Should a software engineer in Madrid and a software engineer in San Francisco doing the same job earn the same salary? That question moved from a theoretical HR debate to a real compensation decision once large-scale remote work became normal. In 2021, Spotify drew attention by announcing that employees on its Work From Anywhere program could be paid at rates benchmarked to high-cost hubs like San Francisco or New York, regardless of where they actually lived. Several years on, most companies, including Spotify itself, have settled into a more location-based model, but the underlying question for compensation strategy has not gone away: should pay follow the role, or should it follow the person’s location?

Why Some Companies Experimented With Location-Agnostic Pay

The logic behind location-agnostic pay, paying the same salary for the same role no matter where the employee lives, is straightforward: it removes geography as a factor in how an organization values a position. Companies that adopted this approach during the remote work boom argued it simplified pay structures, reduced internal pay disparity between colleagues doing identical work, and let them recruit talent anywhere without losing candidates over a lower regional offer.

This approach is realistic mainly for well-funded companies or those already operating in expensive labor markets such as Silicon Valley or other major United States tech hubs, because for them the “high” rate is already their baseline cost. For most other employers, paying every hire at the rate of the most expensive city they recruit from is simply not affordable at scale.

Why Most Companies Still Use Location-Based Pay

The more common model in 2026 is still location-based pay, where salary bands are adjusted to the cost of labor and cost of living in each market. Recent European workforce surveys show hybrid working is now the dominant model across the region, with adoption above 90% of companies in markets like the Netherlands and France, while fully remote arrangements remain especially common in Germany and Sweden. That mix of hybrid and remote work means most HR teams are still managing pay across multiple cities and countries at once, not deciding between one office and one salary band.

Location-based pay keeps salaries aligned with what a role would otherwise cost in that specific labor market, which avoids the two failure modes of a flat, one-size rate: overpaying relative to the local market in lower-cost cities, and underpaying relative to the local market in higher-cost ones. The trade-off is that two people in the same role, at the same level, can be paid very differently depending purely on where they are based, which raises its own fairness questions when teams are distributed and collaborate closely day to day.

What the Salary Data Actually Shows

To see how large these gaps can be in practice, the table below shows current gross annual base salary benchmarks for a Software Engineer role across four major European tech hubs.

According to TalentUp salary data (retrieved 17 June 2026), a Software Engineer in Berlin, Amsterdam, or Paris currently earns roughly 40% more on average than the same role in Madrid, even though all four cities sit within the same currency zone and the same general European tech labor market. That spread illustrates exactly why a single flat salary for a job title, applied identically across every location, almost always overpays in one market and underpays in another relative to what each local market actually supports.

The Real Consequence: Wider Pay Bands, Not Just Higher Pay

When a small group of well-funded companies pays a flat, high rate regardless of location, it does not just raise pay for the people they hire, it widens the overall pay band for that role in every market where they recruit. Local employers competing for the same talent pool either have to stretch their own bands upward or accept that they will lose candidates to companies offering the flat-rate model. Over time, this can increase pay inequality between professionals doing the same job, with some earning several times more than others purely based on which company’s pay philosophy they happen to fall under, rather than differences in skill, experience, or output.

That widening effect is one of the reasons compensation teams increasingly think about location-based pay as part of a broader Impact of remote work on compensation and benefits strategy rather than a standalone pay rule, since remote and hybrid policies, benefits, and salary geography are now interconnected decisions rather than separate ones.

Cost of Living Is a Useful Starting Point, Not a Complete Answer

One common way to set location-based pay is to anchor it to cost of living: someone based in a higher-cost city receives a higher salary than someone in a lower-cost one, on the logic that take-home pay should stretch to a comparable standard of living. This is a reasonable starting point for building a compensation strategy, but it has real limits. Cost of living varies meaningfully within a single city, between a city center and its suburbs, and cost-of-living indices do not always track what employers are actually competing against in the local labor market for that specific role.

Labor market rate, not cost of living alone, is usually the more reliable anchor for pay decisions, because it reflects what other employers are actually willing to pay for the same skills in that location right now, rather than a general cost index that may not move at the same pace as tech salaries.

The EU Pay Transparency Directive Adds a New Layer

Location-based pay decisions now also need to hold up under the Pay Transparency Directive (Directive (EU) 2023/970), which requires employers operating in the EU to set pay using objective, gender-neutral criteria and to be able to justify pay differences when challenged. A geographic pay differential is generally defensible when it is documented and tied to consistent market data for each location; it becomes a legal and reputational risk when it is applied inconsistently, or when location is used as a proxy that masks unequal pay for comparable work. Companies hiring across multiple EU countries should expect to document their location-pay methodology with the same rigor they apply to job leveling and merit cycles.

Building a Defensible Location Pay Strategy

The companies that handle this well treat location pay as a documented policy, not an ad hoc negotiation outcome. That means defining a fixed methodology, for example a set of location tiers or city-level multipliers, applying it consistently to every hire and every internal move, and refreshing the underlying market data regularly enough that the bands do not quietly fall behind the market.

Through the TalentUp Salary Platform, HR and compensation teams can pull current, city-level salary benchmarks for a role instead of relying on outdated surveys, anecdotal offers, or a single flat number borrowed from a headline-grabbing policy announcement. That live data is what makes it possible to set location pay bands that are both competitive in each market and defensible if questioned under pay transparency rules.

The bottom line is that “same salary everywhere” and “different salary everywhere” are both oversimplifications. The companies managing this best are not choosing one extreme; they are building documented, data-backed location bands that track real market rates city by city, then applying them consistently enough to survive both an internal fairness audit and a regulatory one. Whichever model a company chooses, the decision should be deliberate and data-driven rather than inherited from a single company’s headline-grabbing policy announcement.

Frequently Asked Questions

What is location-agnostic pay?

Location-agnostic pay means an employer pays the same salary for the same role regardless of where an employee lives, often benchmarked to a high-cost hub. It removes geography as a pay factor but is realistic mainly for well-funded companies already operating at high-cost-market salary levels.

What is location-based pay?

Location-based pay adjusts salary bands for a role according to the cost of labor and cost of living in each specific city or country. It is the more common model among employers managing hybrid and distributed teams across multiple markets.

Does offering the same salary everywhere increase pay inequality?

It can. When a small group of companies pays a flat, high rate regardless of location, it widens overall pay bands in every market where they recruit, which can create large pay gaps between professionals doing the same job depending on which company’s pay philosophy applies to them.

Is a geographic pay differential legal under the EU Pay Transparency Directive?

Yes, provided it is based on objective, consistently applied, gender-neutral criteria tied to documented market data for each location. It becomes a risk if applied inconsistently or used to mask unequal pay for comparable work.

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