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Great post as always, Ann. I'm becoming a huge fan.

I have to disagree with you about Cost of Living vs. Cost of Labor, though... Not from an academic/theoretical perspective - I agree that a company wants to pay competitively as opposed to reimbursing for salary expenses in an ideal world.

In practice though, I think this line of thinking is better suited for recruiting talent from the external labor market than it is re-locating internal talent.

Compensating employees for cost of labor (as opposed to cost of living) ignores the fact that the employee was not recruited out of the labor market to which he/she is being sent. They have a certain living standard to which they've become accustomed in their existing labor market, and if that standard is compromised in the relocation the employer has a flight risk on your hands.

Presumably, the employee is being moved to the new role because they bring something to the table (if only lower training costs because he/she knows the company already) that couldn't be as easily gotten from an external hire in the local market.

The employer has to pay for this, I think.

If an employer wants to compensate for labor at the local market rate it should recruit out of that market as opposed to moving an internal hire.

Again, great post (thanks for sharing).

Best,

Rory

I think you have to separate the specific concept of managing an employee relocation (initiated by the company's needs, not the individual's) from the general notion of how you set up and manage your salary program. In the case of the former, I believe that cost of living traditionally has and probably should be part of the discussion. In the case of the latter, I don't believe it makes sense. For me, the essence of the question is a philosophical one: Is the purpose of your salary program to (1) Provide a competitive salary for the employee based on their role, their skills/experience and the relevant local labor market in which you compete for their talent OR (2) To provide reimbursement for their cost of living. Because there is an enormous difference between the two.

Feel free to share your thoughts back, and hopefully others will join in with their opinion. As always, appreciate your comments and observations!

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About The Author

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    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

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