Why Your Salary Will Always Be Below Average

Posted: July 1, 2017

Have you been on glassdoor lately? Maybe you’ve tried the Payscale salary calculator? Is your take home pay below average? Chances are it is. Use the calculator below and find out.

It’s ok . . . i’ll wait.

Did you check it out? Is that surprising? Before you start planning how to bring this up with your boss you might want to take a second look at that number. I'll explain.

Income follows a power law distribution.

There are two issues with this number. First you will run into trouble if you look for averages where there aren't any. Income follows a power law distribution.

What’s that?

If you have heard of Pareto’s 80/20 rule, that is a power distribution. For income, 80% of the income is earned by 20% of people. Don’t take that literally.

If we plot out income you would see a small number of people earn a disproportionately larger amount of money relative to everyone else.

If you try to take the average of a set of incomes (any power distribution) your average will wildly misrepresent the truth. It's going to underestimate a small number of people, and overestimate the majority. The average makes it seem seem like higher incomes are more common than they are in actuality. Case and point:

Bill Gates walks into a bar and everyone inside becomes a millionaire . . . . . . on average.

So when you or someone else pulls up a report on glassdoor and circles the average salary, it is likely not telling the whole story.

But. You might ask, what if Bill Gates doesn’t walk into the bar? What if in this bar we only have locals who all work the same job. I like where your head's at. You might be onto something. But no, you’re not.

Income follows a power distribution even on a localized scale, it's just less noticeable. Let's look at SaaS Implementation Consultants in Provo, UT. The average is $50,800. But look at the range. The low is $39K and the high is $78K. There are a few highly paid individuals driving the average up but most consultants probably earn less than 50K. In full disclosure I don’t know. But the point is neither do you.

The average is not representative of this sample. Let alone the salaries that were not reported.

Implementation consultant earn $50,800 in Provo, UT are on average.

Average is not the same as usual and customary.

Here is the second issue. What do you think of when I say average? When we talk averages, most people assume it's a mean. Most people would agree that average and mean are synonymous. That is not the case. An average doesn't have to be a mean. You can google the definition: a number expressing the central or typical value in a set of data, in particular:

the mode, median, or mean.

When you read about an average, you could be reading about one of three different measurements. It's easy to be mislead. The government reports median income. Median is the middle number: 50% earn above median, 50% below. But what if I want to know what salary is usual and customary? What do most people make? This is the mode. If you want to get a sense of where the long tail on the power law distribution falls, the mode would work best. It will tell you what the most common salary is. That could be useful.

The lesson: Don’t hang your hat on average salary. First, averages don’t fit the data very well. You can take the average, that doesn’t mean you should. Second, when you see an average take steps to learn what kind of average it is. Personally, I find the bookends, the high and low values of a range, to be more useful.

Do you want to learn more? If you a SaaS professional that struggles with aligning your team & getting to the truth then you have come to the right place. Find out how to use averages, bookends, and other KIPs to make better use of your data so you can . . .