We all like to see a ranking. We like to know the best countries to live in; the most expensive cities; a listing of cities by their cost of living. Sometimes we are just curious and sometimes this information influences our decision-making. Here is a great example of an organization that used a comprehensive cost of living ranking to support their policy of adjusting compensation by location.
Client Challenge #6:
This organization uses pay scales for their employees in over 40 locations in Germany. For each grade, there is a corresponding salary range and a target salary. They wanted their employees to have similar savings potential after goods and services and housing were taken into account. They adjusted the target salaries to protect the savings potential. For example, they increased target salaries in Berlin because the city was becoming more expensive and they wanted their salaries to remain attractive. They could also adjust the salaries down should the reverse happen. They currently use various sources of information like feedback from recruiters or, more simply, what they hear through the grapevine; however, they needed more robust data as they wanted to make the process more systematic.
AIRINC consulted with the client to understand their current pay structure and to establish a base location that would act as the reference point for comparison. The calculation took into account the cost of goods and services, accommodation, tax and social security, and savings, determining the comparative purchasing power in each location across the country. We provided the following to the client:
- Gross index
- Tax index
- Goods & services index
- Housing index
Based on this information, the client started to adjust target salaries up and down by 2-5%.