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Remote workers’ salary: should the pay be based on their location

Working Remotely – The New Norm?

The COVID-19 crisis has completely altered the way people work. Commuting to work, which was one of the basic components of one’s professional life, has undergone rapid change.  Commute to work using mass rapid transport systems (MRTS), which has been the mainstay of work-related travel has also witnessed a lot of churn. While ‘Work From Home’ isn’t a new practice, at least in the IT/ITES sectors, it was earlier driven by ‘employee convenience’ or principles of ‘work-life balance’. This led to productivity gains for some employees as well as organizations. However, the COVID-19 pandemic has challenged the traditional notions of ‘Work Location’ and has forced companies’ to review their existing “Work from Home” policies. With the pandemic still raging, a new concept ‘Work from Anywhere’ is gaining currency and is becoming mainstream.

Twitter’s CEO Jack Dorsey said in an email to its employees that they can work from home forever. Twitter has suspended all business-related travel and in-person events till 2021 and is providing extra allowances to their employees to purchase work related commodities including internet connections, desks and chairs.  On the other hand, Facebook and Google are allowing their employees to work from anywhere until mid-2021. Google will be offering US$1,000 (or equivalent) per employee to purchase office furniture. Facebook is planning to shift half its workforce to permanent remote work over the next 5-10 years.

How are employees taking to this shift?

Most employees are pleased to work from home. CNBC and Survey Monkey conducted a poll on 9,000 US employees, and more than a third (38%) of them would like to continue working from home even after the COVID-19 crisis ends, and one out of five (19%) would prefer to work from home forever. Remote working has raised new concerns for companies apart from data and asset security, and more importantly – the compensation benchmarks of their employees. Will employee location (in this case remote/work from home) be a determinant of employee compensation?

What about the salaries for remote workers in the current pandemic?

Before the onset of the pandemic, the employee salaries were dependent on the location of the work. For e.g. a Developer working in Detroit for Company X will have lower pay than a developer working for the same company in New York. The local economy has always been a determinant of employees’ compensation. During the current pandemic, debate on pay based on employee location has heated up in the recruitment industry.

In July, Mark Zuckerberg had stated that the salaries of their remote working employees’ will be recalculated if they intended to move to cheaper locations. Currently, Facebook pays its employees based on their job location, which will undoubtedly change. Come January 2021, its employees will need to notify where they are working from. Pay cuts resulting from a shift to less expensive cities is not limited to Facebook, but other companies like VMware are also following suit. According to VMware, employees choosing to work from smaller cities outside the Bay Area will face pay reduction if they move out from Silicon Valley, one of the most expensive areas in the country. Employees leaving the Silicon Valley, San Francisco, and San Diego to other parts in the country may see their annual salaries reduced by 8%. Likewise, cloud-software giant ServiceNow Inc. will follow a similar path and reduce employee salaries if they move out from Santa Clara, CA.

Should Companies base their pay on location? The opinion is divided…

Should a company pay its remote working employees based on the location of their work or based on other factors such as performance, experience, and educational background is an important question. Industry experts are debating this for quite a bit of time, and this chatter has got a bit louder during the current pandemic, which forced millions to work from home.

Society for Human Resource Management (SHRM) interviewed Ken Lewis, Managing Partner with Client Expander, a marketing agency in Palm Beach Gardens, Fl. According to Ken, “My opinion, as a business owner, is that clearly, a company should adjust wages based on the worker’s location.” Salaries are paid based on market factors, just like prices on everything else” and he stressed that any location would have built-in cost, including housing, transportation, parking, and dress. In the same article, SHRM interviewed Mary Ann Sardone, a partner and U.S. Talent Leader at Mercer, who had a different view from Ken. “We’ve heard, ‘Now you don’t have a commute. Now you have more time. Perhaps I should pay you less,’” she said. “I don’t think that’s going to happen.”

