Salary percentiles explained: what P25, P50, and P75 mean for your pay

You're reading a job ad and see the line: "We benchmark our compensation at the 60th percentile of market." Or your HR business partner says: "We're a P50 employer for ICs, P75 for engineering leadership." Or a recruiter mentions your offer is "top quartile for the role."

These statements are all using the same vocabulary — pay percentiles — and most candidates nod along without fully grasping what's being said. That's a problem, because the percentile your employer targets is one of the biggest single levers on what you earn. Two people with the same job title at two companies can be $50K+ apart, both "paid fairly within their company's policy."

This guide explains what percentiles actually are, how compensation professionals use them, and — critically — how companies decide where to position. Once you understand the framework, you can read job ads, pay reports, and HR conversations with much sharper context.

What a salary percentile actually is

Imagine lining up 100 people doing the same job in the same market, from lowest paid to highest. The person standing in position 50 — exactly in the middle — earns the 50th percentile, also called the median. Half the market earns less than this person; half earns more.

By the same logic:

• 25th percentile (P25) — the person 25 from the bottom. Three-quarters of the market earns more.
• 50th percentile (P50) / median — the middle.
• 75th percentile (P75) — the person 75 from the bottom. Only the top quarter earns more.
• 90th percentile (P90) — the top 10% of the market. Usually reserved for outliers (specialised roles, equity-heavy comp).

The key thing about percentiles is that they're resistant to outliers. A handful of $500K executives don't drag the median up the way they drag the average. That's why every credible pay report uses median, not mean — it tells you what the typical worker actually earns, not what an average pulled toward extremes looks like.

How compensation professionals use percentiles

Inside a company, percentiles do three jobs.

1. Stating compensation philosophy

The first thing a compensation team decides is where they want to sit. This is the company's "compensation philosophy," and it's usually one sentence: "We pay at the 50th percentile of ASX-listed peers" or "We target the 75th percentile of Australian tech."

That single line defines the rest of the system. It tells the company:

• Whom to compare against (the "reference market")
• What number to anchor pay decisions to (the chosen percentile of that market)
• How aggressively to fight for retention (if they're at P75, losing someone is more expensive)

2. Designing salary bands

A typical salary band has three reference points:

• Minimum — usually around the 25th percentile of market for the role
• Midpoint — usually around the 50th–60th percentile (their stated philosophy)
• Maximum — usually around the 75th percentile

The band's width (low to high) gives the company room to differentiate. A new hire might enter at P25 (the band minimum). A strong performer with five years of tenure might sit at P75 (the band maximum). Both are "in band" — the band is intentionally wide enough to span career growth without requiring a level change.

This is also why asking "where in the band am I?" is a sharper question than "am I underpaid?" The answer locates you within the company's design.

3. Performance differentiation

Many companies tie position in band to performance ratings:

• New / developing performers → low in band (around P25 of market)
• Solid performers → mid-band (around P50)
• Top performers → high in band (around P75)

The performance review isn't just about your bonus — it's about which percentile your base salary moves toward over time.

Why companies pick different percentiles

Companies don't all aim at P50. Different positions reflect different strategies:

Leading the market (P75+)

Companies that pay at P75 or higher are usually:

• Cash-rich and fighting for scarce talent — top AI labs, high-margin SaaS, investment banks
• Replacing someone is genuinely expensive — specialised research, executive roles
• Brand is not enough on its own — mid-tier companies competing with FAANG for engineers

The trade-off is cost. P75 pay across a 500-person company is millions of dollars more per year than P50. Companies do this when the math works — when the productivity difference between a P75 hire and a P50 hire exceeds the pay delta.

Matching the market (P50)

Most established companies state P50. It's the default, defensible position:

• "We pay fairly" — neither cheap nor extravagant
• Easy to explain to boards, investors, and employees
• Aligns with median market data, which is what most surveys report

P50 doesn't mean boring. It means the company has decided that other levers — equity, culture, growth opportunities, work flexibility — should differentiate them, not base pay.

Lagging the market (P25–P40)

Some companies deliberately pay below market median. This is rarer to state but more common than admitted in practice. Reasons include:

• Strong non-cash compensation — generous equity at a high-growth startup, defined-benefit pension at government, mission-driven roles
• High candidate supply — entry-level roles, generalist roles in big cities
• Brand or stability as the draw — graduate programs at big-four banks, public-sector roles, household-name employers
• Below the affordability line — companies under cost pressure (struggling, late-stage cost-cutting)

When a company says "we pay competitively" without naming a percentile, it's often a euphemism for "below P50."

Different percentiles for different roles

This is the part most people miss: a single company picks different percentiles for different roles, not one percentile across the board.

A typical Australian tech SaaS company might internally target:

Role family	Target percentile	Why
Senior engineering	P70–P75	Critical talent; competing with FAANG-AU + global remote
Engineering leadership	P75+	Pipeline value is high; loss is expensive
Sales (quota-carrying)	P50 base + uncapped commission	Variable pay does most of the work
Product / Design	P60–P70	Hard to hire well at scale
Customer support	P40–P50	Larger candidate pool, training-from-scratch viable
Finance / HR / Legal	P50	Standardised across most industries
Graduate / entry-level	P25–P40	Volume hiring, brand does the work

The same employer might be P75 for one role and P40 for another — and both decisions are deliberate.

For the employee, this is critical to understand:

• If you're a senior engineer at this company and you're at P50, you're below your role's target, even though P50 sounds like "the middle."
• If you're in customer support and you're at P50, you're above your role's target — even though it feels middle-of-pack.

The percentile you should aim for depends on what your role family's target is at your specific employer, not the abstract "median."

How to use this when negotiating

A few practical moves:

Ask the percentile question directly. "What percentile of market does this band target?" Most managers either know or can find out. The answer tells you whether you're inside a P50 system (room to negotiate up to P75 with performance) or a P75 system (less headroom because the band starts higher).

Don't assume P50 means "good." P50 at a low-target employer means you're a strong performer for them. P50 at a high-target employer might mean you're underleveled or new.

Watch for the reference market. "P75 of fintech startups in Sydney" ≠ "P75 of all tech in Sydney." A narrow reference market makes a high percentile look better than it is. Ask: what market are you benchmarking against?

Cross-check with a live benchmark. A company's stated percentile is one data point. A live salary benchmark of your role — one that pulls from multiple sources and weights them by recency — tells you what the broader market is actually paying, which lets you sanity-check whether the company's stated reference market is realistic. (See also: salary benchmark vs salary survey.)

The honest summary

Percentiles are a useful framework for one reason: they let you have a numerate conversation about pay without arguing about anecdotes. "Is $185K fair?" is an opinion. "Is $185K at the 50th, 60th, or 75th percentile of the Sydney senior-engineer market?" is a question with a defensible answer.

The percentile you target — and the percentile your employer targets — are the same kind of number. The conversation gets a lot more productive when both sides are speaking it.