The pandemic untethered millions of people from their big-city offices, allowing them to move to smaller communities where they could work from home. But the mass migration has become a nightmare for companies, which are struggling to find equitable ways to compensate employees who have the upper hand as remote-friendly roles proliferate in a tight labor market. “It’s one of the hardest business problems to solve right now,” says Daniel Yanisse, co-founder and chief executive officer of Checkr Inc., a provider of background checks for hiring based in the Bay Area. About 40% of Checkr’s staff live 50 miles or more from one of its six offices. “We’ve fully embraced remote work, but how do you adapt to all these locations?”
Traditionally, big companies based pay on a set of common guidelines including the cost of hiring skilled labor in a particular region. They then lowered salaries as much as 25% for workers who relocated from, say, San Francisco to Boise, Idaho. That made sense until March 2020, when coronavirus-fearing employees fled hither and yon and came to enjoy their remote-work lifestyle.
Since 2020, about 2.4% of Americans, or 4.9 million people, say they’ve moved because of remote work, according to surveys from freelance marketplace Upwork. Its recent polling shows the migration is poised to continue: Almost 1 in 10 Americans plan to move to work remotely. Since January 2020 in the US, monthly remote job postings have tripled, according to Tecna, a tech industry trade group association, and they’ve more than quintupled for tech roles such as software developers. Now workers are pushing back on automatic pay reductions based on their location, arguing that areas previously considered far-flung are becoming more expensive. With talent scarce and staff quitting at a record clip, companies have had to revamp and consolidate pay tiers. Some are doing away with them entirely; others are freezing or slow-walking salary hikes for workers who’ve moved to more affordable areas.
Whatever strategy organizations employ, questions abound, including tax considerations and deeper concerns about what fair pay actually means. “Nobody was prepared for the turn this took,” says Alicia Scott-Wears, director of compensation content strategy for WorldatWork, a nonprofit that provides education and certification for human resources and compensation professionals.
Simply adding more pay tiers creates administrative headaches, not to mention risks causing defections, as many workers simply won’t accept pay reductions anymore. So one approach is to consolidate a slew of location-based tiers into three broad categories of pay. That breakdown makes it easier for administrators to manage, but some specialists—such as coders—command premium pay no matter where they live. “The tech companies that first announced plans to pay less in low-cost environments, many have reconsidered that,” says Bill Dixon, a managing director at compensation consultant Pearl Meyer. “Talent in tech is very dynamic and very mobile. People are moving where they want to be and will not accept less pay.”
Tech-focused companies engaged in battles for talent are shifting policies on the fly. Okta Inc., a cloud software company, moved from four pay tiers to two in November. Airbnb Inc. has eliminated location-based compensation adjustments for US workers. Sourcegraph, which helps developers search and fix code, has taken that approach even further, pledging to pay the same base salary for the same role globally. Although that certainly inflates compensation costs—and could put workers at the mercy of volatile foreign currencies—CEO and co-founder Quinn Slack says it’s worth it to get the best people. Doing away with location-based pay adjustments really only works for companies with a work-from-anywhere policy, says David Buckmaster, who’s designed compensation programs for big employers including Nike Inc. If some employees are still tied to an office in an expensive city such as New York, they’ll resent colleagues who can make New York salaries while living in lower-cost Orlando, says Buckmaster, who now works at mobile game developer Wildlife Studios.
For companies with employees spread all over the map, simply figuring out where everyone is at any given moment can be a hassle. Human resources managers need to navigate the web of tax laws and other regulations in every location with remote staff. But the share of HR professionals who felt very confident they knew where the majority of their employees were working declined from 60% in 2021 to 46% this year, according to Topia, which helps companies manage distributed workforces. “There’s a whole series of dominoes that need to be considered when people move freely and work,” says Suzanne Odom, a principal and compensation expert at employment law firm Jackson Lewis.
These challenges have created business opportunities. Startups such as Deel have emerged to manage payrolls for remote workforces. Radford, a product of Aon Corp.’s human-capital business, compiles salary information from 5,500 companies into a global compensation database that businesses use as a guide. It’s now introducing new “location analytics” tools to help companies decide what to pay distributed workers. About 25% of companies no longer differentiate pay by geographic area, up from 19% last year, according to WorldatWork. But that practice won’t become commonplace, says Radford associate partner Olivier Maudiere. Instead, companies will create several broad-based pay zones, find ways to align a relocated worker’s pay with local norms over time, or handle things on a case-by-case basis, he says.
“There’s no objective answer to how to structure remote worker pay, because there’s no answer to how to structure pay in general,” says Jake Rosenfeld, a sociology professor at Washington University in St. Louis whose research focuses on pay variations. For workers, it’s important that employers are transparent with how they’re designing compensation. “If you can explain why you’re doing what you’re doing, that will engender goodwill.” —With Reade Pickert
Bloomberg
