What is a Compensation Percentile? 25th, 50th & 75th Percentile

When setting pay, the base salary alone doesn’t show how competitive it is. For example, $75,000 may seem fair, but it doesn’t reveal how it compares to similar roles. Compensation percentiles help by showing where a salary stands in the market.

In this article, we discuss what a compensation percentile is, how the 25th, 50th, and 75th percentiles work, why these compensation percentiles are used, and answer common questions about the topic.

What is a compensation percentile?

A compensation percentile is a measure that shows how a salary compares to others in a specific market or industry. The main goal of having a compensation percentile is to understand whether pay levels are below, at, or above the market rate.

As per the U.S. Bureau of Labor Statistics, these percentiles are “a tool for assessing employee compensation.” Some common salary percentiles that organizations use include:

• 90th percentile

• 75th percentile

• 50th percentile

• 25th percentile

• 10th percentile

Remember, a percentile is different from a percentage and does not work like a mean. Instead, a compensation percentile ranks salaries within a data set to show how one pay level compares to others.

For example, if a salary is at the 75th percentile, it means that the pay is higher than 75% of salaries in the market data.

To set fair and competitive pay, Salary.com's Compensation Software lets organizations access and use percentiles like the 25th, 50th, 75th, and 90th. It provides real-time compensation data by job, industry, and location to see how pay compares to the market.

Common percentiles and their implications

To give a full understanding of what compensation percentiles represent, here are some common percentiles that organizations or compensation teams use to compare pay levels and assess market competitiveness.

What does 90th percentile mean in salary?

The 90th percentile in salary means 90% of workers earn less than that amount, and only 10% earn more. It marks the high end of the pay scale, usually earned by the most experienced or top-performing employees.

For example, if the 90th percentile salary for data analysts is $97,706, it means 9 out of 10 earn less, and the top 10% earn that amount or more.

What does 75th percentile mean in compensation?

The 75th percentile in compensation means 75% of workers earn less than that amount, and 25% earn more. It often reflects above-average pay levels offered to experienced or high-performing employees.

For example, if the 75th percentile salary for project managers is $100,000, most earn less than $100,000, and the top earners make that amount or more.

What does 50th percentile mean in salary?

The 50th percentile in salary is the middle point of all pay levels. Half of workers earn less than this amount, and half earn more. It shows the typical or average salary for a job.

For example, if the 50th percentile salary for teachers is $60,000, it means half earn below $60,000, and half earn above it.

What does 25th percentile mean in salary?

The 25th percentile in salary means 25% of workers earn less than that amount, and 75% earn more. It shows the lower end of the salary range, often for employees who are newer to the role or have less experience.

Here’s an example to help explain it clearly: If the 25th percentile salary for accountants is $50,000, it means 25% earn below $50,000, while 75% earn above that amount.

What does 10th percentile mean in salary?

The 10th percentile in salary means 10% of workers earn less than that amount, and 90% earn more. It shows the lowest end of the pay scale, usually for entry-level employees or those new to the field.

For example, if the 10th percentile salary for office assistants is $30,000, it means 10% earn below $30,000, and most earn more.

To simplify:

• 10th percentile: 10% of workers earn less than this wage, while 90% earn more.

• 25th percentile: 25% of workers earn less than this wage, while 75% earn more.

• 50th percentile: Half of workers earn less than this wage, and half earn more.

• 75th percentile: 75% of workers earn less than this wage, while 25% earn more.

• 90th percentile: 90% of workers earn less than this wage, while 10% earn more.

Why compensation percentile are used

Here are the main reasons organizations use compensation percentiles:

1. Benchmark pay against the market

   Percentiles show how a company’s pay compares to others and help define market positioning. Paying at the 50th percentile means matching the market median, while the 75th percentile means offering higher-than-average pay. A 2023 SHRM survey found that 87.6% of HR professionals use percentile data for compensation decisions.

   Easily benchmark your organization’s pay against the broader market with Salary.com’s Compensation Software. It uses percentiles to help set competitive salaries, whether matching the median (50th percentile) or offering above-average pay (75th percentile).

2. Support pay decisions

   Percentiles help HR and management make pay decisions by showing clear market rates. They use this salary data to set starting salaries, adjust pay, and create fair, competitive compensation strategies.

3. Attract and retain talent

   Understanding market percentiles helps companies offer competitive pay to attract skilled candidates and keep current employees feeling valued, fairly paid, and confident in their job security. This reduces turnover and increases overall job satisfaction.

4. Maintain internal equity

   Using percentiles ensures fairness by aligning employee pay with job value and market standards. A Bowling Green State University study used percentile benchmarks to promote pay equity and transparency.

5. Control compensation costs

   Percentile targets help balance competitive pay with budget limits. It's believed that companies often choose whether to meet, lead, or lag the market to manage labor costs effectively.

FAQs

Here are some common questions about the topic:

Is the 60th percentile good?

Yes, the 60th percentile is considered good in compensation because it means an employee earns more than 60 percent of peers, with 40 percent earning more. It is above the median salary, showing competitive pay that can attract and retain talent, reward performance, and give a sense of financial recognition.

How do companies determine which percentile to target?

Companies choose a compensation percentile by considering their compensation philosophy, budget, industry standards, and talent needs. They decide whether to pay above, at, or below the market and consider employee skills, experience, and performance.

How is compensation percentile data collected?

Compensation percentile data comes from multiple sources, including salary surveys, market research, and industry reports. Companies collect pay information by job role, experience, and location. Some use a Compensation Management Software to make data collection and analysis easier and compare their pay to market percentiles.

What happens if pay falls below the desired percentile?

If compensation data falls below the desired percentile, employees may feel underpaid, leading to lower motivation, higher turnover, and difficulty attracting top talent. Companies might need to adjust salaries, offer bonuses, or provide other incentives to remain competitive and retain skilled employees.

Can compensation percentiles vary by job level or location?

Yes, compensation percentiles can vary by job level and location. Higher-level positions often target higher salary percentiles to reflect greater responsibility and experience, while salaries may differ across locations due to cost of living, local market rates, and demand for talent.

How does the median salary relate to a salary percentile?

The median salary represents the 50th percentile, meaning half of employees earn less and half earn more. Salary percentiles show how a pay level compares to the market, helping companies decide whether to pay below, at, or above the median to remain competitive.