In compensation strategy, outliers can skew what metric?

The mean pay is heavily influenced by outliers because it is calculated by summing all the salaries and dividing by the number of employees. If there are significantly higher or lower salaries in the dataset, these outliers can distort the average, making it much higher or lower than what would be considered typical for the majority of employees. This is particularly problematic in compensation analysis when organizations attempt to gauge what they should pay or understand their pay structure in relation to competitiveness in the market.

In contrast to the mean, median pay represents the midpoint of salary distribution and is less affected by extreme values. Employee satisfaction and turnover rates are also metrics that are not directly impacted by salary outliers in the same way, as they reflect different dimensions of employee experience and organizational health rather than raw compensation data.