Decoding the Housing Affordability Challenge for Compensation Analysts: A Call to Action

The recent affordable housing crisis has highlighted the need for compensation analysts to double-check their own market data and practices.

This may be frustrating to hear, as in the intricate world of compensation planning, we spend so much time evaluating every aspect of our pay programs – the compensation data, the compensation philosophy, the competitors, our employees. Which can make it frustrating when even after all this work, we have employees or leaders who tell us that they think our programs are inaccurate.

However, if so many companies are carefully plotting their pay programs, yet more and more employees report being unable to afford housing, or if they can afford housing, it’s pay check to paycheck living – then something must be going wrong.

This blog post aims to give a practical guide to compensation analysts on how to ensure they are paying a "thriving" wage.

Defining a Thriving Wage

If you're involved in planning compensation rates for your company, you already know that you have to set up wages for minimum wage laws and FLSA requirements. However, few pause to check if their wages are not just a living wage, but a “thriving” wage.

Before we give a guide to test your company’s pay for a thriving wage, let’s define what we mean by that term – if you Google it, you’ll find several definitions from consultancies. We at Pequity use this term though as being able to live and afford more than just housing; a thriving wage is one that provides enough to pay for all their necessities, to have some disposable income, and to save for the future.

So we look to our Government to help us define what amount we would call a “thriving wage.” According to the Housing and Urban Development (HUD) Office at, the HUD Department considers any family “who pay more than 30 percent of their income for housing” to be “cost burdened.” These families are further defined as possibly having “difficulty affording necessities such as food, clothing, transportation, and medical care” at this >30% of income rate. HUD further defines, “severe rent burden” as paying >50% of income on rent. (link here)

This 30% rule has long been touted by banks and financial institutions as the ideal ratio, as if you are spending 30% of your paycheck (gross, not net) on housing costs (including utilities) the thought is you’ll have income left over to save for retirement and afford necessities. This percentage first appeared in a 1969 amendment passed by Senator Edward Brooke, an affordable housing advocate and coauthor of the 1968 Fair Housing Act.

The amendment, called the Brooke Amendment, capped public housing rent at 25 percent of a resident’s income in response to rent increases and public housing complaints. Representative Barney Frank explains that “[the amendment] said originally that the poorest of the poor who get housing through various public programs shouldn’t be expected to pay more than 25 percent of their income for housing, precisely because they have so little.” The 25% rule persisted until 1981 when Congress raised the cap to 30%.

That said, many critics are quick to point out this 30% rule has its flaws, which we at Pequity want to acknowledge. Using the 30% rule as a way to measure the exact thriving wage for a location is more of a crude bludgeon than a scalpel – for instance we know that if you make $1,000,000 per year, spending 50% of your income on housing would be incredibly high, but would also not mean you are under a “severe rent burden” and therefore not “thriving” at that pay rate.

In addition, the 30% rule does not consider families with two earners, or families who make tradeoffs (e.g. a spouse who stays home) to afford higher qualities of life.

However, this metric has long been held as a rule of thumb for housing measures, and while imperfect, is a good broad paint brush for us to look at our pay programs and ask ourselves – are we paying a “thriving” wage?

Calculating a Thriving Wage: A Practical Guide

Now that we have a definition of a thriving wage, and know some of its flaws, here's a practical step-by-step guide for you to check what a thriving wage is in your area:

  • Gather Real Data from or Zillow: Begin by accessing platforms like or Zillow. Download the average and median rent and mortgage rates for the specific area you are generating pay ranges. These are available for export on their websites.

  • Determine Median or Average Monthly Rates: Identify the median or average monthly rent/mortgage for the area. Median is often more accurate. This figure will serve as a foundational element for calculating a thriving wage.

  • Multiply and Divide for Clarity: Multiply the median/average rent/mortgage by 12, and then divide the result by 0.25. The final value gives an estimate of how much you should be paying for an employee in that location to afford housing comfortably, with room for savings and general living expenses.

This calculation is based on the above financial advice suggesting that housing costs shouldn't exceed 30% of gross income. However, since the 30% recommendation is inclusive of utilities and insurance, this guide uses 25% to exclude those, offering a more focused measure of housing affordability.

Now that we have the concept down, let’s look at a concrete example. For example, let's consider San Francisco:

  1. Median rent: $3,350 (Zillow link here)
  2. $3,350 x 12 = $40,200
  3. $40,200 / 0.25 = $160,800

In essence, to "thrive" in San Francisco, a renter should ideally earn around $160,800 annually. It's essential to note that $3,350 represents the median rent for a one-bedroom apartment.

