How to calculate salary raises: Salary average and salary change formulas

Compensation is one of the most visible and impactful aspects of the employee experience. It influences recruitment, retention, engagement, and overall workplace satisfaction. Yet, behind every payslip is a deeper story—one shaped by data, strategy, and a commitment to fairness.

That’s where salary averages and salary changes come in. Salary average and salary change are both important HR metrics for measuring how the workforce is compensated as a whole or in large groups. If you’re competing for top talent—especially in high-demand fields like EPD—knowing your salary average helps you understand your market position and attract the right professionals. And for those fighting to retain people, salary change can help you budget for raises and promotions on an annual or quarterly basis.

In this article, we’ll explore how to calculate salary raises and averages, why they matter, and how they can shape more equitable and transparent workplaces.

<<Download a free pay equity audit template to help enhance the effectiveness of your pay equity efforts.>>

What is salary average?

Salary average is the calculated mean of what people earn within a specific group, team, department, or organization over a defined period. Salary average is an important HR metric for understanding equity, diversity, and inclusion in your organization. Breaking down your salary averages by demographic (age, race, gender, ethnicity, sexual orientation, etc) will help you identify any existing disparities in your organization that go beyond roles and their differences.

Average salary is especially powerful when compared with median salary. Median salary, or the exact midpoint dividing the top and bottom 50 percent, should be comparable to the average salary. Significant deviations point to large pay parity in your organization.

What is salary change?

Salary change is the difference in a person’s pay over time. It often reflects changes in responsibilities, performance, or market competitiveness. It’s typically calculated as a percentage increase or decrease from the team member’s previous salary, providing a clear view of how compensation evolves. 

For HR teams, salary change is more than just a number. It’s a meaningful way to track how pay aligns with contributions, market trends, and internal equity. Monitoring salary changes across your organization will help you identify patterns, ensure fairness, and build a compensation strategy that supports retention and motivation.

Benefits of salary increases

Salary increases are a cornerstone of a strong compensation strategy. They support key business priorities—from boosting morale and productivity to strengthening retention, recruitment, and inclusion. Let’s explore how thoughtful pay increases can drive lasting impact across your organization.

Improved team morale and productivity

Recognizing people’s efforts through salary increases boosts morale. When professionals see their efforts reflected in competitive pay, it signals recognition and trust—two powerful drivers of employee engagement. Over time, this kind of acknowledgment helps build a culture of high performance, where people feel empowered to reach goals, grow their skills, and take on new challenges with confidence. 

Better retention and loyalty

Salary increases can demonstrate that an organization is committed to its people’s growth, increasing the likelihood of a strong employee retention rate. Retaining experienced professionals saves on recruitment costs and helps maintain stability and knowledge within teams.

Easier recruitment

Internal salary increases often raise the baseline for compensation across your organization, helping ensure new roles are aligned with evolving market expectations. When salary structures are competitive—and clearly communicated—they send a strong signal to potential hires. 

Publicizing fair, consistent pay practices also demonstrates that you value your people and builds trust with potential candidates, making it easier to attract top talent.

How to calculate salary raises

Salary raises are an essential component of maintaining competitive pay structures and rewarding team members for their contributions. Thoughtfully calculating raises ensures consistency and fairness. Here are two common methods to calculate salary raises:

Flat raise method

The flat raise method involves increasing salaries by a fixed dollar amount. It’s simple and ensures everyone in a group receives the same monetary increase, regardless of their current salary.

Here’s how it works:

1. Determine the raise amount: Decide on the flat dollar amount to be added to each person’s salary
2. Apply the raise: Add the fixed amount to each individual’s current salary

For example, if you decide on a flat raise of $2,000, a professional earning $50,000 will earn $52,000, while someone earning $70,000 will earn $72,000.

This method is straightforward and works well when the primary goal is to address cost-of-living increases or promote fairness across all roles and salary bands.

Percentage raise method

The percentage raise method calculates raises as a percentage of each person’s current salary. This approach accounts for proportional differences in salaries, ensuring that higher earners receive raises that reflect their current compensation levels.

Here’s how it works:

1. Choose the raise percentage: Decide on the percentage increase you’ll apply (e.g., five percent)
2. Calculate the raise for each salary: Multiply each person’s current salary by the chosen percentage to determine the raise amount
3. Apply the raise: Add the calculated raise to each person’s current salary

For example, if someone earning $50,000 receives a five percent raise, their new salary will be $50,000 + ($50,000 x 0.05) = $52,500. Someone earning $70,000 will earn $73,500 after a five percent raise.

