Is location-based pay being phased out?

Barley CEO predicts geographic pay differentials will evolve in 2023 and beyond

Is location-based pay being phased out?

Now that we’re entering another year of remote work, companies are determining whether to continue using geographic pay differentials.

The argument for geographic pay differentials is that moving to an area with a high cost of living can mean higher expenses for workers, which may impact the quality of their work or ultimately lead to them pursuing another job with higher compensation.

However, that type of payment policy could create a sense of unfairness among employees who have the same job and similar experience level but are paid differently based on where they do their work.

BalancedComp, a business management consultancy, sets salary administration structures for 300 banks and credit unions in the United States. According to its 2022-2023 Salary & Incentive Survey, more than half (51%) of companies adjusted remote employees’ pay after they moved to a different market.

That ruffled a few feathers, says Jafar Owainati, co-founder and CEO of Barley, a Toronto-based HR technology firm. According to the entrepreneur, location-based pay was sort of an afterthought before the COVID-19 pandemic.

“There wasn’t a mutual understanding between employees and employer whereas now we're in a really good position where employers can be upfront about their location-based pay approach,” Owainati told HRD. “For a candidate looking to join your company, now they know what they’re signing up for.”

Owainati doesn’t expect location-based pay to diminish over the next few years. Instead, he predicts an evolution.

“We’re seeing almost a consolidation of pay,” Owainati says. “If you think about the U.S., the difference in pay between working in Austin or New York City isn’t as big as it used to be. You're starting to see more of a national-based pay, and specifically for companies that hire remotely, you’re going to see less focus on location-based pay within a country. But there still will be differentiation of pay from one country to the next.

Owainati dives deeper into the pay transparency trend in the latest episode of HRD America Talk.

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