| The employee sitting across from your desk is staring | | | | locations (i.e., Boston and Denver) where cost of living |
| at you, a puzzled look on their face. Strange, but that's | | | | increases have outpaced increases in the cost of |
| not the look you expected, and *nothing* like how | | | | labor. |
| another employee reacted at your earlier meeting. | | | | Have you ever tried to tell an employee that their $100 |
| Fade back a few hours . . . . | | | | will buy them more in Jacksonville vs. San Francisco, |
| Your business has reorganized, and in the course of | | | | so that they do not need a pay rise? Your logic would |
| redefining new positions several opportunities have | | | | be right on the mark, but to the employee that gives |
| opened up that offer the possibility of outstanding | | | | them an "optics" problem - it just doesn't "look" right to |
| career moves for the right candidates. You like giving | | | | them. They will still want more money to make the |
| good news, and have offered two high performing | | | | move, regardless of whether it is a promotional or a |
| employees the chance of a lifetime. | | | | lateral move. |
| This morning you offered a San Francisco employee a | | | | When you move an employee from San Francisco to |
| promotional opportunity in Jacksonville, FL. The new | | | | Jacksonville, if you offer no change in salary because |
| position carried with it a 20% base salary increase. As | | | | the Jacksonville area is a lower cost of living area, |
| expected, the employee was thrilled, and your arm | | | | what is your strategy should you want the employee |
| quickly became sore from the eager handshaking that | | | | to move back? Likely they have absorbed whatever |
| followed. | | | | they gained in purchasing power from their first move, |
| However this afternoon, when you offered a | | | | and will now want more to return to the "high cost" |
| Jacksonville employee a similar promotional move to | | | | San Francisco. |
| San Francisco, with the same 20% increase, she at | | | | While in Jacksonville your employee adjusted their |
| first stared at you with a puzzled frown then turned | | | | standard of living from San Francisco to their new |
| you down flat. No handshaking here. She even | | | | environment. Moving back to a much higher cost of |
| mumbled something like "no way", and then said you | | | | living San Francisco would likely not allow them to |
| would "have to do better." | | | | maintain their current and accepted style of living. They |
| There are two challenges at work here; 1) how to | | | | will look to you to fix the problem (provide more |
| structure pay for jobs located at diverse locations | | | | compensation), or they would prefer to stay put! |
| across the country, and 2) how to deal with the pay | | | | Companies make a determination for each location as |
| adjustment issue when asking an employee to move | | | | to how that location relates to the national average - |
| from one location to another. | | | | and adjust their pay scales accordingly. The trick isn't |
| Should everyone in your company be paid on the | | | | between Jacksonville and San Francisco, which |
| same scale, regardless of where they work? Do all | | | | everyone can see is a stark contrast, but between |
| companies pay the same rate for identical jobs across | | | | Topeka and Pensacola, FL. A difference there might |
| this great land of ours? Can $100 buy the same | | | | generate an argument. |
| amount of goods and services, no matter where you | | | | For companies with multiple worksites it makes sense |
| are making the purchase? | | | | that the salary ranges associated with each location |
| The answer is no. | | | | are pegged to reflect competitive pay practices at |
| Test yourself: if you were offered a modest | | | | that location. Using a national average for all locations |
| promotion and salary increase, would you be | | | | would increase costs for lower paid areas and |
| interested in moving from San Francisco to | | | | shortchange those areas where higher pay levels are |
| Jacksonville, FL? How about a move from Jacksonville | | | | commonly provided. |
| to San Francisco? Likely you'd have different | | | | The decision to use three, four or even five |
| reactions, wouldn't you? Just like the employees in the | | | | geographic pay structures varies among companies, |
| above scenario. Perceptions are supported by | | | | and is typically based on the range of relative wage |
| statistical data that indicates pay and living costs are | | | | costs data among the different locations (i.e., 87% of |
| higher in certain areas of the country, and similarly are | | | | national average for small, rural locations up to 123% |
| lower in other areas. | | | | for a select few major metropolitan areas), and how |
| It's a fact that companies pay differently for the same | | | | much of a percentage differential a company wishes |
| work between San Francisco, Topeka, KS, and | | | | to have between structures. Differentials usually are at |
| Jacksonville. Companies pay differently because the | | | | least 5% apart, but it is not unusual to see 10% (or |
| competitive market for those salaries is different. | | | | more) when only three structures are used. |
| However, we need to distinguish this reality from the | | | | So the challenge for HR is to be aware of both the |
| cost of living, which is a horse of a different color. | | | | differences between cost of living and cost of labor |
| Remember that companies react to and provide for | | | | (can you test yourself and repeat out loud the |
| changes in the cost of labor, *not* the cost of living. | | | | differences?), but also to the employee perceptions |
| Changes in living costs usually follow changes in labor | | | | that you will be dealing with. It's one thing to provide |
| costs, which is why employees tend to confuse the | | | | geographically based salary structures to reflect |
| two and over time have presumed the two metrics | | | | differences in the cost of labor; it's another to move |
| move in lock-step. They do not. There are many other | | | | employees from one location to another and deal with |
| factors besides labor that impact the cost of living: | | | | the cost of living. |
| housing, taxes, transportation, food, fuel, education etc. | | | | Several of my clients contacted me because they |
| (the government's breadbasket of goods that is rated | | | | confused the two, with the subsequent cost, equity |
| for the Consumer Price Index - CPI). | | | | and employee relations issues creating quite a mess. |
| You also have the anomaly of certain attractive | | | | Be careful out there. |