Geographic Pay Variables Create Challenge for Employers Across United States

West Coast employers should be particularly mindful of how location impacts the market pay for a great number of professional positions, as San Francisco, San Jose, Los Angeles, and Seattle all rank this year among the top five employment markets with the largest salary differentials from the national median pay for the same jobs in other American cities.

For example, a job that commands a salary of $30,000 nationally can pay as little as $27,840 in Birmingham, Alabama or as much as $37,680 in San Francisco, according to the 2006 Geographic Salary Differentials study (link shows salary definitions for select cities) from Mercer Human Resource Consulting. That one example represents a pay variation of more than 32 percentage points ? from 7.2% below the national median to 25.6% above.?

The Mercer study compares local pay rates for more than 200 cities to national medians at different pay levels. The results show geographic pay variations are less pronounced, but still evident, at higher pay levels. For a job with a median salary of $60,000 nationally, for example, pay varies from a low of $55,080 (?8.2%) in Baton Rouge, Louisiana to a high of $72,000 (+20%) in San Jose.

Pay variations by geography are even noted at $90,000. Among the cities included in Mercer’s study, cities like Little Rock, Arkansas and Omaha, Nebraska represent the lower end of the pay range at $84,510 and $86,580, respectively, while cities like New York and San Jose, California hold the top spots at $102,060 and $104,040, respectively.

Mercer’s geographic analysis highlights the challenges faced by many large employers with employees in multiple locations throughout the United States.

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Sensitive compensation issues can arise, the survey found, when an employee transfers from a relatively high-salary area to a relatively low-salary area, or vice versa. Good quality information on salary variances helps employers handle these situations in an equitable and consistent manner.

Howard Levine, a senior compensation consultant with Mercer, says it’s important for recruiters and corporate employers to understand the difference between cost of living and cost of labor. Cost of living differentials reflect the difference between localities in terms of cost of goods, such as housing, groceries and transportation. Cost of labor takes into account the difference between localities in terms of cash compensation for the same work.

“Organizations must also be concerned about pay levels for employees in the same location,” Levine cautions. “Individuals moving from one location to another should be paid a locally competitive salary and expenses such as higher rents and home prices should be offset in the relocation package.”