The pandemic generated a migration of employees from metro-based offices to smaller, more affordable communities where they could work from home. New complexities – mostly centered around pay scale – have arisen with this shift to remote work. Many companies have struggled to find equitable ways to compensate employees, and some employers have decided to pay them less.
Following the announcement by Meta, Facebook's parent company, that workers would be able to apply to work remotely on a full-time basis after the pandemic, Meta also announced that remote workers who moved away from Silicon Valley to a more affordable location could expect their pay to be adjusted. While this appeared specific to the seismic shift to work-from-home post-pandemic, it was in fact, part of Meta's typical compensation practice. Indeed, companies like Meta and Twitter already used location-based pay to ensure pay equity across the organization. This announcement was merely a continuance of that pre-exiting practice.
In contrast to Meta and Twitter, companies such as Airbnb, Reddit, and Sourcegraph have eliminated location-based compensation adjustments for their employees. With the tight labor market and increased competition to attract and retain talent, these companies hope to demonstrate to workers that they are paid for their skill and not where they live.
Employers' methods for dealing with pay in this new work-from-home environment have been as diverse as employee opinions on this issue. Although a significant number of workers view the pay cut as worth it to live wherever they want, some remote staff are questioning the validity and fairness of a pay cut when productivity has increased.
Pre-pandemic, remote work was the exception and setting compensation rates was based on a traditional two-factor approach:
- The cost of living in a particular area, which was determined by considering the price of goods, services, housing, and tax rates in the area; and
- The cost of labor, which looked at the predominant pay for a particular role in a specific location with consideration given to the industry, years of experience and/or seniority, and responsibility.
With the rise of remote work, and the movement of employees across locations, the traditional compensation model has been challenged. There are now four approaches employers can consider when setting compensation levels for work-from-anywhere employees:
- Align all compensation with company headquarters. This approach is based upon the philosophy that a role has a certain value, and it does not matter where the role is located. This approach is likely appropriate with an employer who is relatively open to work-from-home arrangements.
- Set current market-level pay for the employee's remote-work location. Pay remote employees based upon how the organization in their location pays for a similar position. The employer should maintain a competitive pay offering by location for every remote worker. This approach could be challenging if the employee resides in an area where the employer does not have an established workforce.
- Develop a geographic differentials structure. This approach recognizes differences in compensation by zones rather than individuals and location.
- Pay based upon the cost of living. Employers set pay based on the headquarter's location and then adjust compensation based on the cost of living where the remote employee is working.
When deciding upon the right compensation approach, employers must consider what works best to support their business practice and then follow the approach consistently. A clear remote-pay policy should be developed, included in the employee handbook, and clearly communicated to hiring managers to ensure consistent pay practices. Employers evaluating the appropriate pay structure may want to consider a pay audit on the front end to ensure pay equity across the organization. Any employers interested in pay policies or a pay audit should contact Spilman's labor and employment team.