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May 16, 2005
Location Has Much to Do with Compensation

Where you live continues to be a key determinant of how much you are paid. A job that demands a salary of $30,000 nationally can pay as little as $27,210 in Birmingham, Alabama, or as much as $37,050 in San Francisco, according to the 2005 Geographic Salary Differentials study from Mercer Human Resource Consulting. This represents a pay variation of more than 32 percentage points ­ from 9.3% below the national median to 23.5% above:

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2005 Geographic salary differentials for select US cities
(For a job with median national salary of $30,000)

City

2004 Area
Median

% Difference
from National
Median

San Francisco, CA

$37,050

23.5%

San Jose, CA

$36,900

23.0%

New York, NY

$35,670

18.9%

Los Angeles, CA

$33,960

13.2%

Boston, MA

$33,420

11.4%

Chicago, IL

$33,150

10.5%

Washington, DC

$33,000

10.0%

Philadelphia, PA

$32,400

8.0%

Seattle, WA

$32,190

7.3%

Baltimore, MD

$31,800

6.0%

Denver, CO

$31,680

5.6%

Houston, TX

$31,650

5.5%

Atlanta, GA

$31,500

5.0%

Detroit, MI

$31,470

4.9%

Dallas, TX

$31,260

4.2%

Minneapolis, MN

$31,230

4.1%

Las Vegas, NV

$30,960

3.2%

Portland, OR

$30,870

2.9%

Charlotte, NC

$30,720

2.4%

Indianapolis, IN

$29,940

-0.2%

Richmond, VA

$29,880

-0.4%

Pittsburgh, PA

$29,880

-0.4%

Milwaukee , WI

$29,640

-1.2%

Kansas City, MO

$29,550

-1.5%

Phoenix, AZ

$29,490

-1.7%

St. Louis, MO

$29,490

-1.7%

Cleveland, OH

$29,370

-2.1%

Miami, FL

$29,310

-2.3%

Louisville, KY

$28,800

-4.0%

Albuquerque, NM

$28,650

-4.5%

New Orleans, LA

$28,620

-4.6%

Omaha, NE

$28,590

-4.7%

Buffalo, NY

$28,470

-5.1%

Memphis, TN

$28,360

-5.4%

Little Rock, AR

$28,200

-6.0%

Mobile, AL

$27,870

-7.1%

Baton Rouge, LA

$27, 300

-9.0%

Birmingham, AL

$27,210

-9.3%

Mercer's study compares local pay rates for more than 200 cities to national medians at different pay levels. The 2005 findings suggest that geographic pay variations are less pronounced, but still evident, at higher pay levels. For a job with a median salary of $60,000 nationally, pay varies from a low of $54,840 (-8.6%) in Baton Rouge to a high of $72,300 (+20.5%) in San Jose for a variation of about 29 percentage points.

Even at $90,000, there are still pay variations by geography. Cities like Little Rock, Buffalo, and Omaha, represent the lower end of the pay range at $85,410, $86,130, and $86,130, respectively. Meanwhile, cities like New York, San Francisco, and San Jose hold the top spots at $104,130, $103,590, and $102,870, respectively. Among the cities in Mercer's study, the pay variance at this salary level is nearly 21 percentage points.

Mercer's geographic analysis highlights the challenges faced by large employers with employees in multiple locations throughout the U.S. Sensitive compensation issues can arise when an employee moves from a relatively high-salary area to a relatively low-salary area, or vice versa. Good information on salary variances helps employers handle these situations in an equitable and consistent manner.

According to Darrell Cira, a senior compensation consultant in Mercer's Philadelphia office, it is important to apply geographic salary differentials correctly and to understand the difference between cost of living and cost of labor. Cost of living differentials reflect the difference between localities in terms of cost of goods, such as housing, groceries, transportation, and entertainment. Cost of labor considers the difference between localities in terms of cash compensation for the same work.

"Every year we encounter employers that adjust pay for the cost of living differences between locations, and this is the wrong approach," says Mr. Cira. "While cost of living and geographic pay differentials correlate, cost of living differentials between locations tend to be far greater."

Additionally, organizations need to be concerned about pay levels for employees in the same location. "Organizations moving individuals from one location to another should pay a locally competitive salary and offset expenses such as higher rents and home prices in the relocation package," Mr. Cira explains.

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