The New Reality of Adjusting pay for Geographic Differences

    Jan 06, 2021 @ 06:01 AM / by Steve Brink

    US Domestic Map infographic

    This is the way it has always been done!

    As a long-time Compensation consultant and senior instructor at WorldatWork, I have always taught that cost of labor was the right metric to use when setting pay as well as assessing geographic differences. Cost of labor is the assessment of the supply and demand of labor in a labor market via relevant compensation surveys. With the current environment of distributed workforce, I am changing my view on adjusting pay for geographic differences.

    As the future workforce becomes more geographically diverse, the quality of available cost of labor declines. You just cannot obtain quality compensation market data for all of the various locations where your workforce is relocating. There has always been “noise” in the compensation survey data due to the collection of compensation data of employees because of job matching issues, sample size, varying tenure, differences in performance, definition of labor markets, etc. Now, you have staff moving to “Zoom towns” (with focus on quality of living). Do we really need to commission compensation survey data for Zoom towns?

     

    Location as a factor of Total Rewards

    For those jobs that can be done remotely, I believe that in twenty to thirty years, there will be a national rate of pay for specific skill sets and roles. This will take some time to achieve, although some companies might move directly to a national pay scale, but will be overspending on some talent in certain locations. In the interim, location should be considered as another factor in the total rewards equation and as a possible trade-off amongst base, bonus, long-term incentive, benefits, etc. Individual preference will determine the value of living location as a component in the total rewards aggregate. The perception of value by employees for working where they want to live is REAL! To optimize the compensation dollars spent, I would recommend adjusting salaries based upon a cost of living measurement.

    To ensure you have timely and quality data to assess the geographic differences, I recommend a shift from a measure of cost of labor to a measure of cost of living. Cost of living is a more transparent assessment in the modern landscape. Staff have a good idea of differences in housing costs, goods and services, and even tax. They feel and see the cost differences because they experience them firsthand. Few employees will understand the cost of labor differences.

     

    Let’s be more transparent

    Remote working employees will have a much better understanding and appreciation of why pay will be different due to cost of living versus a lack of transparent cost of labor data.

    There are ways to implement these adjustments that could be a win-win for the company and the remote working employee. For example, the adjustment of pay could meet halfway between the current location and the remote location. The company gains on lower compensation costs, while the employee can be shown they are better off with a salary which would have a higher net both before and after the move.

     

    Salary determination now and in the future

    The distributed workforce raises real questions about salary determination now and in the future. Today, companies with geo differential approaches are scrambling to source adequate data to assess all work locations. This can easily be solved by using cost of living data to make solid decisions about how to structure tiers or zones of pay across the U.S.

    Now is the time to consider adding this additional input into your salary determination process. If you'd like assistance with this, AIRINC is here to help. Contact us today:

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    About AIRINC

    Listen | Partner | Deliver.  For over 60 years, AIRINC has helped clients with the right data, cutting-edge technology, and thought-leading advice needed to effectively deploy talent worldwide. Our industry expertise, solutions, and service enable us to effectively partner with clients to navigate the complexity of today’s global mobility programs. As the market continues to evolve, AIRINC seeks innovative ways to help clients address new workforce globalization challenges, including mobility program assessment metrics and cross-border talent mobility strategy. Our approach is designed with your success in mind. With an understanding of your goals and objectives, we ensure you achieve them. Headquartered in Cambridge, MA, USA, AIRINC has full-service offices in Brussels, London, and Hong Kong. Learn more by clicking here.

     


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    Steve Brink

    Written by Steve Brink

    Since joining in late 2008, Steve drives AIRINC to an enhanced vision and growth strategy to address the ever-changing challenges of workforce globalization. Under his leadership, AIRINC has expanded its global footprint, released innovative solutions, increased the customer base including new verticals and continued to build upon the proud tradition of AIRINC as the premium provider of information, advice and technology in global mobility. Prior to joining AIRINC, Steve was the Global Leader and Worldwide Partner at Mercer responsible for its Information and Software businesses. As part of his global leadership role, he was based in Geneva, Switzerland, and has significant work experience in all regions of the globe. He is a frequent speaker on international HR issues and trends. Prior to his fourteen years at Mercer, he served as an Operations Manager at Towers Perrin, with a focus on HR software tools and global job evaluation systems. Steve has been teaching the Quantitative Analysis course at the WorldatWork organization since 1990. Steve has a B.A. in Economics from the University of Texas at Austin and an M.S. in Economics from the University of North Texas.