But there are more pressing issues which play an even more important role than just the remote workers’ location. What about the roles where there is a skill shortage? According to TalentSpectra Research, globally, there is an acute shortage of professionals for AI, Data Science, and Cybersecurity roles. Companies employing professionals in such roles or even planning to hire will face difficulty negotiating salaries based on just the location.

Are employees willing to have a pay cut?

Companies have argued that pay for remote workers should be given based on their location as the cost of living varies from city to city; some of the variations are drastic in nature. It is equally important for companies to listen to the views of their employees.

Dice’s ongoing COVID-19 Sentiment Survey will provide an answer to this issue. Very few technologists are willing to take a pay cut just because they are working remotely. Only one out of four is ready to sacrifice some part of their salary if they can work remotely. In total, just 3% said they are willing to take a 15% salary cut; 1% said they would take a 25% cut. Meanwhile, around 76% have said they would not take any cut in exchange for remote work. Companies should realize that most employees are unwilling to forego bigger salary cuts, even if they work remotely in different cities. They are very capable of handling their tasks even if they are away from office. The employees would not argue for smaller pay cuts, but it would be difficult to convince them if companies are planning for bigger pay cuts. Employee productivity and performance is closely intertwined with the monetary aspects.

The way forward…

Companies might consider hiring people from other countries and offer a payment based on the local economy. But this is not at all a feasible solution. The company will face many obstacles in their path, including time zone differences, cultural differences, language barriers, and other legal problems which they might encounter.

Disruptions caused by COVID-19 has changed the way people work; it has forced employees to move from their offices to their houses, which they are more than willing to continue in the longer run. There has been no impact on work or employee productivity. Due to this reason, employees are not willing to accept the pay cuts. On the other side, companies want to pay the employees based on the location.

So, the cost of living should only be considered as a yardstick to reduce the salary. Before deciding on this issue, they also need to consider other benefits they will accrue by allowing workers to work remotely; this includes reducing the expensive office space they are leasing, access to more talent from different locations. The most crucial factors may well be revenue per employee and for people-centric businesses – the operating margins.

The Big Four Tech Firms Facebook, Apple, Alphabet, and Microsoft, make US$410k, US$403K, US$209K, and US$273K profit per employee. If profit margins get impacted due to remote work, then the question may gain in prominence. In that case, compensation based on employee location will be the most important determinant. However, a blanket decision requiring pay cuts may lead to negative consequences including losing their best talent to rivals and a substantial increase in the cost of hiring and time to hire new employees (currently, companies spend US$4,000 on an average to hire an employee and the average time to hire a new employee is 52 days). It will have a direct impact on the company’s bottom line. Assuming businesses accept that remote working is the future, then factors like experience, talent, education, and capabilities rather than just their work location, should be the decisive factors.




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Amit Kumar

President and Co-Founder

Amit has a diverse background in multiple industries including automobile, telecom, and banking, and is passionate about scaling up operations.

Amit has played an instrumental role in scaling operations of Avance Consulting and scaling it to over 10 countries with a team size of over 700 people and is rated as one of the top technology staffing companies in Europe.

Amit is passionate about coaching and building talent. He has been on the advisory board of a school. He has not only invested in multiple early stage start-ups but also coached entrepreneurs on scaling up their businesses.

Pravin Dudhe

CEO and Co-Founder

Pravin has been a serial entrepreneur all through his professional life, co-founded 2 successful companies and helped another start up build their business to give a successful exit. He has worked in the media and entertainment industry with focus on video games, animation and advertising across India and UK. He had a successful exit from his first few start-ups, Octoplus Entertainment (video-games and animation); and PhoneSpots (mobile advertising). 

Pravin is onto his 3rd venture, Avance Consulting, which is in the field of HR and Talent Solutions. Avance has operations in over 10 countries with a team size of 700 people and is rated as one of the top technology staffing companies in Europe. He is also an active investor in start-ups, especially, in early-stage companies. He has invested in over 10 different companies in the field of Ad-tech, HR-tech, and Reg-tech. He is passionate about start-ups and scaling up.