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Dear Workforce What Factors Affect Pay Variations Between Different Geographic Regions

We’re trying to figure out what causes pay to vary for similar jobs in two companies within the same industry--one in Detroit and the other in Chicago. Is cost of living a factor?
August 20, 2004
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Related Topics: Compensation Design and Communication, Relocation Management, Dear Workforce, Compensation
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Dear Studying Geography:

The cost of living in Chicago is about 10 percent higher than in Detroit, so it isn't causing any significant pay difference. Variations in pay for similar jobs between geographic locations within an industry (or within a company) usually are the result of different compensation policies. One company may use a national salary structure in which all job grades have the same structure, independent of geographic location. Another company may use an area-differential structure in which job-grade salaries vary by geography. This geographic variation may be related to cost-of-living factors or, more likely, to competitive salaries of the local market within the given industry.
High demand for industry-specific skills in a market also drives these programs. For example, medical salaries are above the national average in Boston because of the number of prominent teaching hospitals that compete for skilled employees. Likewise, in the recent boom times, software professionals commanded higher salaries in Silicon Valley.
Another reason why pay may differ between companies is that the job grades for certain positions may not exactly match up, and the equivalent position may be assigned a higher or lower grade in another company's compensation structure.
When organizations face cost-of-living differences during a relocation, they offer transferring employees a temporary cost-of-living or cost-of-housing allowance to help them adjust to the higher costs in the new location. The allowance is calculated by comparing the cost of housing, taxes, and goods and services between the originating and destination cities. Typically, companies use the allowances to fund a mortgage-subsidy program, or add the allowance to the employee's pay over a three-year period.
SOURCE: Arthur Layton, SCRP manager, National Accounts, Associates for International Research, Cambridge, Massachusetts, Oct. 9, 2003.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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