Methodology for The PayScale Index (US)

The PayScale Index tracks changes in what full-time employees earn over time. Similar to how the Consumer Price Index (CPI) tracks whether the average price of goods is going up or down, The PayScale Index tracks whether the price of workers, as represented by the wages they are paid, is changing over time.

What The PayScale Index Measures

The PayScale Index tracks quarterly compensation trends. Specifically, it tracks changes in total cash compensation full-time, private industry employees and education professionals in the United States. The PayScale Index has not been adjusted for inflation. It is based on actual wages. In addition to a national index, it includes separate indices for specific industries, metropolitan areas, job categories and company sizes.

• The full-time employees included are those who work for an employer on an hourly or salaried basis.
• Temporary contract, piece-work and self-employed workers are not included.
• Employees working less than 30 hours per week for one employer are not included.
• If an employee works for multiple employers, full-time earnings from only one employer are considered when analyzing trends in compensation.

• Total cash compensation is defined as all cash payments earned by an employee during a year of full-time employment.
• Total cash compensation includes base salary (or hourly wages), commissions, tips, bonuses and profit sharing.
• Total cash compensation does not include retirement plan contributions from employers, health insurance, company car privileges, travel allowances, or other non-cash benefits. It also does not include equity (stock) compensation.
• At this time, The PayScale Index does not take into account lost income due to temporary layoffs or furloughs. Regular, consistent earnings are assumed.

• The PayScale Index measures the change over time in what an employer must pay to fill a specific job with a worker who has certain skills, abilities, education, experience and other compensable factors.

How The PayScale Index Is Calculated

The PayScale Index utilizes a unique approach to index (trend) measurement. Unlike indices such as the Consumer Price Index, which measures the prices of certain goods and services (periodically updated to reflect changes in buying habits of Americans), The PayScale Index uses data on all types of full-time employees working in a given time period.

This approach is possible because PayScale has performed a detailed analysis of how various compensable factors, like work experience, education, employment setting and job responsibilities, affect pay. This analysis is based on PayScale’s extensive data of over 35 million employee profiles, accounting for 250 compensable factors for over 12,000 unique job titles, which show how the pay of actual workers varies with each of these factors.

PayScale has detailed data for each individual worker – who provided information on their compensation (salary, bonuses, etc.) and compensable factors (work experience, education, etc.) – at a particular point in time (e.g. Q2 2007). Using this analysis, PayScale can then calculate what a similar worker with the exact same compensable factors would earn at a different point in time (e.g. Q1 2010).

For The PayScale Index, we evaluate the difference between these two pay figures for over 300,000 employee profiles in each quarter. PayScale’s profile level data does exhibit volatility over a fiscal year, so a smoothing algorithm is employed to ensure that the true change in wages is being accurately captured. The final aggregate differences reflect changes in pay over time, and forms the basis of The PayScale Index.

Real PayScale Index

The Real PayScale Index incorporates the CPI and tracks the purchasing power of full-time private industry workers in the U.S. When the Real PayScale Index falls, then inflation is rising faster than incomes. In other words, a fall in the Real PayScale Index implies your income can buy less stuff than previously – the prices of goods are rising faster than the price of your labor (your wage).

How to Use The PayScale Index

The PayScale Index’s view into compensation trends can be used in several ways.

Employers can use The PayScale Index to understand overall trends in compensation and how average wages are changing nationally, and by industry, metropolitan area, job category and company size. This information can be used to guide changes in mid-points of salary structures and grades, as well as pay adjustments for fully qualified employees. For market pricing of a specific job or employee, we recommend employers use PayScale’s Market Pricing and Compensation Solutions for Employers.

Political and business leaders, and others interested in the U.S. economy, can use The PayScale Index to understand trends in how much income full-time workers have available to spend. When The PayScale Index is below the Consumer Price Index, the average employed worker’s ability to buy goods and services is declining. Such a decline would be in addition to any reduction in aggregate wages caused by rising unemployment.

Individual employees can use The PayScale Index to understand how the market prices (expected wages) for their services as employees are changing on average. This is separate from changes in their experience level or responsibilities which could also impact their individual market price. To get a more precise salary range for your exact position or job offer, complete the PayScale Survey to get a free personalized salary report.