Geo-Differentiated Pay vs Geo-Neutral Pay

Payara was born global – we started hiring globally by design, so the issue of pay and compensation has always been a challenge. Payara was also born to be remote first – enabling us, by design, to hire and support top talent for each role regardless of the individual’s geographical location. So, the issue of pay and compensation, Geo – Neutral versus Geo-Differentiated, has been a long and frequent discussion within the business.

Basic salary as part of a larger pay and compensation package plays a crucial role in attracting and retaining a talented workforce, but now thanks to the rise in remote working many more business are entering the Global hiring market, and this raises new and difficult challenges when it comes to determining pay structures. Some businesses make the decision to implement geo-differentiated pay, which accounts for regional cost-of-living disparities, while some make the decision to implement geo-neutral pay, which applies a uniform compensation across all locations.

But which option should a business choose? How do you apply it in your organisation and, is it in line with your Business Values and Performance management structures?

First let’s explain what each term means in more detail, and what the pros and cons of each option are for Payara.

Geo-differentiated pay, also known as geographic pay differentials, considers the varying costs of living (COL) across different regions usually on a global scale, but it can be used within a large county using COL index in different cities for example.

This approach offers Payara several advantages.:

It ensures that Payarans (the name we give to members of our team) can afford a comparable standard of living regardless of location, reducing financial stress, and increasing overall job satisfaction.
It aids in attracting and retaining talent in expensive areas by offering competitive compensation relative to the local cost of living. This can help us establish a strong presence in costly markets.
It can foster a sense of fairness among Payarans who perceive their compensation as reflective of the local economy.

However, geo-differentiated pay has its drawbacks.

Implementing and managing different pay scales across regions can be administratively very complex and time-consuming.
It requires accurate data and ongoing monitoring of cost-of-living indices, which may be subject to fluctuations and is often difficult to find and correlate.
It can inadvertently create disparities and divisions among Payarans, leading to potential morale and productivity issues. Payarans in lower-cost of living regions may feel undervalued or unfairly compensated compared to their counterparts in higher cost of living areas, negatively impacting team cohesion.

Can you begin to see how this could be a very tricky situation?

Geo-neutral pay, on the other hand, involves providing a uniform compensation structure irrespective of location.

Advantages of Geo- neutral pay are:

It offers simplicity and ease of administration since there is no need to manage varying pay scales based on regional differences.
It promotes consistency, ensuring equal treatment for all Payarans regardless of where they are located, which could eliminate potential conflicts arising from perceived inequities in compensation.

But again, Geo-neutral pay has its drawbacks.

It may fail to account for significant cost-of-living disparities, resulting in employees struggling to meet their basic needs in high-cost areas.
The disparities may lead to higher turnover rates, reduced job satisfaction, and difficulty attracting top talent in those regions.
It may pose challenges in competing with local employers who offer higher compensation packages reflective of the regional economy.

Both arguments have persuasive advantages and disadvantages to be taken into consideration along with the business strategy, growth and hiring budget. As a business, Payara has to carefully consider many circumstances – we are a software product business, we hire for many different roles, we have global customers so some of our Payarans require specialist skills (like language abilities,) or need to be in certain geographic locations to be able to provide a great customer experience, we need to consider legal and jurisdictional compliance and ensure a positive Payaran experience for all our staff to build and grow our unique culture.

So on balance what has Payara chosen to do ? Simple. We use a balanced approach which combines elements of both options which offers us the best solution – we try to ensure fair compensation at all times and remain competitive in our offering.

Like the sound of our approach? Check out open job roles:

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