The Pros and Cons of Location Based Pay: Is it Right For You?

Should compensation be based on where an employee lives? Or where the office is? Or, if we play devil’s advocate for a minute … should geography play no role at all? These are questions that are hard for HR and Reward teams to ignore.

After all, it is more affordable to live in Lisbon than in London, while salaries in Bucharest look nothing like salaries in Berlin. And with teams now spread across countries (and sometimes continents), the old model of “everyone gets paid the same because we all work in the same place” doesn’t necessarily suit every situation. 

At the same time, paying people differently for the same job, just because they choose to live somewhere else, can spark tough conversations about fairness. 

So, how do you strike the perfect balance that builds a competitive employer brand, while managing your compensation budget, and keeping your employees on side? 

Location-based pay is one approach that might be the right fit for your organisation. This guide breaks down its pros and cons, and compares it to other models. 

What is location-based pay? 

Location-based pay, also known as localised pay, ties compensation to local market rates. Instead of paying everyone in the same role the same amount, companies adjust compensation to reflect differences in talent supply, local salary benchmarks, and broader economic conditions. 

In practice, this means a Senior Product Designer based in Paris may earn a different salary from a Senior Product Designer in Warsaw, not because their contribution is different, but because the cost of labour varies significantly between markets.

To make sense of location-based pay, it’s helpful to understand how it compares to two common alternatives: global and HQ-anchored pay.

3 reasons companies choose location based pay 

Whether you’re designing your compensation framework from scratch or scaling into multiple countries, there are several compelling reasons to opt for a location-based approach.

1. Companies can stay competitive in local talent markets 

Localised pay makes it easier to attract (and retain) talent across very different labour markets. Salaries in London, Berlin, and Zagreb don’t move at the same pace, and using local benchmarks means you can stay competitive where it matters, without overpaying where you don’t need to.

It also supports workforce mobility. Candidates in lower-paid regions don’t need to relocate to high-cost cities to access well-paid roles, while employees in major hubs can still command salaries that reflect the realities of those markets.

2. Compensation budgets stretch further 

For companies scaling internationally, location-based pay maintains a sustainable payroll structure. Salaries reflect the true cost of hiring in each market, so you’re not forced into paying “HQ rates” everywhere or absorbing unnecessary payroll inflation as you grow.

It gives HR and Reward leaders more control over long-term budgeting and protects global expansion from any disproportionate compensation costs.

3. Employees have similar disposable incomes 

One of the lesser-discussed benefits of location-based pay is internal equity. When salaries reflect the cost of labour in each market, employees in different countries are more likely to enjoy a similar standard of living relative to their peers. 

While absolute salaries differ, the experience of pay can feel fairer, especially when ranges are transparent and backed by clear market data. 

Real-world example: GitLab, a DevOps software provider, opts for location-based pay. After previously using a San Francisco-anchored model, the company publishes a handy compensation guide that details how its market-aligned compensation range now uses local market data available in local currencies.  

3 downsides to location based pay 

Under the right set of circumstances, location-based pay can be a smart and sustainable strategy, but it’s not without challenges. Here are three of the most common issues organisations face when adopting this approach.

1. Pay differences can feel unfair 

Even when the logic is sound, employees don’t always experience it that way. Two people doing the same job at the same level may receive very different salaries simply because they live in different cities.

For employees in lower-pay regions, this can feel demotivating, particularly when remote work has blurred the line between “where you live” and “where you work.” 

It can also affect hiring. If a candidate in a lower-pay region also has the opportunity to work with a company offering a globally consistent salary or HQ-anchored salary that’s higher than the location-based pay offer on the table, they’re likely to give into temptation. 

2. Compensation maintenance can become more challenging 

Looking now at the administrative side of comp, location-based pay introduces more moving parts. Each market requires its own salary benchmarks, bands, and maintenance cycle. And as companies expand, this quickly grows into a substantial workload, including: 

• Multiple sets of ranges to maintain
• Regular updates as markets shift
• Additional governance to manage exceptions
• Clear communication so managers can apply the model consistently

3. Relocation challenges 

Moving house and job has become the norm, and sometimes these life events happen in tandem. Some 67% of Gen Z are willing to relocate for work, but the real head-scratcher comes when remote or hybrid employees move locations during their employment. Companies using location-based pay must decide if pay should change when someone moves. 

For example:

• If an employee hired in a high-cost city relocates to a lower-cost area, should their salary decrease?
• If someone moves from a lower-cost region into a major hub, can your budget support the increase their new market would require?
• What happens if several employees relocate in the same cycle?

These decisions can be sensitive and resource-intensive. Some organisations require approval before an employee relocates; others “grandfather” pay to avoid reductions, but this can create long-term internal equity issues.

Is location based pay the right fit for you? 

If you’re deciding between location-based pay, HQ-anchored pay, or a global model, these five questions can quickly identify which approach is the right fit. 

5 ways to make location based pay work

If you decide location-based pay is the right fit, the next challenge is implementing it in a way that feels fair, consistent, and easy to navigate. These five best practices will help you build a framework you can explain. 

1. Create clear rules and document your compensation philosophy

Before you adjust any salaries, define the principles behind your approach. Decide what you optimise for, such as competitiveness, fairness, cost sustainability, or a blend of all three. Crucially, you should put those rules in writing. This clarity becomes your North Star for every decision that follows, from hiring to promotions to relocations.

2. Build structured salary ranges using market data

Location-based pay only works when it’s anchored in reliable data. Use trusted salary benchmarks for each market you hire in, then build consistent ranges for each role and level. Structured bands help managers make better decisions without guessing and prevent pay drift as markets change (and we all know they will!) 

3. Plan ahead for relocations and edge cases

Get ahead of the relocation conundrum by deciding upfront if or how salaries will change when an employee moves to a new location. This step involves setting approval flows, defining exceptions, and outlining how you’ll handle scenarios like moves from extreme high- to low-cost markets.

4. Communicate early, clearly, and often

Even the fairest system will fail if employees don’t understand localised pay. Explain how your model works, what data you rely on, and how you make decisions. Don’t forget also to equip managers with simple, consistent talking points so they can answer questions confidently and avoid mixed messages across teams.

5. Keep consistency with governance and regular reviews

Like any other aspect of compensation, location-based pay isn’t a one-and-done exercise. Schedule regular reviews of your salary ranges, check for internal equity issues, and track any exceptions you’ve made. Strong governance keeps your approach fair and competitive in any scenario. 

Support location-based pay with Figures 

There’s no single “right” approach to compensation. But with the EU Pay Transparency Directive pushing organisations toward clearer pay practices, what matters most is having a model that’s intentional, well-governed, and easy to explain.

When your pay philosophy is clear and your ranges are anchored in real market data, it becomes much easier for employees to trust the system behind their salary. And that’s where Figures can help.

Our compensation platform gives HR and Reward leaders everything they need to build and maintain fair, competitive, and transparent pay structures across multiple countries — without the spreadsheets.

• Global salary benchmarking: Understand market rates across countries and roles using reliable, real-time data.
• Structured salary bands: Build consistent, location-aware salary ranges in minutes.
• Compensation review workflows: Keep decisions fair, consistent, and well-documented across teams.
• Governance and exception tracking: Maintain internal equity as your organisation grows and your workforce becomes more global.

If you’re ready to take the guesswork out of compensation, and build a model you can stand behind, book a free Figures demo to see how it works in practice.