This is the fourth article in an ongoing series by David Creelman about redesigning compensation planning to acquire and retain top performers. This week’s article is about paying remote workers. To catch up on our previous discussion, read the third article by clicking here.
Setting the pay policy for a permanently remote workforce appears to be a difficult challenge for compensation pros. The apparent difficulty arises from the fact that workers living in expensive locations like New York are often paid more than those working in a cheaper city. This made sense when people were required to live near an office, but it makes less sense when remote workers can live anywhere. The problem reaches a boiling point when a remote worker from an expensive city moves to a less expensive one but still expects the same pay. Here are some truths about paying remote workers:
A Lower Pay Policy Line In Your Home Country
How do we deal with location-based cost of living adjustments when people can live anywhere? When paying remote workers, it helps to frame your comp policy as being, “We pay what we need to attract and retain talent,” rather than, “We pay something extra to compensate people for the cost of living.” If your office was in Manhattan, then you had no choice but to pay wages above the national average to attract and retain talent. Now, even if you have no office, the fundamental question remains the same “What do we have to pay to attract and retain talent?”
If the talent you need lives in expensive cities, then you may find them unwilling to work for national average pay levels, even though they work remote and could theoretically move to a cheaper location. In this case, your compensation policy will need to be above the national average.
However, you may well find that you can pay closer to the national average or even below the national average by finding talented workers living in low-cost locations.
You Don’t Need To Do Much Right Now
There is an ongoing goal of setting pay policy at just the level needed to acquire talent. For some companies, this will mean a lower pay policy than before, such as when they had been recruiting talent only in New York. However, in the short term, you won’t be cutting people’s pay, regardless of where they live, unless you had a specific location-based cost-of-living allowance built into the pay system. In other words, you don’t have to do anything dramatic with your pay policy or practices right now just because much of the workforce will be permanently remote.
What will happen is this: You will continually be looking at national market pay data and working with your talent acquisition team to figure out what you need to pay to get the needed talent. If there is cheaper talent available thanks to remote work, then that will lead to a lower pay policy line. People who are highly paid will end up at the top of their pay band – and that’s okay. It always happens in any well-structured compensation system. You may end up losing existing workers or failing to attract new workers in expensive cities, but that’s also okay as long as you are getting good talent elsewhere.
Pay differences can become much wider when you look at the global marketplace. From a comp perspective, the fact that workers may work remotely from a different country isn’t too difficult to handle. We’ve always had some differences in pay based on global location. If you have a location in the Philippines and another in Germany, pay rates will usually be lower in the Philippines, even for a similar role. The fact that everyone is remote now doesn’t force you to change your pay policy. In essence, someone you hired in Germany will be paid according to that country’s pay policy line, and someone in the Philippines will be paid on its policy line. If someone from Munich moves to Manila you won’t adjust their pay down. You’d continue to pay the rate you hired them at.
The bigger issue in a remote workforce is not a compensation policy issue but a talent strategy issue. In a non-remote workforce, you really do need to hire New Yorkers to work in New York. In a remote workforce, many of those jobs could be done by people in lower-wage cities or countries. Time zones can be an issue, but other than that, it is just an issue of finding available talent across the globe. You will want your talent acquisition team to first source possible talent in lower-wage cities and countries. Only if they can’t find people there should they look for talent in higher-wage cities and countries.
The job of the HR leader is to ensure the compensation team and talent acquisition team is aligned in setting pay policies with this clear recognition: that in a world of remote workers, there may be opportunities to set lower pay policy lines in a given country and to seek more talent from low-wage countries which will further reduce the total cost of the workforce. It may be a change in talent strategy, but the comp strategy of setting a pay line at the level needed to attract and retain needed talent hasn’t changed. ⬤