One key question firms are asking as of late is: should employees that move to lower cost-of-living areas face a salary adjustment to align with labor costs at their new location? This practice is often referred to as “geographic differential” ― a percentage variation that adjusts pay for the cost of labor between locations. And while this practice isn’t new, remote work at scale has spotlighted this topic for many firms. A few organizations have communicated their philosophy and decisions on location-based pay. On the one hand, firms such as Facebook, Twitter, Microsoft, and Google will base pay on geographic location. Google developed a “Work Location Tool” to assist employees in calculating how their compensation might change if they relocate. Smaller companies, including Reddit and Zillow, have shifted to location-agnostic pay models. As firms evaluate their compensation strategies, this PayScale report provides insights. Page 16 illustrates how 32% of surveyed firms were using the location of their headquarters before the pandemic to set pay for remote employees. This number has declined to 17% after the pandemic began. These data suggest that more firms determine geography-based pay based on where employees reside rather than where the company maintains offices. A few questions I have for firms to consider: What is your organization’s philosophy on location-based pay? Does this philosophy factor in changing employee preferences and labor market conditions? What are the talent implications of these decisions on your ability to attract, engage, retain top talent? When considering the cost of recruiting and loss of productivity, does the cost of replacing an employee outweigh the cost of continuing to keep his/her salary the same while they live elsewhere? Answering questions like these can help firms arrive at the best decisions for their organization.