Compensation Geo Differential Calculation Guide

1. What Are Geo Differentials?

Geo differentials express how pay in one market differs from a baseline or “anchor” market or data set. They are typically expressed as a percentage adjustment to salary or total target cash (TTC) ranges. Examples:

NYC might be +15% above the national US market.
Austin might be –5% below San Francisco.
India might be –40% relative to U.S. national median.

2. Choose Your Anchor MarketBefore calculating geo differentials, define your anchor market, which serves as the reference point for all comparisons. Common anchors include:

Corporate headquarters location (e.g., San Francisco)
U.S. National market
Average of your largest employee population

Your anchor determines how all other markets are indexed.

3. Gather Data

For each geography you plan to use, collect:

Market pay data for relevant jobs or job families
Percentiles you plan to benchmark against (typically 50th, 60th, or 75th)
Comparable leveling across markets (same job level = same benchmark)
Cost of Living or Cost of Labor statistics in regions or grouped Geos

Data sources may include:

Pequity
Numbeo
Culpepper
Mercer
Radford

4. Calculate the Geo Differential between Anchor & Target Locations

Calculate either a % change or Index between your Anchor and Target locations to apply to the Anchor ranges. If calculating off of market data we suggest using the Median % Change across all benchmarked roles to determine the differential rounded to the nearest tenth.

5. Apply Geo Differentials to Your Pay Ranges

Take your anchor pay range and multiply by the differential.

Example:Anchor range (National): $100,000NYC differential: +12%100,000 \times (1 + 0.12) = 112,000

NYC adjusted range: $112,000Apply this to min, midpoint, max for aligned consistency and consider whether to apply an FX rate for international ranges.

7. Document and Communicate Your Geo Strategy

Communicate clearly to stakeholders:

Anchor location
Data sources used
Calculation method
Refresh frequency (typically annually)
How employees move between geo levels when relocating

Consistency + transparency → trust & easier governance.

8. Best Practices

Use role-specific market data where possible.
Ensure levels match across locations.
Avoid mid-year ad hoc changes unless market conditions shift drastically.
Revisit your geo structure during annual benchmarking.

Compensation Geo Differential Calculation Guide

Geo differentials allow you to adjust compensation ranges based on labor market cost and competitiveness across different locations. This guide walks you through what geo differentials are, how to calculate them, and how to apply them consistently in your compensation program.