Now the question is – is this what people are being paid? Looking at Gusto which services mainly small employers and startups, “the median salary in San Francisco, CA is $104,400, with 80% of salaries falling between $45,240 and $195,750.” (Link to Gusto article here). This means the median wage is ~65% of the required wage to meet the 30% rule. This also means that to afford a one-bedroom apartment, a person earning this median wage would likely need a roommate. Which we see reinforced in the data, as in 2017 roughly 38% of San Franciscans had a roommate.

This isn’t great, but still, you could argue that employees can thrive in San Francisco if paid >$80,200 per year and have a roommate.

Now let’s look at one more unexpected example: Miami, Florida

Before showing median rents, looking at Gusto again for Miami we see the median salary is $52,000, with 80% of salaries falling between $27,040 and $131,798. (Link here)

Now let’s look at the rent:

  1. Median rent: $3,200 (Zillow link here)
  2. $3,200 x 12 = $38,400
  3. $38,400 / 0.25 = $153,600 thriving wage

In this case we can see that the median wage is only 33.85% of what you would need to earn to make a “thriving” wage and if 80% of salaries are between $27,000-$132,000, then a majority of earners are below the pay needed to meet a “thriving” wage. While Florida is known for having better taxes, these numbers confirm what many news articles have been clamoring about this past year - that Miami has one of the worst affordable housing shortages in the nation. Sample article here.

In the case of Miami, if I were a compensation analyst at a company employing workers in this geo market, I would look at the thriving wage and as a compensation professional I would want to reevaluate the strategy. I may also want to encourage my company to hire talent in other markets, since I would have to pay so much more to offer a thriving wage in this region.

The Complications of Relying Solely on Salary Surveys

Now in the case of Miami, you may be looking at these numbers and wondering “how could this happen?” Often when instances like this come up and company leaders are alerted, their first reaction is “Don’t you use market data surveys to prevent this?”

The answer is complicated, as yes, at Pequity, and in all the companies we oversee, we use a multitude of data sources to create our pay programs. It’s hard to find a compensation analyst that doesn’t have a list of their favorite market surveys and their pros and cons.

However, as someone who has been managing and running compensation programs for years, it’s important to note that these salary surveys often fail to control for the poor compensation practices of other companies. It doesn’t matter if the data is real-time or 6-months delayed – if a company in your data set has poor pay practices, and you then use the data from that company, you risk adopting those figures into your pay ranges. So if someone pays below a thriving wage, or even below a minimum wage – it’s up to you to audit and catch this discrepancy. Otherwise, you risk practices that could cost you talent and trust.

This is why data analysis, and a deep understanding of market data is key for compensation professionals. It’s also why we have to approach our roles like scientists, constantly testing and validating our hypotheses. 

Which is where Pequity steps in and shines for our companies.

Pequity’s Proprietary Model: A Shield Against Data Anomalies

At Pequity, we understand the nuances of compensation planning, and our proprietary model for range builds and advisory is meticulously crafted to manage data anomalies effectively. We recognize that compensation data can sometimes be skewed, and our software is designed to flag instances where someone goes below a thriving wage.

Ensuring Ethical and Effective Compensation Planning

Our commitment extends beyond mere software solutions. We are dedicated to ensuring that your compensation planning aligns with ethical standards and promotes the well-being of your employees. By addressing issues such as the housing affordability challenge head-on, we empower compensation analysts to make decisions that positively impact the lives of their workforce.

Conclusion: A Call to Action

The housing affordability crisis is not just a societal concern; it's a critical aspect that compensation analysts cannot afford to overlook. By integrating real, location-specific data and leveraging tools like Pequity, compensation analysts can not only ensure that their pay rates are competitive but also ethically aligned with the thriving wage principle.

If the intricacies of compensation planning and data anomalies keep you up at night, don't hesitate to reach out. Learn how Pequity’s comprehensive solutions can safeguard your compensation programs against potential pitfalls and foster a workplace where employees not only survive but thrive.

Join us in the mission to make compensation programs fair, ethical, and effective. Let's shape a future where every employee is adequately rewarded for their contribution.

Kaitlyn Knopp

Kaitlyn is a renowned compensation expert, with experience as an analyst and leader of compensation teams in the tech industry with companies including Google, Cruise, and Instacart. Her passion for equitable compensation and efficient systems led her to create and launch Pequity, built on the principles of fair pay and opportunity for all.


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