We read and hear more and more about where people work, rather than what they are paid, and with COVID-19, restricting where people work, it is a good time to look at how people are paid. This thought-piece presents an overview of key findings from a detailed study conducted by QCG on regional pay differentials across the UK in 2020, including a comparison to a similar study undertaken in 2010. Why does this matter? Paying employees a competitive market rate, according to location, has always been critical not just for attracting and retaining employees, but for making sure employers don’t pay more than they need for commercial reasons and not to distort local economic realities. This is particularly critical for employers that have a national workforce, with many at the lower end of the pay spectrum, the focus of this study, where variations according to location have been most prevalent, but can change due to local economic forces. But the world is changing. Recent legislation to increase minimum wage levels has led to a perception that differentials by location have reduced. In addition, as a result of the recent shift towards home working due to COVID-19, the time was right to dig out what QCG had done a decade ago to provide an evidence base for decision makers in the reward space as organisations plan for the ‘new normal’. In coming to a conclusion on this regional pay review, data has been sourced from QCG’s sector surveys, industry data, national data from public sector and private sector organisations, and additional research. What have we found? Regional pay differentials are broadly similar to those in 2010, where London salaries see a premium in comparison to other regions across the UK. As illustrated in the diagram below, the differentials range from pay levels at 70% to 75% of those in London in the North East, reducing to 85% to 90% of London in the South East. However, two points are important to note. Firstly, regional differentials have begun to narrow between London and the South East because of the buoyancy of the economy in the South East. Secondly, indications from industry data sources also highlight narrowing differentials for senior roles, more specifically those above the levels analysed in this report. There is generally a consistent pattern between QCG’s sector survey data and wider industry and national data in relation to pay differentials. Where differences do exist, this can be attributed to differing sample methodologies. For example, QCG’s data is typically from knowledge based sectors, whilst industry and national data covers the whole economy. This study has not looked at differentials within regions, but it is reasonable to assume from the 2010 findings that the hot spots in main centres such as Manchester, Birmingham and other large economic centres, will not have changed significantly, as has always been the case where micro markets may be at play. So what does all this mean? Although there appear no significant changes compared to a decade ago, it is important to note that one of the principle reasons why regional pay differentials remain is due to the economic reality of the north / south divide – it’s not about where you work or what your work consists of, it’s about the changing economic context of regions being the main driver of pay by location now and in the future, e.g. cost of living, including housing. Looking forward there is no doubt that COVID-19 will question the principles around regional pay differentials. Especially at the time of writing as 57.2% of employed London residents are working from home – the greatest percentage working from home than any other region in the UK. This coupled with the extent of the economic damage and subsequent recovery variations across UK regions could change the picture of regional pay considerably – only time will tell. However, it is vital that organisations prepare long term strategic plans to manage regional pay differences even in a world where predicting the future is so uncertain. How can QCG help you? A few points you may need to think about:

• Does this data indicate you are paying too much or too little in key employment locations?
• Do you need to look at future recruitment pools that are in less expensive areas - assuming people do not need to be in a central, high cost office location?
• Is your organisation thinking about reviewing regional pay differences but are unsure how to approach this?

We are in constant communication with our network, gathering information about how organisations approach regional pay and we are continuing to establish the key factors driving regional pay differences. We can provide you with up-to-date and relevant information and advice based on our independent research and market knowledge. Becoming part of our specific sector networks will enable you to be part of networking events that QCG run and have the ability to request information on areas of reward and engagement you need answers on from our wider networks, where we will gather information and provide a comprehensive report. We are now specifically capturing regional pay differential information in our four annual surveys:

• Project Management, Engineering and Technical Roles Pay & Benefits Survey
• Rail Rolling Stock & Maintenance Roles Pay & Benefits Survey
• Regulators & Inspection Related Bodies Pay & Benefits Survey
• Heritage and Visitor Attraction Pay & Benefits Survey

We can help you by:

• Reviewing your regional pay policies and procedures;
• Provide expert advice on how to approach senior leaders in discussing changes to regional pay;
• Recommend ways in which any changes relating to pay can be done without damaging your organisations Employee Value Proposition; and
• Provide you with up to date and relevant data.

If you would like a copy of the full regional pay report or would like to have a conversation with a consultant about the overall design of your reward package please do get in touch. Hattie Edwards, Junior Consultant at QCG – October 2020