This question is In regards to calculations of company’s average salary.
Is it adding up the all employee salaries / number of employees?
This variance comes out to be quite high?
What is the best approach or using a different formula?

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You should look the median salary instead. Median is usually used in compensation analysis instead of average.

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Thank you this is helpful

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Use median.

You should also make an analysis previously to see if there are outliers that may be skewing your results.

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Not to over complicate but additional data is important. Total compensation is another metric that could be considered. IE median medical benefit contributions

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Check average, median and mode.
Also I would recommend you to look at these numbers across levels and job families.

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