Geographic Pay Differentials for New Hire Equity in the U.S.

A common element of a robust compensation strategy is exploring geographic pay differentials, or geo discounts. They help compensation professionals understand differences in the cost of talent across cities and metros, either globally or within a country. 

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Let’s look at the United States as an example. When it comes to salary data, we see that compared to the "Tier 1" metros of New York, San Francisco and Seattle, “Tier 2” cities have a -11% geo discount and “Tier 3” cities have a -16% geo discount.

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However, when it comes to new hire equity, differences across geos are even more dramatic. Here, we’ll explore equity data from Pave to see this in action.

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Analyzing New Hire Equity Pay Differentials

For this analysis, we looked at geographic pay differentials for new hire equity and base salaries for employees at both public and private companies in Pave’s dataset, illustrated by honing in on 65k employees in the Software Engineering job family. These geo discounts are calculated as the difference between compensation in a certain location relative to US Tier 1 cities, normalized for job family and level.

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New Hire Equity Geo Discounts are Higher than Base Salary

While the base salary discounts for Tier 2 and Tier 3 are -11% and -16%, respectively, we see geo discounts of more than double that for new hire equity. Tier 2 metros have a -29% discount compared to Tier 1. For Tier 3, the discount is -36%.

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There are a couple hypotheses for why these geo discounts exist. One theory is that employee equity holds less perceived value outside of the tech hubs of Tier 1 cities.

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Another may be that new hire equity can be used as a tool to close candidates in highly competitive markets like SF and NYC. If in-demand candidates have multiple offers to choose from, a stronger equity package may be the difference in winning that candidate over.