What To Do About Pay for Remote Workers?
Remote working is not a new phenomenon. As early as the 1960s, the company Private Automated Business Exchanges (PABX) allowed companies to establish lower-cost customer service and sales offices miles away from their main corporate campuses. In the late 1990s, many larger businesses began moving customer service and technical support operations overseas—to India in particular—to leverage significantly lower wages in these regions.
In fact, the success of this model led to the “outsourcing” of many other services, particularly among high tech companies. Silicon Valley found it could hire skilled, well-trained coders, programmers, systems architects, and other technical specialists in foreign countries for a fraction of what they’d have to pay in the United States and, using the web, still manage and communicate with them in real-time as if they were in the office next door.
Still, for most companies, the idea of “going to work” in a central building was a model that refused to be challenged. Yes, customer service, tech support, and even sales could be housed off-site, or even off-shore, but the real work— the creative stuff—planning, strategizing, designing, developing, managing— had to be done “at the office” where people could congregate, collaborate, share ideas, and remain under the watchful eye of supervisors.
Starting with the Dot.com boom of the 1990s, companies invested heavily in creating “campus” atmospheres including not only vast workspaces, but also alluring features like cafeterias, game rooms, gyms, and other amenities designed to keep employees on site as much as possible. Perhaps the ultimate expression of this ethos is Apple’s massive “flying saucer” 2.5 million-square-foot headquarters building in Cupertino, California, which opened in 2017 at a cost of $5 billion. It is designed to house 12,000 employees.
Then COVID changed everything.
First detected in the city of Wuhan, China, in late 2019, the coronavirus spread quickly to become a worldwide pandemic. Physical isolation (more politely known as “social distancing”) became a key defense against the scourge. Many businesses immediately told their employees to stay home and perform as much work as they could via the Internet. Meetings and conference were soon streamed over apps like Microsoft Teams and Zoom. Only so-called “essential workers”—employees who performed hands-on work requiring them to be physically present—were unable to take advantage of this sudden and dramatic “remote working” trend.
So, what happened?
For the most part, people found that remote working, well, worked. After a short adjustment period, those who had worked on computers in offices learned they could perform the same tasks just as well at home and avoid the time-suck (and expense) of commuting. Also, companies suddenly discovered a whole new pool of potential talent. They were no longer forced to hire locally but could instead recruit employees from literally anywhere. In fact, many organizations are now opening remote hubs in cities where labor is cheaper, and opportunities exist for the kinds of skills needed.
So, now that remote working appears to be here to stay, what does this mean for employee compensation? Do the same salary and benefit formulas apply for people who work at a central office as they do for those who work from home—especially if those homes are in distant cities—or even states?
In this new reality, organizational leaders must:
Determine how to maximize productivity while maintaining and growing their company culture, promoting real connections between people even when those individuals may rarely, if ever, come into physical proximity.
Create a policy that clearly defines what roles can be performed remotely.
Determine what locations must pay geographic differentials. For example, if an employee chooses to move from a high-cost-of-living area to a lower-cost-of-living-area, I don’t recommend reducing their pay. However, when annual merit increases are awarded, the cost-of-living in the employee’s area can be considered.
When hiring in a new region, consider the cost of labor in the area where the new employee resides. In 2021, Deloitte conducted a survey that found 70 percent of companies use differentials to adjust salaries. (This number rose to 85 percent for tech companies.)
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Note: I do not recommend considering geographic differentials when working with “hot talent” sets and jobs with salaries above $150,000. In these cases, we’re not talking about commoditized skills, but rather the education, experience, and availability of an individual candidate. Also, I recommend ensuring pay equity stay part of the mix when setting pay levels for remote workers. (Companies must be intentional about not creating discriminatory or inequitable pay practices in different locations where employees reside.)
If you require a compensation policy reflecting today’s remote-working economy, we can help. My team and I are compensation and corporate culture specialists. You can contact me at laura@conoverconsulting.com.
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