April 17, 2009

Regional Compensation Structure Query

I received the following question regarding regional pay structures today...

My company is considering implementing a new pay structure. We have employees in various locations; Should I put all of their jobs into one salary structure? Or, should I have multiple structures for each different geographic region or city? Or, should we add a premium to jobs for being in a specific geographic region?

While I am in no way a compensation expert, nor do I claim to be, I do don the hat every now and again. In my very varied experience, I have handled geographic salaries in a number of different ways. I have worked for companies whose salary structures ran the gamut to being steady across the board to having each location "create" their own comp structures based on their individual regional markets. Both of these scenarios can create potential problems. With the former, you have workers that can be either grossly over or under paid based on their relevant marker. With the latter, you have roughshod comp practices with no consistent, and oft times, no oversight.

One good solution would be to create an overall pay structure based on the cost allocation of the job and to include a "premium" if you will for the cost of living difference, based on the market index. The COLA is added as a percentage to the overall pay structure for that position for whichever region the position is in. On the flip side though, we do not generally adjust down for regions in which the cost of living is lower than the corporate pay structure. You would need to price the job first, and this, of course, comes with it's own set of challenges, as numerous pricing structures exist. You would have to choose the one that is right for your organization.

Again, I have to reiterate that I am by far, NOT a comp expert, but I certainly hope that my advice has alleviated your stress in some way.
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