Location-based pay supports pay equity, talent acquisition and retention, as well as organizational sustainability.
Pay adjustment can be a sensitive topic for both a relocating employee and the employer. Keeping the conversation centered on compensation best practices might make the discussion easier, especially when a pay reduction is involved.
The debate about reducing pay for relocating employees began earlier this year when Facebook CEO Mark Zuckerberg said employees who choose to relocate to “dramatically” lower cost-of-living or cost-of-labor areas “should expect to be paid less.” What often gets lost in the conversation is that Facebook already used location-based pay as a compensation practice. Adjusting salaries for relocating employees aligns with Facebook’s goal to ensure pay equity across the organization.
Facebook isn’t the only company to set pay for remote workers based on location. Others, including Twitter and online payment processing provider Stripe, reportedly will reduce the salaries of employees who move to lower-cost areas.
Asking employees who relocate to areas where labor costs are relatively low to accept pay adjustments based on the “going rate” for the job in the new location is a practice that advances equity. It ensures that employees working in the same position across an organization receive similar compensation based on local costs. It is important to note that the same principle should apply when workers relocate to relatively higher-cost locations, especially if the move is at the employer’s request.
Opponents of location-based pay reductions say the practice leads to employee disengagement and talent retention challenges. The Salary.com 2021 Remote Work & Compensation Pulse Survey found that employees “will not tolerate being compensated less for remote work” and 72 percent of companies “have no formal practice in place for determining remote pay.” However, a WorldatWork study on geographic pay policies found that almost 70 percent of surveyed full-time workers expect their pay to reflect their location.
Effective location-based pay policies will help ensure that an organization’s practices are consistent and equitable. When done well, the approach will promote talent attraction and retention, but it requires a focused design and comprehensive framework, which includes the following:
Crafting a strategic pay philosophy. Employers should determine whether to set pay at the market, below market or above market based on the organization’s strategic agenda.
Identifying remote work that aligns with business objectives, strategies and needs. A remote workforce operating in different locations might not be feasible or appropriate for every organization. Each company should determine the categories of employees and types of positions that can effectively work remotely as part of its long-term remote-work strategy.
Designing and implementing a consistent, integrated approach around pay adjustment decisions. The organization’s strategy, processes, structure and policies must be designed to ensure consistency and equity regarding pay reductions for remote workers.
Calibrating pay reductions based on market rates and demand/supply factors. Organizations need to exhibit flexibility on pay to remain competitive. For example, in order to retain a hard-to-source worker in a high-demand role, a company may decide to pay that employee an above-market rate.
Proactively managing potential employee disengagement and attrition. Employers should be transparent with employees and create awareness about company pay practices, including location-based pay policies.
Bunmi Biu is a global HR and organizational development consultant and an adjunct lecturer with Georgetown University’s human resources management program in Washington, D.C.
Employees should be paid what their work is worth, no matter their location. It’s a matter of reducing risk and remaining competitive.
The COVID-19 pandemic changed the way employers view flexible work arrangements as workplaces closed and employees began working remotely full time.
Now, as employers reopen their doors, we cannot go back to our pre-pandemic ways of working. The physical location where employees perform their work should not impact the amount of money they make.
If employers approach compensation with the attitude that workers in a different location or those who relocated during the pandemic are less valuable, they will not be able to attract the best talent. Their entire business will become less competitive. That stance will also likely cause current employees to depart, taking their skills and knowledge with them and leaving the company in a weakened state.
But organizations that allow employees to shift to remote work—regardless of the location—will be rewarded by the market and less exposed to charges of inconsistent treatment.
Pay for remote work has taken on heightened importance and is likely to become an even more common issue for employers. A Marketplace-Edison Research Poll found that 22 percent of Americans moved or permanently relocated during the first six months of the pandemic or were considering doing so soon.
The public health crisis also heightened employment trends that were already underway, including offering flexible work arrangements as a recruitment incentive when open jobs could be done remotely.
As restrictions begin to ease, cutting the pay of employees who relocated during the pandemic certainly will not incentivize them to remain with the company.
Employees do not lose the knowledge, skill sets or experience that led to their current compensation simply by relocating to a new city, state or country. Their salaries should reflect their roles, productivity and performance—not their location.
Large U.S. companies, many of which were already offering hybrid-work arrangements prior to the pandemic, are trying to retain their existing talent by offering several competitive options. Some have announced that their employees at all levels can work remotely full time after the pandemic ends. And some are taking the stance of adjusting pay based on market rates.
Employees who moved during the pandemic now face the choice of either returning to their former home base or taking a pay cut.
If a company takes the position that relocation should impact wages, some employees who want higher wages could move to a more expensive area. A company that balks at such a move could be exposed to allegations of inconsistent treatment.
The easiest way to avoid the potential complications and legal pitfalls that might result from paying a varying wage is to maintain the same rate of pay for employees regardless of their work location. This allows companies to demonstrate to workers that they are being paid for their skills and work, not where they live.
The past year showed us that employees make valuable contributions even while working from home. In fact, many people have shown they are actually more productive when working remotely because they are no longer burdened by time-wasting commutes and frequent interruptions by colleagues.
Employees who have flexibility are happy employees because they feel in control of their time—and their location.
Keeping employees happy, particularly in this competitive, post-pandemic business environment, makes good business sense.
Rick Grimaldi is a Philadelphia-based attorney specializing in labor and employment law and the author of Flex: A Leader’s Guide to Staying Nimble and Mastering Transformative Change in the American Workplace (Wiley, 2021).