Question: I work in Massachusetts but have been offered a job in Texas with another company at a salary 7% lower than I'm currently earning. I was told that the lower salary is due to a lower cost of living in Texas. Is this common or acceptable? If my current company transferred me to a less-expensive state, would it cut my pay?
-- James G., Beverly, Mass.
James: I can understand your confusion. Most of us have learned to expect an increase in pay, not a decrease, when we move to another employer. This is certainly the case if the new job is a step up the ladder from what you're doing now.
But I'm assuming that you are making a lateral move and will be doing the same thing in Texas as you've been doing in Massachusetts. In this case, your prospective employer is justified in offering you less money and for the reason that's been stated -- the cost of living in the Lone Star State is less than in the Bean State.
Typically, companies take geographic differences in living costs into account when determining salary levels for their employees, says Laura Sejen, practice director for strategic rewards at compensation consultant Watson Wyatt Worldwide in New York. Although exceptions exist, companies in lower-cost areas often pay lower salaries than those in higher-cost regions. For this reason, the 7% salary reduction you've been offered to work in Texas is likely "quite consistent with the prevailing wages for their employees in the area and competitive with that market," she says.
I don't know why you are considering a move to Texas. Perhaps your current employer is planning layoffs, your advancement opportunities are limited or you no longer like the work environment. Or maybe you want a change of seasons and scenery. These factors can justify accepting less money elsewhere for doing the same thing. But you should enjoy greater spending power due to the cost of living difference between Texas and Massachusetts.
You can research cost-of-living differences nationwide, using the Salary Calculator on CareerJournal.com. It shows how much you need to earn in one location to equal what you are making in your present city. Assume you are making $100,000 now and own your own home. According to the calculator, you would have to earn only $94,731 in Dallas to enjoy the same standard of living as you do in Beverly. Salary calculators have their limitations, mostly due to how they collect the data used in making the cost-of-living calculations. (See Related Article: "Fuzzy Math with Salary Calculators: How These Online Tools Work." )
So while I've used Dallas as an example, depending on where you might live in Texas, you may find that a salary that's 7% lower than your current pay actually stretches further there. And because housing prices are so dramatically different between the two locales, you may be able to afford better housing in Texas.
As for your second question, most companies don't reduce the salaries of employees asked to move from higher- to lower-cost areas, where pay levels are lower, says Ms. Sejen. Instead, they typically keep paying the employees who move the same amount if their old salaries are within the salary "range" -- the lowest to the highest salaries -- paid for the same jobs in the new region. Those employees might receive lower raises for the next few years until their pay becomes more aligned with the local levels, she says.
"It's rare for companies to reduce an employee's salary, particularly if they are being asked to relocate," she says. "What happens is that the employee might see lower pay growth for the next couple of years, but they are benefiting from the lower cost of living."
Naturally, it's a whole different ball of wax if you have been asked to take a job with more responsibilities and authority in Texas versus what you are doing now in Massachusetts -- and at 7% less pay. In this case, you would think the employer would dangle more money than you're making now. However, you could be offered less pay for a bigger job if the prospective employer is small or just starting up. Then you'd have to weigh the equity or other incentives you'd receive and your future career opportunities when making your decision.
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Article from CareerJournal Today – November 2005