The term average salary refers to the amount of money that person in a particular profession makes. This is meant to provide a general idea of the amount of money that a person entering that profession is likely to make. A similar term used for the same purpose is "median" salary.
Taken literally, the average salary of a particular position is the mathematical "mean" of the salaries of all people employed in that position. This number is calculated by adding up all the salaries of people working in the position and then dividing that sum by the number of people working in the position. The number received is the "average" salary. Most organizations that track career salaries, such as Payscale, calculate this number through a sampling of people.
Used colloquially, the term "average salary" may refer to the amount of money a typical person holding a particular position is likely to make. The number used to describe this is the median. To get the median, a statistician would have to place all the salaries made by people holding a particular profession in numerical order. The salary made by the person at the very middle of this, a person making more than one half and less then the other half, would represent the median salary of a profession.
Sometimes calculations of average salary include non-cash forms of compensation that people holding a particular position receives. For example, a person may make a base salary of $40,000, but receive benefits worth approximately $10,000. In addition, a person who receives a large cash bonus as the end of the year, such as certain types of bankers and financial managers, may receive compensation that far exceeds their base salary.
An average salary can often present a skewed picture of the salary a person is likely to earn, particularly if a few people in a profession earn an exceptional small or large amount of money. For example, in a profession in which 10 people are employed, and nine make $10,000 per year and the last makes $100,000 per year, the average salary for the profession would be said to $19,000. Yet, given the current distribution of salaries, a person entering the profession would be likely to make only half that.
Dr. Al Lee, a Ph.D. who blogs for the career reference website Payscale, says that median salary is generally a better indication of a "typical" salary. He notes that while many institutions, including Payscale, present the mathematically average salary as the most common salary, it is the median salary that most correlates with the information people are looking for (see Reference 3).