4 Considerations to Weigh Location-Based Pay in a More Remote Work World

by Patrick Luther

The conversation is continuing around boardrooms and kitchen tables as both employer and worker decide what’s best for them.

©Angelina Bambina/iStock/Getty Images Plus

The pandemic enabled more workers to work remotely, and with that, companies are now facing new challenges in how to pay people who move to a lower cost area and want to remain as remote workers 

Some companies, like Google, say workers will likely see pay cuts if they move to lower cost areas with salaries once based on higher cost areas, such as Silicon Valley. Other companies, such as Zillow, say earnings potential should be based on performance—and not limited by where people live.

Meanwhile, 72% of companies have no formal practice in place to determine pay for fully remote workers, indicates a recent Salary.com survey. That means the conversation is continuing around boardrooms and kitchen tables as both employer and worker decide what’s best for them.

More Remote, More Hybrid

It is now clear that more workers will continue to work fully or partially remote than before the COVID-19 pandemic. This will enable more people to live in different, often lower-cost areas, and keep their jobs. It will also make it easier to move slightly further away from the office and live a hybrid work life, with some days in the office and some at home. A recent Ceridian survey indicates that 9% of U.S. workers moved to a different city, region or country since the start of the pandemic.

Every company has unique considerations when setting pay policies. When devising how or whether to adjust pay for people moving to lower cost areas because they can now work remote, compensation committee executives should weigh certain factors, including:

  • Equitability. Workers want to be treated fairly and consistently. There may be a strong business case to lower salaries if people move to lower cost areas, but workers may feel it is unfair, especially if they’ve proven that they’re productive while remote. On the other hand, workers who cannot move to lower cost areas, or who don’t want to, might find it unfair that colleagues figuratively get a big pay bump if they do and retain big-city salaries. Some workers cannot move because their jobs require access to special equipment or frequent face to face meetings. Still, others won’t want to move for personal reasons. Each company will have to assess their workforce, and the pros and cons of reducing or not reducing pay for those who go remote and relocate.
  • Be clear. The more information workers have to understand a decision, the more likely they’ll feel okay with it. If a pay cut is a factor of a worker moving a to a lower-cost region, provide them with hard facts around cost of living, saving on commute costs, taxes, etc. In June, Google developed a new "Work Location Tool" to assist employees in calculating their pay. It was "developed to help employees make informed decisions about which city or state they work from and any impact on compensation, if they choose to relocate or work remotely,” Google told CBS News. If employees see that they’ll gain by moving, even if it means a pay cut, they’ll be less likely to feel ill-will toward their employers. The important point is to be clear about the facts so that they can make informed decisions.
  • Track results. Once you make a change, leaders must actively check results: does productivity go up or down? How about innovation? Do you lose talent or become more of a sought-after employer? Given the extremely competitive recruiting environment in many industries, the last thing employers want is to give people a reason to leave. For highly sought-after employees, not reducing pay for remote work is one way of ensuring retention. In other roles with less demand and more supply, a location-based compensation model may make more sense. Better pay and benefits ranks as the No. 1 reason people look for new jobs, indicates the recent Ceridian Pulse of Talent survey. The No. 2 reason was a desire for more flexibility, which includes remote work.
  • Be willing to adjust. If results aren’t what you want, pivot. Inform workers that things may change as the company shifts during the pandemic and after. Companies may find that it becomes obvious to shrink real estate costs in expensive markets and to incentivize remote work in those areas by not changing salaries for those going remote. Watch competitors and, perhaps, follow the consensus.

Continued Shifts Next Year

The pandemic forced changes in how and where we work. Employers and employees across the nation successfully adjusted. A PwC Remote Work survey in January found that both employers and employees reported productivity gains from remote work.

With that as a new normal, it’ll take months, or even the next year, for consensus to be reached on the future of location-based pay without the threat of a pandemic.

In today’s tight labor market, existing employees have more leverage than ever to shift to remote work and maintain their salaries. Longer term, how new hires are compensated, whether they work in an office or remote, may well depend on labor supply and demand.

Patrick Luther is a Principal, Financial Services at Ceridian.