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Rethinking Employee Compensation for Remote Work

As organizations continue to change and implement practices for managing their talent remotely, there are many implications to consider, including the impact of remote work on compensation. This topic has spurred a debate regarding whether remote workers that move to lower cost of living areas should face a salary change in order to align with the cost of living and labor costs at their new location.   

Last month, CNET reported that Google recently rolled out a new work location tool that enables its employees to estimate how their salaries might decrease depending on opting to work remotely full-time or move to a new and less expensive geographic location. Some suggest that this decision will demoralize employees and lead to employee turnover.  In contrast to Google’s decision, a Forbes article also reported that companies such as Reddit and Zillow acknowledged that they will not adjust compensation down for their remote workers who chose to move to less expensive areas of the country. 

Of course, there are points to be made on both sides. Employees who are fully remote will save money by not having to commute and can also choose to presumably live in a more affordable place.  In a recent study by Forbes, approximately 44% of respondents said they would take a pay cut if they were able to permanently telecommute.  For companies, location-based pay means that staff located in less expensive living areas are paid less, and the company therefore saves on salary costs.  Remote work locations also open the candidate pool to the company for recruiting purposes and may save on real estate costs if a large percentage of employees remain remote.  Facebook has stated that it already pays based on location, but it recently announced that employees working remotely must notify Facebook if they move to a new area so that salaries can be adjusted. 

So, should workers take a pay cut to work remotely in a less expensive location?  Opinions are divided.   

Once you pay different salaries for the same job, you may be on a slippery slope of pay fairness, equity and possible discrimination.  The reasons for pay differential must be properly disclosed and communicated.  If your company nixes location-based pay in favor of equal pay for equal work, they take geography out of the equation. “The philosophy is you are asking employees to do the same job that they did before they moved, so why do they become less valuable if they are doing it from somewhere else?” asked Peter Cappelli, a professor of management at University of Pennsylvania’s Wharton School.  Is it really the company’s issue if they pay a talented worker who happens to live in Idaho versus New York? From the employee’s perspective, paying a lower wage based on geography, but expecting the same work output, potentially sends a negative message when companies are already fielding retention and talent issues. 

In a tight labor market, the decisions that companies make on location-based pay will be critical.  According to an April 2021 SHRM Survey of the 62% of organizations with existing geographic pay policies, 44% are considering modifying their policies due to the increase of full-time remote work. 

Here are 5 tips to help with compensation planning: 

  1. Challenge the company’s past thinking. Align compensation with strategic and operational goals. 
  2. Plan and listen to employee preferences.  
  3. Communicate carefully, effectively and make sure to be transparent. 
  4. Compensation should be simple, fair and equitable. 
  5. Make sure your compensation plans help you retain top talent. 

Employees continue to expect some flexibility regarding where and how they work, and the challenges of managing and paying a remote workforce will continue to impact compensation strategies.   


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