Worker location factors into pay decisions at roughly half of employers, Payscale report shows

Dive Brief:

  • Roughly half of employers use a pay methodology based on market pricing for locations where they have offices, according to Payscale’s 2024 Compensation Best Practices Report. And even as remote work continues to be hotly debated, most employees still live within a commutable distance of their workplace and have either hybrid or in-office work arrangements, the report found. 
  • Of the 5,735 organizations that responded to a late 2023 survey, 49% said they pay everyone the same according to one location or an aggregate, although this tends to be most prevalent in government and nonprofits, Payscale reported. About a quarter (23%) of respondents said they use geographic differentials or pay zones to manage pay by location.
  • Pay strategies are also beginning to reflect the shift to a skills-based talent model. More than one-third (34%) of organizations said they’ve eliminated the “paper ceiling”: They no longer require a degree for salaried positions. Forty-five percent said they don’t consider education a compensable factor, according to the survey results.

Dive Insight:

HR leaders and compensation professionals are in for a busy year, according to Payscale’s analysis.

Compensation is considered the biggest challenge facing organizations in 2024, yet it’s no longer the highest-priority investment, having fallen behind retention, recruiting and engagement, the survey results showed. For HR activities in general, investment has decreased in every area, except in modernizing HR software, Payscale said.

Respondents highlight three compensation issues as the most important: Budgeting for, or managing pay increases; rewarding performance; and maximizing compensation budgets.

But those who decide how these issues are handled varies, depending upon the organization’s size, according to the survey. Larger organizations are much more likely to have dedicated compensation resources. “The larger the organization, the bigger the compensation team is likely to be,” Payscale said.

In particular, 59% of organizations said they had at least one compensation professional in-house. About a third said they had no dedicated compensation professionals. In the absence of such a role, organizations tended to leave compensation decisions to the CEO or executive team — not HR — slightly more often, with that approach being most common at small companies. For example, 56% of those from the smallest organizations surveyed (1-99 employees) said a CEO or executive team makes compensation decisions compared to 16% of organizations with 750-4,999 employees, Payscale found.

Geographic pay strategies differ by organization size as well. Almost two-thirds (60%) of the smallest organizations pay everyone the same according to one location, compared to 31% of organizations with 50,000 or more employees. By contrast, only 5% of the smallest organizations use geographical differentials for each employee’s location, while 24% of the largest organizations do. 

Large organizations are also more likely to use pay zones, which Payscale says “can be easier to administer consistently and equitably [for organizations with] a high number of employees in different geographies.”

Unchanged from last year, only 11% of employers — mainly in technology (38%) and agencies and consultancies (30%) — describe their environment as remote, meaning employees choose to where to work and may be highly distributed geographically. 

What has changed are the number of remote or hybrid jobs available to top earners — they’re almost nonexistent, according to research released in May by job site platform Ladder.

Of the more than half a million jobs posted in the last year, 4% of positions paying $250,000 or more were listed as fully remote, a 60% drop from the previous year, the research showed. Fewer than 1% were offered as hybrid, a 95% plunge.

While employers may want to consider stipends for employees who work in-office to help offset costs related to commuting, food, transportation and caregiving, they should look at compensation more broadly, factoring in work contribution, not location, as a significant component of their pay plans, sources recently told HR Dive.