100, a ratio of 1.01, and is promoted to a grade with a midpoint of 11,800 with a raise of 6%. Pay becomes 10,706 (10,100 × 1.06). The new ratio is 10,706 ÷ 11,800, about 0.91. The employee earns more than before and still stands below the midpoint of the new grade. To reach the midpoint at once, the employee would need a raise of 16.8% (11,800 ÷ 10,100).

This position is not a fault in itself. An employee who has just moved into a larger role has not yet proved themselves in it, and the midpoint is meant for someone who has mastered the grade. But it is a decision taken on purpose: how much should the promotion raise be worth, and after how long is its holder expected to reach the midpoint? If the rule is not written, each promotion comes with a raise that differs from the others for no stated reason.

What is documented with the midpoint

A figure without its context cannot be reviewed. We suggest keeping with the midpoint of each grade the source of the data and its date, the point chosen from the market distribution, the pay base on which it is measured, the spread on which the range was built, who approved the figure, and when it will be reviewed. If the organisation is asked two years later why the midpoint of one grade was moved and another was not, the answer is then on record.

Exceptional adjustments are recorded as well, for example when the midpoint of a particular grade is raised because a skill in it is scarce in the market. Otherwise exceptions become an unannounced rule on which later decisions are built.

How often the midpoint is reviewed

The midpoint ages because the market moves. Suppose the market rises by 4% a year and the organisation reviews its midpoints only every three years. After three years the market median becomes 10,000 × 1.04 × 1.04 × 1.04 ≈ 11,249, while the written midpoint stays at 10,000, about 11.1% below the market (1 − 10,000 ÷ 11,249). Employees whose ratios to the midpoint look sound may therefore be further below the market than the ratio shows.

For this reason the review of midpoints is tied to the cycle of examining the market: the date is decided and written down, and the cost of moving the midpoints is calculated ahead of that date, not on the day itself.

When the midpoint loses its meaning

• Old data. A midpoint built on a survey that is years old measures employees against a reference the market has moved past.
• Moving the midpoint without calculating the cost. Its effect on pay is then discovered after approval rather than before.
• A benchmark job that does not match. A figure is taken from the market for a job that carries the title of the organisation’s job but does not resemble it in content.
• A grade with few holders. Where a grade has one or two employees, the midpoint becomes a question about a person rather than about a grade.
• A midpoint with no known spread. The minimum and the maximum come from the midpoint and the spread of the range together, and how the two limits relate to the midpoint is the subject of range spread.

Where the midpoint is placed against the market

In the references we reviewed, we found no position for the midpoint that suits every organisation, whether at the market median, above it or below it. The position an organisation chooses follows its capacity to pay, its need to attract a particular skill, and what it announces to its employees about its policy. We suggest that the organisation write down its decision and the date of the data on which it was built, and review the decision after each update of the structure, because a figure whose origin is unknown is hard to defend when it is questioned.

This is an explanation of the concept, not legal advice.