Job Hunting

Exec Comp: Location, Location, Location

Things are different all over: regional variations now showing up in executive pay.
Lisa YoonMarch 11, 2003

For big paychecks, the big city offers big money to big executives, according to a new study by Mercer Human Resource Consulting.

That’s no surprise, given the higher cost of living in cities like New York and San Francisco. But Mercer’s 2003 Geographic Salary Differentials Survey suggests that, in recent years, regional variation in pay has been showing up in the higher salary levels, too — not just in rank-and-file positions.

“It was once believed that geographic pay differences disappeared at salary levels of $80,000 to $90,000, where the market for talent tends to be national rather than regional or local,” says Darrell Cira, a Mercer senior compensation consultant. “Clearly, that’s not the case any more.”

For instance, a job with an average salary of $90,000 can pay $85,500 to $85,680 in cities like Omaha, Neb., or Buffalo, N.Y. On the other hand, the same position might pay $104,400, $103,590, and $103,410 in San Francisco, San Jose, and New York respectively.

Although there isn’t enough research to account for this emerging pay differential, Cira guesses that rising pay levels may be fueling the trend. “Ten years ago, a job with a salary of $100,000 was executive level,” he explains. “Now, those jobs are middle management, as well.”

Geographic differences have risen overall in the past 10 years, Cira adds. Ten years ago, the gap between national pay averages and regional ones was in the teens. Today, local salaries vary as much as 20 percent from national averages.

Lower-level salaries show even more pronounced ranges. A job that pays $30,000 on average can pay as little as $26,820 in Little Rock, Ark., or as much as $36,870 in San Francisco. That works out to a variation of more than 33 percent.

For large employers, local pay ranges is something to consider when negotiating pay for employees who are relocating from, say, a relatively high-salary area to a lower-salary area — or vice versa.

While it’s useful for such employers to have a sense of local pay standards, Cira cautions against looking at the Mercer figures as the ultimate salary guide. “Differentials are helpful for adjusting pay structures and for broadly understanding differences in pay” as a guideline, Cira notes. But it’s important to dig deeper. “Employers also need to be aware of the micro-markets within their geographies.”

In other words, it’s not enough to look at local salary; there may be variables by individual jobs. “While salaries for all jobs may average five percent more than the national average in a given location,” Cira says, “individual jobs may pay at the national average or 10 percent above the average.” This is particularly important when it comes to mission-critical positions, such as software engineers.

Not surprisingly, these variables can lead to touchy situations when employees feel they’re not getting paid competitively. Cira’s advice? Avoid employee disgruntlement by getting a handle on appropriate pay scales early, or as he puts it, “Before there’s noise around the issue.”