Do I mean percentage or percentile?

Mykkah Herner, MA, CCPCompensation Consultant at PayScaleWhen benchmarking positions, it’s easy to get tongue-tiedover the terms percentage and percentile. Percentiles are admittedly confusing.People generally understand that market pay breaks out at the 10ththrough 90th percentiles, but what does that even mean? And how canI use that information to manage employee pay?When are percentages valid when talking about employee pay? I often get thesequestions from my clients. The answer isthat we use both percentiles and percentages when developing and managingcompensation plans.PercentILE ExplainedWhen we’retalking about the market, we use the word “percentile.” A percentile is alocation marker along a range of values. The 50^th percentile is themedian or middle number in the range of values. For example, assuming 100 datapoints, at the 60^th percentile, 59 data points would be below the 60^thpercentile, 40 data points would be above.Part of anorganization’s decision around compensation strategy has to do with where theywant to target salaries relative to the market. Hitting the market at the 50^th percentile means you’re“meeting” the market. Targeting higher thanthe 50^th percentile is referred to as either exceeding or leadingthe market, and targeting lower is lagging the market.Uses for PercentAGEWhen we’retalking about ranges, we use the terms Min, Mid, and Max. We also talk about anincumbent’s location in the range as the range penetration. Range penetrationis expressed as a percentage. 50% range penetration is equal to the midpoint ofthe range. (eg, if Joe Schmoe is at 60%range penetration, he’s above the midpoint by 10%.)Putting it all togetherWhen we benchmark positions, welook for the market value at our targeted percentile (often the 50^thpercentile). Once we know the value of the position at market, we place thatposition in range by aligning the market value with the midpoint of the nearestrange. We use an assessment of the internal value of the position to tip thegrade assignment one way or the other when the position falls in the middle oftwo grades.Once theposition has been assigned to a range, we can see where the incumbents fallrelative to those ranges. The idea is to use the full range distribution whenmanaging employee pay. Incumbents who are newer to the organization or who maynot be as stellar performers should fall towards the Min of the range, or havea lower range penetration. As incumbents increase in performance, proficiency,and tenure, they will progress through the ranges towards the top, or have ahigher range penetration.Once yourranges are developed, we suggest that you manage employee pay using the ranges.You can know that the ranges are set around the 50^th percentile ofthe market, so as an organization you’re meeting the market. Then you can talk about incumbent rangepenetration in terms of a percentage.Incumbents can work to increase their range penetration through stellarperformance, gaining skills, sticking around, whatever your organization hasdecided to reward.