Why Benchmarking, Percentile Positioning, Cost of Living and the Social Line Must Be Read Together

The question of what is an appropriate salary looks very simple at first. Every organisation pays salary. Every employee receives salary. Every HR function has some method of deciding salary. Most organisations believe that because they have benchmarking data, market studies, percentile ranges and compensation ratios, they already know how to define appropriate salary.

But the reality is more complex.

Salary is not just a number. Salary is not just a monthly payout. Salary is not only a budget item. Salary is one of the most important decisions an organisation makes because it impacts the organisation and the employee at the same time.

For the organisation, salary affects budget. It affects whether the organisation can get people to deliver work. It affects whether people work with commitment and passion, or whether they slowly become demotivated. For the employee, salary is connected with life goals. It helps the employee live the life they want to live. This is why salary cannot be treated only as a compensation administration exercise. It has to be treated as a serious HR and business decision.

Salary Is Important for the Organisation and the Employee

From an organisation’s point of view, salary clearly impacts cost. That is the easiest part to understand. If salaries are high, budgets increase. If salaries are low, budgets may appear controlled. But that is only one side of the picture.

The more important question is: what does that salary help the organisation achieve?

If the compensation is positioned properly, the organisation may get an employee who works with energy, commitment and ownership. If the salary is poorly positioned, the organisation may still get attendance, but not necessarily contribution. There is a difference between someone coming to work and someone delivering work with passion. Salary influences that difference.

An employee who feels fairly paid may be more willing to contribute. An employee who feels underpaid may still do the job, but the level of motivation, ownership and commitment may not be the same. This is why salary is not merely about affordability. It is about what kind of relationship the organisation wants to build with its employees.

From the employee’s point of view, salary is even more personal. It helps them accomplish life goals. It enables the life they want to live. It determines where they stay, how they travel, what kind of education they can provide to their children, what kind of recreation they can access, and how they experience their own progress.

That is why, when we discuss appropriate salary, we cannot discuss only numbers. We have to discuss what those numbers mean.

Benchmarking Is Necessary, But Not Sufficient

There are scientific methods of deciding salary. Salary benchmarking is one such method. Organisations study the market, understand what others are paying, look at percentiles, compare ratios and then decide where they want to position themselves. This is relevant. It should be done.

An organisation should work with a competent compensation expert or HR practitioner to guide its compensation philosophy. Without market data, compensation decisions become guesswork. Benchmarking gives structure. Percentile positioning gives a reference point. Ratios help organisations understand whether they are paying below, at, or above market.

But benchmarking alone does not answer the full question.

Benchmarking tells you what the market data says. It does not automatically tell you whether your salary is appropriate for the employee group, the role, the context and the expectations surrounding that role.

This is the first major point HR practitioners must understand. Salary benchmarking is a useful tool. But it is not the entire answer. If you use benchmarking mechanically, you may still end up with a salary that looks defensible on paper but does not work in reality.

The 60th Percentile Problem

In many organisations, salary positioning is discussed in terms of percentiles. The organisation may say it wants to pay at the 50th percentile, 60th percentile, 70th percentile or 80th percentile. Each of these has a different meaning.

The 60th percentile may appear attractive to an organisation because it is above the median but not too expensive. It gives the comfort that the organisation is not paying at the bottom of the market. It looks like a balanced position.

But in today’s context, around the 60th percentile is increasingly non-attractive.

That does not mean you will never get people at the 60th percentile. You may still get people. If you support it with other benefits, people may still join. But the question is whether this creates the right level of attraction, motivation and sustainability.

There may be situations where an organisation uses the 60th percentile at a trial level. This could be at entry, during the first few months, or during some form of probation or trial period. After that phase is over, the organisation may move the employee to the 70th or 80th percentile.

But the larger point remains: if you are relying on the 60th percentile as your ongoing compensation position, you may struggle to make it attractive.

Why Appropriate Salary Cannot Be Decided Only by Market

Market is obviously one factor. No organisation should ignore the market. But market alone does not define appropriate salary.

The next important factor is cost of living.

Cost of living is not the same for everyone. The cost of living for a worker is different. The cost of living for an associate is different. The cost of living for a manager is different. The cost of living for a senior manager is different.

The organisation should define what kind of quality of life it wants to provide to different employee groups. This is a serious compensation question.

Four Cost-of-Living Lines

A useful way to think about this is to create different cost-of-living lines:

• Worker class
• Executive or staff class below managers
• Manager class
• Above manager and top-level class

Each of these groups has a different expectation. Salary must be aligned accordingly.

Salary Must Be Compared Against Cost of Living

Once cost of living is defined, salary must be compared against it.

If salary does not support the expected lifestyle, then even if benchmarking shows it is competitive, it will not work in reality.

This is where HR must move from data to judgement.

The Social Line: A Concept HR Must Understand

Beyond cost of living, there is another critical factor — the social line.

Every individual exists within a social and professional environment: peers, batchmates, industry, city and market expectations. Within that environment, there is a certain expected level of salary.

That expectation is what we call the social line.

If salary is below the social line, you will not get the right talent and you will struggle with retention.

Why the Social Line Cannot Be Breached

Even if benchmarking suggests a number is acceptable, if it is below the social line, employees will feel dissatisfied.

This is because employees compare salaries with their real environment — not with reports.

This is why ignoring the social line creates consistent talent issues.

Social Line Is Not the Same as Benchmarking

The social line is not a statistical number. It is not a percentile. It is a market sentiment.

Benchmarking provides data. The social line provides context.

Both are required for a strong salary decision.

Who Can Identify the Social Line?

The social line is best understood by the talent acquisition team, as they deal directly with candidates and expectations.

They can identify realistic salary expectation ranges for different skill sets and roles.

Appropriate Salary Is Not a Single Calculation

Appropriate salary is a combination of:

• Benchmarking data
• Percentile positioning
• Cost of living
• Social line

It is not one number. It is a judgement.