Salary Benchmarking and Affordability Give Midsized Cities an Edge in Recruiting Tech Talent
Today’s economy revolves around technology. As people innovate, live and consume in new ways, the labor market adapts and evolves.
Some of the most in-demand and hard-to-fill jobs are in tech – data scientists, cybersecurity professionals, software developers and software engineers. Though San Francisco, Seattle, New York City and Boston are known for being tech hubs, the need for technology professionals is not limited to these large, coastal cities. In fact, major growth in the tech sector is seen in Denver, Salt Lake City, Dallas and Nashville, Tennessee.
How Does Compensation Benchmarking Give Midsized Cities an Edge?
Although compensation is not the only factor considered when accepting a new job, hiring managers with a solid grasp on how to pay competitively have a better chance of attracting and retaining the right person for the position. Why is that?
Part of offering a competitive salary is understanding what the job market will bear for a specific position. This means being aware of the required skills for the position and what other companies in the same metro area and industry are paying.
For instance, Company A in Jacksonville, Florida is hiring for a software developer. The hiring manager has budgeted a salary range of $80,000 to $85,000 and wants someone with a minimum of four years of experience. With deeper insights, the hiring manager would realize that the salary range is not competitive.
Based on data from LaborIQ™ by ThinkWhy, Company A needs to offer at least $90,200 to attract software developers meeting minimum requirements. If Company A has difficulty filling the position, the hiring manager will need to consider increasing the compensation to $96,000, as the market supply for software developers is in shortage, giving candidates the power to demand above-market rates.
The hiring manager will also have to factor in how this position’s compensation fits in with the rest of the department. Does this position round out a skills shortage? Will this new employee be groomed to take on more responsibility as opportunities become available?
In midsized markets – populations between roughly 100,000 and 1 million – employers who understand how to benchmark compensation and set competitive salary ranges based on market supply and demand will have an advantage when competing for talent. Benchmarking roles and setting budgets based on economic drivers within a market enable business leaders to:
- Set personnel budgets based on market reality.
- Be aware of how their company’s compensation for specific roles compares to other industries and if salary bands are on par with the market.
- Identify any retention risks and total cost to correct.
Affordability Outweighs Compensation in Midsized Cities
While midsized cities can experience challenges competing for talent and meeting salary demands, the lower cost of living in those markets may be more important to candidates than higher compensation.
The valuable differentiator midsized cities possess over large cities stems from affordability – in everything from the cost of groceries to movie tickets to housing. This is especially relevant as four of the major metro areas with tech hubs – New York City, San Francisco, Seattle and Oakland, California – are included in the latest Cost of Living Index's top 10 most expensive U.S. cities.
As more people are being pushed out of both the homebuying and rental markets in large metro areas, companies located in midsized markets are becoming more attractive to both young and experienced professionals, including the tech industry.
According to Harvard University’s Joint Center for Housing Studies, many high-income renters now struggle to afford their rent in popular housing markets, and the supply of available new homes lags behind demand, which continues an eight-year trend. This same report found that approximately 38 million households nationwide – 20.5 million renters and 17.3 million homeowners – spend more than 30 percent of their income on housing. Many financial experts advise that housing expenses not exceed more than 30 percent of a person’s monthly income.
Businesses are increasingly looking to midsized cities to expand or relocate. Besides incentives offered by county and city governments, midsized cities with local universities provide a new talent supply, while affordable housing options attract more experienced professionals.
Many established and startup companies, including those with a tech focus, have expanded into metro areas like Charlotte, North Carolina and Austin, Texas. Both metros have recently seen an uptick in annual job growth as of January 2020 – Charlotte by 2.3 percent and Austin by 2.6 percent, with a 4.3 percent and a 6.7 percent annual increase, respectively, in the number of people who have earned an associate degree or higher. LaborIQ reports that both metro areas rank among the top 10 cities in the U.S. in terms of economic strength.
So when it comes to hiring sought-after tech professionals, the winners will be companies in midsized cities that successfully balance affordability and compensation packages to elevate their chances of winning talent.