Geographical Discounting: Budgeting for Senior Roles

With remote work on the rise, companies aim to hire top talent no matter where they are. But how does location affect salaries for senior positions? Should you budget the same for entry-level and executive roles?

This article examines how location influences pay across different levels of experience. You may be surprised to find that discounts often decrease for seasoned professionals.

What Is Geographical Discounting?

Geographical discounting adjusts salary offers for remote jobs depending on their locations. The company adjusts pay according to the location's living expenses.

Some companies say that discounting pay for remote workers in cheaper areas is fair and helps manage expenses. But others argue that it can harm pay fairness and hiring in certain places. This practice sparks debate, particularly as more well-paid jobs shift to remote setups.

For senior-level roles, in particular, geographical discounting may do more harm than good. Candidates with extensive experience and expertise are in high demand. So, they have more leverage to find fully remote jobs without a pay cut. They are also more likely to push back on offers that undercut the market rate for their skill level. In these cases, companies may lose out on highly qualified candidates by lowballing them based on location alone.

While geographic discounts may work for entry-level positions, they don't fit for higher-level roles. Focusing on skills and experience rather than location is key when hiring remote leaders and executives.

How Discounting Works for Senior-Level Roles

Geographical discounts can benefit the company and new hires in entry-level positions. But the effect on senior-level roles is different. Surprisingly, in some instances, geographical discounts work even for senior-level roles. Here's how:

Location Matters

When hiring for senior roles, companies often provide generous relocation packages to attract skilled employees. But some candidates may prefer to work remotely or stay in a lower-cost area. In these cases, companies can offer a geographic discount based on local pay rates. For a senior role, the discount may be 10-30% lower than the national average for that position.

Experience and Expertise Come at a Premium

Experienced and expert leaders bring valuable skills and a successful track record. So, companies pay them at or above the national average. Geographic discounts for senior roles mostly apply to candidates without much experience or those seeking a lower cost of living.

Negotiating the Right Discount

Companies must assess senior hire candidates individually to decide on a suitable discount. They need to consider factors like experience, skills, and reasons for relocating or working remotely. The discount must save costs but not drive away top talent or undervalue the position. Finding this balance may require adjusting offers for different candidates to stay competitive.

Companies can save money with geographic discounts for senior roles. But it needs a tailored strategy for each candidate and position. A standard approach may push away the best candidates or result in paying too little for important leadership roles. Negotiating for each situation helps hire great talent at a fair discount for both sides.

Should You Use the Same Discount Rate for All Levels?

Using the same discount rate for all levels is a risky move. Here's why:

Competitive Landscape

When budgeting for senior roles, some companies apply the same geographic discount rate across all levels of candidates. But more senior candidates typically have higher salary expectations and more negotiating power. As a result, the discount rate may need to be lower for these candidates to remain competitive.

For instance, a company gives a 20% discount for a mid-level engineer job in a cheaper city. But for a senior role, where candidates have many options, a 20% discount may not be enough. So, the company needs to offer a smaller discount, like 15% or 10%, to get the top candidate.

Market Demand and Supply

Job markets differ across regions. Some places may need certain skills more than others. Not adjusting for this can make it hard to hire and keep good workers in areas with less demand for their skills.

Employee Morale and Engagement

Older or more experienced workers may feel it's unfair if they see newbies getting the same discount. This can make them less happy and may make them want to leave for a job where they feel valued more.

In some circumstances, experienced candidates may value a job for more than just its salary. Factors like career growth or a good work-life balance play a significant role here. If the job and company are great, candidates may be willing to accept a bigger discount. So, the right discount depends on how good the company is at getting top candidates. Using the same discount for everyone can result in missing out on important hires.

Companies can save on talent costs using geographic discounting, but they must tailor it to specific roles and levels. What works to hire a mid-level candidate may not resonate with a senior one. Employers must assess what drives candidates and adjust the benefits they offer accordingly.

How Geographical Discounts Have Changed Over Time

Historically, geographical discounts were typically higher for more senior roles that were harder to fill in certain locations. Companies had to offer deeper discounts to attract top talent willing to relocate to smaller cities or rural areas.

Technology and Remote Work

Today, the gap in discounts between levels has narrowed. With remote work becoming more commonplace, location matters less for some roles. Candidates have more flexibility to live where they choose while still advancing their careers. At the same time, the demand for high-level talent has increased in some previously overlooked areas.

As a result, some companies are shifting towards paying employees based on the job, not where they live. This challenges the old methods of adjusting pay for different places and encourages more flexible pay systems.

Talent Competition

As talent markets evolve, smart companies are taking a customized approach to budgeting for different locations and levels. They analyze current hiring trends and costs for specific positions to determine the right discount for each situation. While higher-level roles may still command larger discounts, the difference is not as extreme as in the past.

As more people work remotely, geographical discounts are becoming less common. But companies still need to consider these discounts when hiring top executives. Budgeting for these discounts and using current data to recruit the best talent in a competitive market is important.

Conclusion

Using geographic discounts for entry-level hires makes sense, as they may lack experience. But applying these discounts to experienced professionals isn't always wise. Instead of worrying about budgets and discounts, it's important to prioritize finding the right talent for the job. Good leaders with special skills are rare. It is important to be willing to change pay and concentrate on the value good talent brings.

Results matter more than how much you pay. Smart negotiation and budgeting are essential. But paying a good rate for experienced talent is usually the best way to find the perfect hire. Do you still need help deciding? Visit Salary.com and check out various products and services that can help you with your compensation needs.