The geographic pay debate won't die. Every week, another company announces they're adjusting (or eliminating) location-based compensation. Candidates have strong opinions. So do finance teams.

After analyzing pay policies at 200+ remote-friendly companies, here's what the data actually shows—and how to set policy that works for hiring and retention.

The Policy Landscape in 2026

Approach % of Companies Trend
Full location adjustment 45% Declining
Partial adjustment (bands) 30% Growing
Location-agnostic 20% Growing slowly
Other/hybrid 5% Stable

The shift: In 2020, ~70% of companies used full location adjustment. It's now 45% and dropping.

Option 1: Full Location Adjustment

How it works: Pay scales proportionally to cost of labor/living. SF = 100%, Austin = 80%, Rural = 65%.

Companies using this: Most large tech companies (Google, Meta, Microsoft)

Typical Adjustment Tiers

Tier Examples % of SF Rate
Tier 1 SF, NYC, Seattle 100%
Tier 2 LA, Boston, DC 90-95%
Tier 3 Austin, Denver, Chicago 80-90%
Tier 4 Other major metros 70-80%
Tier 5 Low-cost areas 60-70%

Pros

  • Lower total compensation costs
  • Aligns with "local market rate" philosophy
  • Easier to hire in HCOL areas (pay competitive locally)

Cons

  • Loses candidates to location-agnostic companies
  • Creates perverse incentives (people staying in HCOL)
  • Administrative burden tracking locations
  • Retention issues when people realize the gap

When It Works

  • Very large companies with strong brands
  • Roles where you have hiring leverage
  • When combined with good benefits and culture

Option 2: Partial Adjustment (Bands)

How it works: Group locations into 2-3 bands with narrower differentials. The most common approach for growth companies.

Common Band Structures

Two-band model:

Band Definition Rate
Band A Top 15 tech metros 100%
Band B Everywhere else US 85-90%

Three-band model:

Band Definition Rate
Band A SF, NYC, Seattle 100%
Band B Other major metros 90%
Band C All other US 80-85%

Pros

  • Simpler than full adjustment
  • Smaller differentials feel more fair
  • Reduces candidate loss to location-agnostic competitors
  • Lower administrative overhead

Cons

  • Still some candidate loss
  • Band boundaries create edge cases
  • "Why am I Band B?" conversations

When It Works

  • Series B-D companies scaling engineering
  • Companies that can't afford location-agnostic but want to stay competitive
  • Roles with high demand but not extreme scarcity

Option 3: Location-Agnostic

How it works: Same pay for same role regardless of location. Usually pegged to a national average or specific market.

Companies using this: GitLab, Basecamp, Buffer, many Series A-B startups

Benchmark Options

Approach How It Works Typical Rate
SF minus SF rate reduced 10-15% High
National top 75th percentile nationally Moderate-High
National median 50th percentile nationally Moderate

Pros

  • Simplest to administer
  • Competitive everywhere in the talent market
  • No location awkwardness
  • Strong for hiring in mid-cost areas

Cons

  • Higher total compensation cost
  • May overpay relative to local markets
  • Hard to compete in SF/NYC without exceeding budget

When It Works

  • Companies with strong remote culture
  • Smaller teams (<50 engineers) where cost difference is manageable
  • Companies hiring primarily outside SF/NYC
  • When employer brand isn't strong enough to discount

The Data on What Candidates Want

Statement % Agreement
"I'd take a pay cut to work fully remote" 68%
"Location pay adjustment is unfair" 52%
"I understand why companies do location adjustment" 71%
"I've declined offers due to location adjustment" 34%

The gap: Most candidates understand geographic pay but a meaningful percentage will reject offers because of it.

What Top Candidates Accept

Analysis of offers accepted vs rejected:

Adjustment Level Offer Acceptance Rate
0% (location-agnostic) 82%
1-10% 78%
11-20% 69%
21-30% 51%
>30% 38%

The threshold: Adjustments >20% significantly impact offer acceptance.

Implementation Guidance

If You're Choosing Full Adjustment

  1. Be transparent: Publish your geographic bands
  2. Keep differentials reasonable: >30% loses too many candidates
  3. Re-evaluate annually: Cost of living changes
  4. Handle moves clearly: What happens if someone relocates?

If You're Choosing Bands

  1. Use 2-3 bands max: More creates complexity without benefit
  2. Keep smallest band at 80%+: Bigger gaps hurt acceptance
  3. Define band criteria clearly: Which cities go where?
  4. Allow self-selection: Let candidates know before applying

If You're Going Location-Agnostic

  1. Set your benchmark: SF-minus-10% or national percentile?
  2. Communicate the philosophy: Candidates appreciate the fairness angle
  3. Model the cost: How much more will this cost you?
  4. Be consistent: Don't make exceptions

Policy for International Remote

International compensation is its own topic, but key principles:

Approach Description When to Use
Same as domestic band International = your lowest band Simple but may overpay
Country-specific Research local rates by country Complex but accurate
Employer of Record rates Use EOR provider benchmarks Easy if using EOR

Warning: International payroll has legal complexity. Use EOR (Employer of Record) services unless you have entities in the country.

The Retention Angle

Geographic pay affects retention differently than hiring:

Scenario Retention Risk Mitigation
Engineer discovers they're underpaid vs peers High Transparent pay bands
Engineer moves to lower-cost area, pay reduced Very High Consider grandfathering
Competitor offers location-agnostic Moderate Emphasize total value

Data point: Companies that reduced pay when employees moved to lower-cost areas saw 43% of those employees leave within 18 months.

Better approach: Grandfather existing salaries; apply location policy only to new hires.

Need help designing your geographic pay policy? Contact SmithSpektrum for compensation strategy consulting.