Research conducted for The Power of Place report revealed that an average worker in London earns almost twice as much as an average worker in Liskeard, Cornwall (£1,130 and £610 a week respectively).
A typical full-time early career worker suffers a 5% place-based pay penalty (worth £1,300 a year) if they move from a typical high-paying labour market (like Harrogate) to a typical low-paying one (like Dudley).
Regional wage inequalities in England are largely driven by where people work, not who they are, senior economist Emily Fry from Resolution Foundation explained to HR magazine. She described how it was previously thought that wage gaps were due to different types of people living in different areas, but the research shows that one-third of pay differences stem from local labour markets themselves.
Geographic-based pay differences are a complex reality in today’s global workforce, but need to be treated with transparency and fairness and be at the heart of any compensation strategy, explained Barbara Matthews, chief people officer at Remote, a global remote hiring and payroll company.
Read more: Closing the gender pay gap: Going beyond data to real change
Matthews told HR magazine: “There should be open and honest communication. Employees should understand not just what they’re paid, but why, and that includes how factors like location, role expectations, and market benchmarks are considered.”
Matthews continued: “Fairness doesn’t mean flat pay across the globe. It means applying clear logic that employees can understand. That’s why it is important to design compensation frameworks to reward skills, scope, and impact above the postcode.
“With job ads and internal policies increasingly reflecting open salary bands, transparency is a cultural shift that fosters better alignment and accountability.”
According to Figures, a platform for real-time salary benchmarking and pay management, there are three different approaches to location-based compensation: location-agnostic compensation, fully localised approach and location differentials.
Location-agnostic pay means all employees in the same role earn the same salary, usually based on the market rates of the company’s headquarters. The fully localised approach sets each employee’s salary according to the market and cost of living in their own city or country. Lastly, location differentials start with a base salary tied to the HQ, which is then adjusted up or down depending on the employee’s location.
Read more: How to make pay gap reporting smoother and far more insightful
Figures advises each company to come up with its approach to global compensation based on its compensation philosophy, organisational goals and core values.
To move away from location-based pay and towards a structure that truly rewards responsibilities, outcomes, and skills, companies should start by designing clear, transparent career frameworks, explained Lorna Ferrie, legal and compliance director at Mauve Group, a global HR and business consultancy.
Ferrie told HR magazine: "These frameworks should outline how employees can progress based on their impact. Some organisations may choose to adopt outcome-based reward systems such as bonuses, while other organisations may prefer skills-based pay models.
"Either way, transparency is key. Employees should understand how compensation decisions are made and what is required to move up the ladder. When people can see a clear link between their performance, responsibilities, and pay, you create a culture which rewards employee outcomes and is not linked to a location or postcode."
The report was based on the Longitudinal Education Outcomes (LEO) dataset, which covers almost every worker born after 1985 who was educated and is now employed in England, and from the Office for National Statistics Annual Survey of Hours and Earnings (2024) report.