How to calculate different salary metrics 

Salary average and salary change can be measured by team, department, team member demographic, or the organization as a whole. Here’s how to measure both.

Salary average formula: How to calculate salary average

To calculate salary average, you’ll add up all the salaries in your chosen group and divide by the number of people in that group. Here’s how you do it: 

1. Identify the group: Decide whether you’ll calculate the average salary for a team, department, or the entire organization
2. Determine the time period: Choose the period you’d like to analyze—monthly, quarterly, or yearly—and ensure all salaries are normalized to match that view
3. Sum the salaries: Add up the base salaries of all individuals within the group for the chosen period
4. Divide by the number of people: Take the total sum of salaries and divide it by the total number of people in the group

The salary average formula looks like this:

For example, if a department of 10 people has a combined yearly salary of $1,000,000, the salary average would be $1,000,000 ÷ 10 = $100,000.

Salary change formula: How to calculate salary change

To calculate salary change, you’ll compare salaries from different intervals to understand how pay has evolved over time. This metric helps track increases or decreases in compensation, providing a clear picture of salary trends within your organization.

Here’s how to calculate salary change step-by-step:

1. Choose your intervals: Identify the time periods you want to compare (e.g., last year’s salaries versus this year’s salaries)
2. Record and sum salaries for each base: For each individual or group, sum the salary in the current time interval and the previous time interval 
3. Calculate the difference: Subtract the previous salary from the current salary to determine the change in pay
4. Divide by the previous salary: Take the difference and divide it by the previous salary to calculate the percentage change
5. Multiply by 100: Multiply the result by 100 to express the change as a percentage.

The salary change formula looks like this:

For example, if a group’s total salary increased from $1,000,000 to $1,500,000, the salary change would be [($1,500,000 – $1,000,000) ÷ $1,000,000] x 100 = 50 percent.

Criteria to consider when determining salary increases

Determining salary increases involves balancing fairness, business goals, and the recognition of individual contributions. Here are six key factors to consider:

1. Budget

Every organization has financial limits. Whether you’re planning raises company-wide or for specific teams, aligning them within an HR budget ensures financial stability while still rewarding contributions. Human resources leaders often work with finance teams to allocate resources effectively, balancing competitive compensation with long-term organizational goals.

2. Team member performance

Performance-based raises are a direct way to recognize and reward exceptional contributions. Whether it’s achieving key goals, exceeding expectations, or taking on additional responsibilities, linking raises to performance helps reinforce a culture of accountability and excellence. Use performance reviews, manager feedback, and measurable outcomes to evaluate contributions consistently. These insights can guide decisions on who receives an increase—and how much—based on the impact they’ve made.

3. Tenure or loyalty

Long-term commitment to an organization has its own value. Professionals who stay often bring deep institutional knowledge, mentor others, and support team stability. To determine salary increases based on tenure, set clear milestones—such as every two or five years—and define raise amounts or percentage ranges tied to those points. This structured approach ensures consistency and shows appreciation for loyalty. 

4. Cost of living

Inflation and rising living costs directly impact team members’ financial wellbeing, making it essential to adjust salaries thoughtfully. To determine appropriate cost-of-living adjustments, consider factors such as your team members’ locations—especially for remote people who may face varying expenses depending on their region—and current inflation rates. Regularly reviewing these factors and aligning salary adjustments accordingly ensures your people feel supported. 

5. Changes in qualifications

When a team member enhances their skills, earns a new certification, or completes additional training, their value to the organization can increase. Recognizing updated qualifications with a salary adjustment demonstrates that you appreciate their growth and the new expertise they bring to their role. It also encourages continuous learning and professional development across the workforce.

6. Market rates

To effectively use market rates for determining salary increases, start by regularly reviewing up-to-date market data and benchmarking salaries against industry standards. Identify any gaps between your current compensation and market trends. Use this analysis to adjust salaries strategically, ensuring they meet or exceed market rates. 

