Location, location, location? When it comes to salaries, location shouldn’t be the only factor.
Competitive compensation has always been an important determinant of attracting and retaining talent. And for years, companies accepted that salary bands should take a workers’ location into consideration. For instance, employers would offer salaries that were significantly higher to workers based in London or New York when compared with identical roles in smaller cities—even when they were within the same company.
However, as the popularity of remote and hybrid working arrangements has increased, the importance of location when determining salary levels has diminished. In fact, I believe the vast majority of employers no longer determine salary based on location alone.
A skills gap is plaguing many industries and employee expectations around work are changing: from a better work-life balance to remote and hybrid work arrangements. Now employers need to rethink their strategies when it comes to hiring. Finding the right talent, wherever they are based, ought to be paramount, and thanks to technology and digitalization, it’s possible.
Here’s how hybrid and remote work is impacting salaries—and how employers should adjust.
The everywhere workforce
Tech acceleration and digital transformation has helped to reset how we work, enabling workers to log into their jobs from almost anywhere on the planet. If your business needs more software engineers, it doesn’t matter whether they’re living in Finland, South Africa, or next door to your HQ—now they’re all equally viable candidates for the job. Businesses can hire the best talent for the role without worrying about where that talent is based.
Existing employees have more opportunities too. If their employer is willing and able, they have the flexibility to work from wherever they want to live—whether it’s London or back to their small hometown to be closer to family—without impacting their career prospects.
There’s no denying that talent and opportunity are global now. As that’s the case, doesn’t it make more sense to pay based on the value that the employee brings to the company?
A holistic approach to salary setting
Salary setting, in which employers research and set pay bands, is strategic and ultimately reflects a company’s commitment to attracting and retaining top talent with competitive compensation packages. A highly skilled candidate could be based in a rural area and have salary expectations equal to peers in a major city.
From my perspective, there are several priority factors to consider ahead of location when bringing on new talent and determining salary, including your business needs, your business size and scale, and the experience, talent, and skills you need for the role (and industry).
Leaders need to have the ability to see around corners and ahead of the curve. Ask yourself what your business needs are today, and what will be required to drive success tomorrow. The responses to these questions not only define your business strategy but also the talent you need to accomplish it.
What factors should impact a worker’s salary?
Armed with this knowledge, consider what you are willing to invest for the talent you need. The hiring power of a small, local business is likely very different from a large, multinational corporation. And this will go in hand with salary expectations.
The type of role is also naturally going to play a big part when considering salary, and that’s where location could come more into play. Many jobs are location agnostic—from software developer to brand designer. For others, though, location is critical, such as regional sales representatives who typically need intimate knowledge of their geographic area.
In both cases, there are compliance and employment standards to consider that may impact salary setting. There are also time zone implications, proximity to team members, and local market norms to take into consideration. Plus, country-specific laws and employee regulations can’t be overlooked. Employers failing to provide tailored benefit plans or misclassifying employee contracts according to each country’s labor laws are at risk of facing expensive repercussions.
Today it’s the combination of the market that your employees and new hires operate in, plus the experience and skills they have to offer, which ultimately makes up a salary. And while geography does have a role to play, there’s no denying that it’s now far less important than it once was.
Democratizing talent
The future of work is global. Remote work was accelerated by the pandemic but spurred a catalyst for long-term change in the workforce. Companies can now realistically consider the entire world as a potential talent pool and hire accordingly, and workers have the choice of a wider range of opportunities than ever before.
Salary setting can be more complex now, but there is also an opportunity for it to become more equitable. In fact, according to my team’s research, 95% of professionals worldwide believe that global companies offer access to better pay and benefits. It’s not a race to the bottom because democratizing access to talent and opportunities gives everyone, everywhere the chance for better pay and better work.
I’ve always been a firm believer that talent is everywhere, and opportunities should be too. With increased location flexibility, opportunities are widening. Salaries are undeniably determined based on a wide range of factors, including availability of skills, the value of the role, and (for now) location. But there’s no doubt that the importance of geography is diminishing. I personally look forward to a day when every employee is paid based on their skills and the value they bring to the company—not where they live.
