The same job pays differently in different cities. But how much should the pay differential be? Does Boston have the same premium as Philadelphia? How much more expensive is labor in San Francisco compared to New York City?
Market compensation surveys can help human resource professionals price their company’s jobs. However, there is an inherent limitation to many of these surveys. Typically, data is collected from large companies in large cities. While these surveys can produce location specific data for highly populated metropolitan areas, the coverage may lack sufficient data for communities with smaller populations.
PayScale’s Compensation Data
PayScale’s unique approach to compensation data involves collecting information from employees, rather than companies. As a result, PayScale’s compensation data provides a wealth of location specific compensation data. It is much more representative of the US working population than other compensation surveys. It can also provide data for hundreds more locations including both large and small cities.
Furthermore, PayScale administers the survey in real time, with more than 150,000 new survey records added every month. The database of more than 54 million total salary profiles is updated nightly to reflect the most detailed, up-to-date compensation information available. You can learn more about the survey methodology here.
The timeliness and ubiquity of survey respondents is of utmost importance. Because there is a known shortage of location specific data, HR professionals have for years been applying location differentials on top of salary data reported at the national level. This approach is very helpful when there is not enough data to price individual positions specific to a location. There are a few things to keep in mind when adjusting compensation data to be location specific.
Cost of Labor
When adjusting compensation data to account for location it is imperative that HR Professionals use the cost of labor data, not the cost of living data. Publicly available, and easy to find, many sources on the market supply the cost of living. But often the most desirable cities, like New York and San Francisco, have a much higher cost of living than cost of labor. If companies adjust compensation based on cost of living, they run the risk of overpaying or underpaying relative to market. Read more to better understand the difference between the cost of living and the cost of labor.
Another thing to keep in mind is that different jobs in the same location command different premiums. The premium associated with a city is different for an Accountant, compared to a Software Developer. For example, our data shows that Accounting jobs in Seattle command a 15 percent premium compared to the National average, while Technology jobs in Seattle command a 23 percent premium.
This is a crucial distinction. Companies might be overspending on some jobs, while underspending on others. Reallocating those accounting dollars towards your technology organization will give you a powerful lever to attract and retain top talent–all while staying within the same budget. Thinking more strategically about how to utilize your compensation budget could have a meaningful impact on your company. Retaining talent in hot jobs, will save both money and time spent on the recruiting process. Retaining talent in crucial roles will also have a huge impact your company’s success and bottom line.
PayScale’s Differential Engine provides cost of labor data – not cost of living data, and gives customers the ability to drill down into these differentials by job family. This crucial information will help its customers be more strategic about compensation, allowing them to attract and retain talent in the most competitive job markets.