PROS AND CONS OF LOCATION-BASED SALARIES

We asked company leaders and HR executives their perspective on geo-based salaries, especially
whether they are for or against it and their firsthand experience with it in their own companies. The
result is a surprising mix of strong perspectives, both for and against location-based salaries.

If you’re currently deciding on whether to implement location-based salaries in your organization or are
simply curious about the pros and cons of it as a compensation strategy, here are some arguments from
both sides.

It’s “fair” from a practical cost of living standpoint

A prevailing argument among leaders who agree with and apply location-based salaries is that it levels
out something that every employee experiences: costs of living. In theory, incorporating the employee’s
location into their compensation is how you offer fair pay in the current employment market.

Mo Mulla, founder of Parental Questions, supports this notion.

“As a business owner, I want to compensate my employees fairly based on the cost of living in their
area. It’s only fair that an employee in a more expensive city be paid more than an employee in a less
expensive city. This helps keep employees happy and discourages them from leaving for a job in a
different city. It also helps to keep our business competitive when it comes to hiring top talent.”

Scott Hasting, CEO of BetWorthy LLC, agrees and points out that employees have a choice in the matter,
too.

“Since we recognize that employees can choose wherever they want to work, we wanted to keep
everything fair. After all, you can choose to do your WFH in a rural area and enjoy the lower price of
goods and services but that would be really unfair to those working on-site, like in our office in
California, where the prices of things are way more expensive. Hence, we have implemented it across all
our employees.”

It’s international-friendly
Another pro in favor of location-based salaries is that it gives global employers more flexibility in their
compensation approach. The ability to offer salaries by region, rather than having a set range for each
role, is even more applicable when your team is distributed across countries and currencies.

Mulla says location-based salaries make sense for international hires and it also contributes to
employees’ overall experience.

“Yes, we use this model for international hires. We find it more cost-effective to allow the culture and
environment of an employee’s home country to shape their experience in ours. It can be difficult to
acclimate employees that are so far removed from their home culture and family when they live here
permanently, which is why having them feel like their work is still in their home country can be a
valuable tool.”

It’s not fair because it rewards location, not merit or effort

Connor Brown, founder of After School Finance Website, finds location-based salary policies clearly
unfair because they ignore employee contribution. “In my opinion, location-based salaries are unfair for
the people. Everyone is working hard to reach the company’s goals, and everyone must be equally
compensated for it.”

Bryan J. Driscoll, J.D., a lawyer and HR consultant with SimplifyLLC, believes location-based salary isn’t
just a bad idea, it exploits workers.

“It makes employees look for jobs with competitors and could scare away top-talent. Location based
salaries pay people based on where they live, not their value to an organization. An employee working in
Des Moines has the same value to a company as the same employee working in San Francisco. Why
would you pay the employee differently because of where they live? Because it’s another way for
companies to exploit workers and increase already record-high profits.”

It doesn’t align with DEI

Trav J. Walkowski, partner and board chair at Employmetrics and head of People at Activeloop, points
out that it goes against DEI values. “Just like someone shouldn’t be paid differently because of their race
or gender, their location is also irrelevant.”
Ian Sells, CEO and founder at RebateKey, agrees and cautions company leaders that, “if you are willing
to be diverse and inclusive, you cannot remove equality out of the picture. You need to offer equal
opportunities and benefits for everyone.”

Leads to comparison and unhappy employees

Companies must always tread carefully when implementing major changes to HR policies. What do you
gain and what’s the trade-off? How does it impact company culture? Company leaders who are against
location-based salary are wary that it creates an unhealthy team dynamic and strains relationships.

Mike Nemeroff, CEO of Rush Order Tees, fielded requests for geo-based salaries, but decided against it
because it didn’t align with company values and could promote hostility.

“We received several requests for salaries to be adjusted based on locations since expenses heavily
differ, but we realized it went against our company policy. Even though it makes sense to adjust salaries
based on a person’s location, it still feels unfair for other employees once they learn their peers are
getting paid more than they are while conducting the same job. It also promotes hostility between team
members and a negative environment which heavily impacts our company culture.”

It’s costly, financially and administratively

Even if a location-based salary lived up to all of its promises, it’s a nightmare to administer.

Walkowski emphasizes this administrative burden, particularly in how to verify addresses.

“There’s another huge concern that I don’t think anyone else is mentioning: there isn’t a good way to
verify where people live. If a remote Google employee knows their pay will be based on their location,
who is to say they won’t lie and say they live in a more expensive market? They could easily use the
address of a family member, friend, or UPS location.”

There’s also compliance to worry about. He adds:

“There are colossal compliance implications with that, so companies are strongly advised to not
encourage lying by using a geo-based strategy. I mentioned this to another HR executive and she said,
‘Well if I think someone is lying, I will send someone to their address to verify it.’ Oh, really? Alright, but
that’s another expense then, and what if they’re like me and have their doorbell disconnected and never
answer the door for random people? I suppose you could look in their mailbox, assuming it’s not one
that is secured, but that’s illegal. Putting that much risk on a company is not a good idea.”

Driscoll notes that location-based salaries might lead to cost savings up front, but then incurs even more
costs in turnover and recruiting.

Here’s his hard-earned wisdom after seeing his clients implement it.

“For each company I partner with, we go through a cost-analysis breakdown. Yes, they’ll save money at
the top but their turnover will grow and their ability to attract and retain top talent will fall. For clients
of mine who have implemented this policy against my recommendation, we have to conduct damage
control after it’s implemented.”

Marc Stitt, chief marketing officer of FMX, has a similar perspective and warns about the real possibility
of losing the employee to attrition, if you were to lower their salary based on their location.

“The Cost of Work Institute calculates that an employee’s annual wage is at least one-third of the cost of
replacing him or her when they leave. The risk of attrition isn’t worth $15K in a reasonable cost of living
reduction for an employee. The loss of an important person could have long-lasting and harmful effects
on the company’s culture.”

It doesn’t work in the long term

Ed Snook, former head of Compensation at Lookr, has seen the rise in location-based pay’s popularity,
but has noticed that its promise hasn’t paid off.

“I think the days of really differentiating salary based on location (within the U.S.) are drawing to a close.
It’s really not worth it. What if employees move from high cost to low cost? Plus, all your new hires are
going to say ‘Why would I join your company when these other companies aren’t adjusting salaries
downwards?’ I think some companies will say ‘screw it, having different salary ranges in parts of the US
is just not worth the burden.”
There’s no doubt that location-based salaries might work for some teams. It certainly makes
determining salaries for international employees a bit easier, and perhaps not all teams will care about
geo-based salary differences. But the arguments against it ring loud among the majority of company
leaders we talked to, with reasoning that’s clear to us.

Using location as a main driver for determining employee salaries—even among those with the same
role and responsibilities— undermines individual effort, fails to recognize unique talents and merit, and
totally goes against any good DEI intentions in an organization. And despite good intentions, it can ruin
the employee experience since it naturally breeds envy, resentment, and attrition among teams.

Is that really worth the few thousand of dollars in total compensation adjustment across your employee
base?

For all those reasons, we’d caution against location-based pay for any company leaders considering it for
their remote and hybrid teams. It doesn’t create a more equitable workplace.