Remote work is not new. As far back as the early 90s, the idea of “telework” or “telecommuting” was taking root. Since then, remote work - whether full time or on a part time / hybrid basis - has been gaining traction, though slowly.
That pace changed in 2020 when COVID-19 closed offices and forced remote work on large segments of the population. The massive shift to remote work proved that the majority of today’s workers are just as productive in a home-based environment as they are in an office. It also showcased the value of working remotely to employees. As a result, companies are increasingly exploring the idea of shifting to fully distributed teams on a more permanent basis. Backing this up, a survey of HR leaders by The Conference Board found that just 4% said they were requiring all employees to return to the office.
But with this shift comes the challenge of redesigning compensation practices and policies to suit a newly distributed workforce. As your company looks to the future of work, it’s critical to develop a compensation plan and structure that suits your culture, your budget, and your employees.
Over the past couple years, employees
have taken to remote work. They appreciate the flexibility and independence it provides, the time saved in commuting, and even the cost savings related to transportation and parking. But a remote workforce has benefits for employers, as well.
While things like reducing overhead by minimizing or eliminating office space and cost savings related to transportation or parking allowances are nice, the real value organizations see in either hybrid or fully remote teams is related to attracting and retaining talent. According to World at Work’s 2022 Geographic Pay Policies Study, 38% of employees would consider looking for new employment if remote work arrangements were discontinued. That number is disputed by a recent ADP Research Institute survey, which put it even higher, at 64%. Hiring remotely also opens up your talent pool, giving you access to prospective employees from across the country, continent, or around the globe who otherwise might not have considered your company.
However, remote work isn’t suitable for all companies and positions. Industries like healthcare, manufacturing, and retail all require employees to be physically present to complete their work. And even some jobs that could be done remotely may benefit from the hallway conversations and collaboration offices can offer. These are important considerations when determining whether to institute a more permanent remote work policy.
Once you’ve determined whether to implement remote work permanently, it’s time to address compensation.
Evaluate Your Options for Remote Work Compensation
Historically, compensation is largely determined by location and cost of living. For example, a human resources director living in Chicago is likely to make more money than someone doing the same job while living in Tulsa. When everyone was working in offices, managing compensation based by location was relatively simple; however the shift to remote work adds layers of complexity. That World at Work study I mentioned previously also showed that more than half of companies with existing geographic pay policies recently modified or are considering modifications to comp policies due to the increase of full-time remote work.
Companies that use location-based compensation determine salaries based on the market rate in the area where the employee lives. Although it may seem like the easiest choice, this type of compensation can unintentionally create real or perceived inequity among employees.
If one of your workers moves from a high cost of living area to one with a lower cost of living, they could end up making more than other employees living in the same city. One strategy to combat this problem would be to reduce the salary of the employee who moved to the smaller city, but while this solves the inequity in pay, it can create backlash. Employees don’t like to see their pay cut; Google’s former head of HR spoke out bluntly about the company’s decision to reduce pay for people who relocate to lower cost of living areas, calling it a huge mistake.
If not location-based pay, then what?
This strategy involves paying employees based on their job title and qualifications regardless of where they live. While this seems like a good strategy for preventing inequity, disparities can still be perceived. If two employees make $85,000 for the same position, but one lives in San Francisco and the other lives in Denver, the
employee in Denver will appear to be making a better salary because their cost of living is lower.
As remote work becomes more embedded in organizations, this model is gaining traction. That World at Work study found a 6% year-over-year increase in organizations using a single pay structure with no geographic differentiation.
Similar to location-based compensation, this model uses geographic zones to determine pay rates. Areas with similar demographics and cost of living end up in the same pay zone regardless of their location.
In a 2010 blog post, the Society for Human Resource Management advised, “Pay zones provide large geographic data cuts and are useful for organizations that want to create geographic pay differentials accurately and intelligently.” The organization groups zones based on conditions in the metropolitan area.
An argument for this model is that it allows workers to be compensated for their skills and experience, but also considers their regular expenses. It typically results in better parity among employees.
How to Determine Which Model to Use
There aren’t any hard and fast rules that determine the best way to set salaries. Your business could use any of these models - or even a combination - to determine compensation for remote workers. Rather than just jumping in and making a decision, it’s best to weigh your options.
Testing different models and evaluating how they would impact current employees and new hires is a critical step in finding the compensation strategy that will work best for your company and workforce. As is assessing how those models align with your company norms and culture. Being thorough on the front end will save a lot of time and avoid potential problems in the future.
Clear Communication is Key
Regardless of which model you choose, ensuring transparency and clear communication is critical. Part of the backlash Google and other companies experienced when they moved to adjust pay based on employee-driven relocation was that it came as a surprise. When people are making decisions about where to live and work, they need to understand how that may (or may not) affect their compensation.
Knowing how they will be compensated also allows potential recruits to make a better decision on how they fit within your company’s culture. Being open and transparent about your compensation model creates a culture of trust among your employees and can help with retention.
Remote Compensation Into the Future
While many displaced employees will likely return to the office on either a full or part time basis, others will decide to work remotely permanently.
Getting ahead of potential issues by carefully analyzing the data and developing a compensation management strategy for remote work will help make the future of work work for you and your team.