But there are good answers, and it's up to you to make them clear and straightforward -- and dare I say, fair. Let's take a look at what's involved.
First, recognize that employees move to other locations for many different reasons, each of which should qualify for its own policy guidance. If your company has asked Alice to move because her department is being relocated, the financials will be different than if Alice has chosen to move closer to her family. Alice should be able to rely on your company for moving assistance in the first case, not so much in the second. And what if Alice is moving for a career development opportunity? Yep, that calls for a third angle on the policy.
Unless your company has a compensation program that pays no attention to geographic differentials between your various locations, relocation will require you to make a pay differential decision for Alice's base salary. And since variable pay programs, and sometimes equity award guidelines, can vary quite a bit from location to location, your policy will need to include the steps to either transfer, cash out, rollover and/or qualify the employee for mid-year participation in incentives.
Whatever you do, don't mix up "cost of living" with "cost of labor" when developing your policy, even though you may be tempted to. Cost of labor alone is the driving factor for addressing base pay issues. When you're talking about competitive pay levels, you're talking about the cost of labor for specific skills, based on the supply of individuals with those skills in a given location. Salary surveys, or your existing salary structures, are your go-to references here.
Cost of living is all about the relative ability to buy stuff in the given location. It is a completely separate issue from how much people are being paid. While CNNMoney tells me that a $28,392 salary in Asheville, North Carolina is comparable to a $50,00 salary in San Francisco, it really means that it would cost me almost twice as much to buy groceries, see a doctor and rent an apartment in the Bay Area. It really, really doesn't mean I'm going to be paid almost twice as much to do the same job in San Francisco -- and salary surveys will bear me out.
If you hold too tight to your budget when you move Alice to San Francisco and manage to underpay her, you'll have an unhappy transplant with her unhappy family -- making it difficult to recruit for other comparable positions. If you let the sympathy you feel for Alice's new sky high housing costs influence the salary you assign her when you move her from Asheville, you're bound to overpay her. She'll be resented by her coworkers, create compression in her department and make it difficult to recruit for other comparable positions.
Say Alice's salary is uncomfortably high compared to others in her department because you're moving her from San Francisco to Asheville. You and she could agree to keep her salary the same over a set period of time while she is working in Asheville, thus managing this type of compression. You could also pay her certain types of cash relocation incentives like a relocation bonus, cost of living allowance and/or first-year performance target to smooth her transition. The application of these optional payments should be documented and described in your policy, of course, along with when and how you cover the direct costs for moving and residence.
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career paths and communications at the Café. Her firm, re:Think Consulting, provides services that include market pay information, base salary structures, incentive plan design, career paths and new plan implementation. Margaret is a Board member of the Bay Area Compensation Association (BACA). Earlier, she was a Principal at Willis Towers Watson. Margaret coauthored the popular ebook, Everything You Do (in Compensation) Is Communications, which can be found @ https://gumroad.com/l/everythingiscommunication.