<<Use this free pay equity audit template to evaluate compensation across your organization.>>

Other important pay metrics to track

To gain a comprehensive picture of your organization’s pay practices, it’s helpful to track pay metrics in addition to salary average and salary change. These metrics provide more context, helping HR teams make data-driven decisions about fairness, equity, and competitiveness:

• Salary band (or salary range): A salary range is the span between the minimum and maximum pay set for a specific role or job level. It gives organizations the flexibility to reward experience, performance, and other factors while maintaining consistency in pay practices.
• Salary maximums and minimums: Salary maximums represent the highest amount a person in a particular role can earn, while salary minimums define the starting point for pay within that role. 
• Pay differentials: Pay differentials account for variations in compensation due to factors like location, shifts, or specialized skills. For example, a team member working in a high-cost-of-living region or during night shifts may receive additional compensation to reflect those conditions.
• Equity metrics: Equity metrics focus on pay fairness across different demographics, such as gender, ethnicity, or job level. Tracking these metrics helps HR teams identify and address disparities.
• Merit increases: Merit increases are salary adjustments based on individual performance or achievements. They reward high performers and help reinforce a culture of excellence by linking pay to contributions.
• Employee tenure: Employee tenure (length of employment) measures how long someone has been part of your organization. This metric can inform decisions about loyalty-based rewards or tenure-related pay adjustments, showing appreciation for long-term commitment.
• Employee vestment: Vestment tracks the portion of benefits or stock options a person earns over time. It reflects the organization’s commitment to long-term incentives, encouraging retention and loyalty by rewarding tenure.
• Period adjustments: Period adjustments measure salary changes over specific intervals, such as monthly or annually. Tracking these adjustments helps HR teams ensure pay practices stay aligned with organizational goals and market trends.
• Salary range penetration: This metric calculates where a person’s salary falls within their role’s pay range. It’s expressed as a percentage, highlighting whether someone is at the lower, middle, or upper end of their range.
• Compensation ratio: The compensation ratio, or compa-ratio, compares a person’s salary to the average compensation for similar positions within the company or within a target market. A ratio of 1.0 means they are paid exactly at the midpoint, while ratios above or below 1.0 indicate whether their pay is higher or lower than the market average for the role.
• Total cost of workforce (TCOW): TCOW represents the combined cost of all salaries, benefits, and other compensation-related expenses. It provides a clear view of the organization’s overall investment in its people, helping with budgeting and workforce planning.

How to calculate annual turnover rate to evaluate your compensation strategy

Annual turnover rate is a useful metric for assessing the impact of your compensation strategy. To calculate it, you divide the number of people who left during the year by the average number of team members, then multiply by 100.

A high turnover rate may signal gaps in pay practices, especially if people feel their compensation doesn’t reflect their contributions or market standards. Exit interviews and surveys can uncover whether pay dissatisfaction is a recurring theme. In contrast, a low turnover rate suggests people feel valued and fairly rewarded—key drivers of loyalty and long-term engagement. Benchmarking against industry averages helps reveal how your compensation strategy stacks up.

Regularly tracking turnover trends enables HR leaders to refine compensation strategies so they support retention, engagement, and a more stable, motivated workforce.

Promote workplace fairness by measuring salary average and salary change metrics

Salary average and salary change are important financial metrics for many different aspects of your organization. Keeping an eye on these metrics will help you make sure your people, from all teams and walks of life, are being paid what they deserve.

<<Use this free pay equity audit template to enhance the effectiveness of your efforts to improve pay equity.>>

Salary average and salary change FAQs

What is the formula for salary increase?

The formula helps you quantify the change in pay as a percentage. 

(New salary – Old salary) / Old salary x 100 = Percentage increase

For example, if someone’s current salary is $60,000 and they receive a raise to $66,000, the calculation would look like this:

($66,000 – $60,000) / $60,000 x 100 = 10 percent increase

This formula provides clarity when discussing raises, helping HR teams ensure transparency and consistency in pay adjustments.

What is a good salary average?

A good salary average depends on a mix of factors, including industry standards, geographic location, and organizational roles. For example, the salary average for a software engineer in a major metropolitan area will differ significantly from that of a retail manager in a smaller town.

To determine if your salary average is competitive, compare it against relevant benchmarks. Industry salary surveys and compensation reports are excellent tools to gauge whether your average aligns with market rates. Internally, salary averages should also account for equity—ensuring fair pay across comparable roles and demographics.

What is a good salary change?

A good salary change is one that reflects the context in which it’s made. For example, merit-based raises often range between 3–5 percent, while cost-of-living adjustments might fall between 2–3 percent annually. Promotions or role changes typically come with larger increases, such as 10–20 percent, to account for added responsibilities.

“Good” also depends on external benchmarks and internal policies. Regularly reviewing market data ensures your salary changes remain competitive, while aligning them with performance and company goals encourages a sense of fairness.