5 Considerations for Implementing Location-based Compensation

As millions of workers have relocated during the pandemic, location-based pay has become one of the most important topics on the minds of CHROs and other compensation-focused leaders. Location-based compensation is not new by any means. Still, in an increasingly competitive talent market, the mechanics of how to structure, implement, adjust, and communicate location-based pay have become critical levers for recruitment and retention.

During a recent Founders Circle Capital CHRO|Circle discussion, our community of People Leaders met to compare notes and share learnings about their approaches to location-based compensation. 

Here were five key takeaways from the discussion: 

#1) Location-based Pay Should Align With Company Values

75% of the CHROs who joined the conversation are already using geographic pay differentials of some kind. Still, many are struggling with how to structure them to align company and employee interests. As one CHRO pointed out – it’s not just about using the right combination of art and science to determine competitive pay for a given location. Location-based pay has to factor in pay equity across the organization, relocations of hybrid and remote workers, and a highly competitive talent market.

The right approach to location-based pay often aligns to your core company values, said one CHRO. You are invariably going to receive questions or pushback when implementing location-based pay, but those decisions can be more easily justifiable when anchored to a values-based compensation philosophy. 

#2) Lean on Your Data Providers and Recruiters

CHROs agreed that benchmarking data is more important than ever.  Suppose you’re relying purely on your own internal compensation metrics. In that case, you’re likely missing out on valuable company, industry, and geographic insights that can be used to adjust your compensation budget strategically.

Leverage your compensation data providers in order to keep a pulse on how the market is moving. However, as a few CHROs pointed out, that data is often lagging, so it’s important to supplement it with real-time feedback and input from your recruiters. 

#3) Keep the Focus on Total Rewards

CHROs agreed that introducing location-based pay is easier for new hires than for existing employees. Particularly when you are considering pay reductions for employees who relocate to lower-cost geographies (as many have during the pandemic), it can be a tricky situation to navigate. “Employees feel like it’s a bait-and-switch,” one CHRO remarked.

CHROs that have encountered pushback from candidates or employees on location-based compensation have found it helpful to center those conversations on total rewards, not just base salary. Take any and every opportunity to highlight above-market equity packages or workplace benefits that might justify a lower location-based salary.

#4) Communicate Proactively With Employees

Transparency seemed to be encouraged by several CHROs that have rolled out location-based pay to their employees. Employees appreciate the additional context around how their pay range is calculated and how it might change if they decide to relocate. One CHRO|Circle member added that managers benefit from training on leading conversations on compensation with their teams: “It seems to be helping a lot because people generally feel that while we may not always get it perfect, we try to have rigor around our compensation philosophy.” 

#5) Constantly Re-evaluate Your Overall Strategy

Location-based pay is an iterative process, said several CHROs. In a normal year, a CHRO should reevaluate their overall strategy at least annually. However, in highly unpredictable markets like the one we’re currently in, the more frequent you can reassess, the better. Many CHROs cited they are doing deeper dives on compensation data at least two times per year. 

Location-based compensation is one of the many topics covered in our monthly CHRO|Circle discussions. If you’re a CHRO at a growth stage startup looking to connect with a community of peers who share your same challenges, apply to join The Circle.