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Compensation  >>   Salary adjustments for lateral transfers Search Discussion Posts
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Salary adjustments for lateral transfers  
Posted: 09/14/2009 12:52pm   172 Views

What are companies doing these days for employees who request or accept a lateral transfer (no change in job title) from one cost of salary location to another cost of salary location (e.g. Inexpensivetown, Iowa to Highcostville, California)?  I’m not bringing up the debate of cost of living vs. cost of wages, nor relocation incentives, etc.; in this case, the salary program says the midpoint of the job in Highcostville is 30% higher than the midpoint of the job in Inexpensivetown – what kind of adjustment are you doing?

Further, is there any different treatment for a transfer from Highcostville to Inexpensivetown?  Or any different treatment if the relocation is employee initiated vs. company initiated?

Thank you.


Salary adjustments for lateral transfers  
Posted: 09/14/2009 01:07pm  

The way the feds have set up their locality pay program the premium is set up as an add-on to the base salary schedule.  So if a person laterals from one locality area to one with a different premium (higher or lower) the premium changes according.  Since all locality premiums are published, the employee knows exactly the impact on their gross pay.


Salary adjustments for lateral transfers  
Posted: 09/14/2009 01:41pm  

Yes... but...  if there is a 30% difference, does the person see a 30% wage change?  15%?


Salary adjustments for lateral transfers  
Posted: 09/14/2009 03:14pm  

Perhaps an example might help to illustrate how the federal locality system works:

  • Houston has a locality premium of 28.28% in the federal system.
  • Wash, DC has a locality premium of 23.10% in the federal system.
  • A lateral move from DC to Houston results in no change to the General Schedule base rate, but a 5% point higher locality premium.
  • A lateral move from Houston to DC results in no change to the General Schedule base rate, but a 5% point lower locality premium.

One thing to note about the federal locality pay program is that all General Schedule employees in the 48 contiguous US states receive at least some kind of locality premium.  (It's a long story.)  The highest premium is San Francisco with 34.35%, and the lowest is Rest of the US with 13.86%.  So the effective range of locality premiums is 27.49%.  Here is a link to the specific locality premiums for 2009.


Salary adjustments for lateral transfers  
Posted: 09/15/2009 11:09am  

30% feels like an extremely high geographic differential - similar to Paul's example - i have typically used/seen /- 5 (maybe 10%) from base locale.  However, getting back to your example, if you did not move the employee into a similar pay range you might have other issues to consider...(1) compression, (2) morale if the employee learns they are earning siginificantly less than others in the same position or (3) engagement issues if the employee feels they were not treated fairly in the lateral move. 

Paul makes a good point about treating it as an add-on, differential pay.  That way the employees know the base rate and any geographic differential for the location they are in.  Also good for transparency.


Salary adjustments for lateral transfers  
Posted: 09/15/2009 01:41pm  

When viewing the Federal program, remember that even the smallest town gets almost 14% as a geographic differential, so the range from the least to the most is about 28%.  That's quite conservative, since the difference between Bentonville AR or Big Spring TX and San Francisco is about 40%.  Guess that's why the Postmaster still tends to be "rich" in a small town while starving in a major city.

Source of the lateral-transfer initiation is critical.  If the company sends you somewhere, they assume responsibility for your balance of internal equity and external competitiveness.  There is no reason for an employer not to pay a known competent performer at least as much as they would pay for a complete unknown recruit hired off the street in town.  So if they choose to move you from Reno to fill an opening in Los Angeles, you should get a nice bump, even if part of it is tagged as a relocation stipend severable/adjustable or removable upon further relocation.  Relocation pay can be treated just like international tax equalization, where you normalize to a base and adjust accordingly with the offset residuals clearly identified. 

If you want to move from Little Rock to Manhattan, that's up to you.  As you bid for internal openings elsewhere, you might not get fully equal treatment to the person management select as ideal for a "forced" relocation from SmallVille to BigApple.  If you choose to transfer laterally from Palo Alto to Laramie or El Paso, you will be lucky if you don't take a steep cut in base, lose your bonus, or experience a pay freeze for many years.  Normally, it's really difficult to laterally transfer folks from RichCity to CheapBurg, not only because of the differences in competitive norms but also because internal equity considerations frequently require public exposure of the accomodation terms you require the transferree to accept in order to make their pay palatably equitable among the local troops. 


Salary adjustments for lateral transfers  
Posted: 09/15/2009 03:00pm  

In a company I used to work for that had multiple locations across the US, we developed three differrent salary structures.  For low cost cities, mid-cost cities and high-cost cities.  Moving employees were put into their new range at the same compa-ratio as their old range.  If the individual was moving at the company's request, they also received a relocation bonus and relocation package to assist them with moving into the same "level" of housing they were used to.  Relocation bonuses and relocation packages were given to individuals moving at the company's request even when moving into a lower cost area - sometimes those places were the most difficult to recruit into.


Salary adjustments for lateral transfers  
Posted: 09/16/2009 05:16am   Revised: 09/16/2009 05:17am  

Jim B,

Great post as usual ... except for the reference to the small town postmaster.  The federal General Schedule pay system that I described above applies to most federal entities with some notable exceptions.  One of those notable exceptions is the US Postal Service where there is no locality pay system.  In contrast to the federal General Schedule system that has across-the-board general increases, locality adjustments, and longevity step increases, the US Postal Service white collar employees have one annual pay increase through the pioneering Pay-For-Performance program. 

Another thing to note is that there are 17 different grade levels of postmasters based on the size of the post office that is served.  They range from part-time non-exempt employees in rural locations to executives in large cities with a thousand employees.  Needless to say, not all postmasters are the same, even though they carry the same title.

Thanks for the opportunity to clarify. 


Salary adjustments for lateral transfers  
Posted: 09/16/2009 09:46am  

Good catch, on that correction.  I was harking back to the bad old days when that was the case, when the federal pay was uniform nationwide and the major agencies enlisted our support to persuade Congress to authorize geographic pay differentials.  The pay was so low in major cities that no one able to pass the civil service test would apply for a federal job; i.e., they could earn more in the local constabulary or State Police department than at the FBI.  The agencies supplied the candidate access/retention shortfall data and we supplied the persuasive geographic pay proof. 

Don't believe it has been updated very well since then, but it's still a lot better than in those Dark Ages.

Oftentimes, sad to say, it takes many years of terrible results before people "get it" and apply appropriate corrective measures.  Without pain, there is no gain.

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