Companies often set salaries for remote workers based on their geography. Will that change?
Mark Zuckerberg announced that half of Facebook will be working remotely permanently in the next 10 years. However, future employees would pay for this privilege by accepting a lower salary. This has employers and workers are wondering what this means for the future of remote workforce compensation.
According to Forbes, 44% of workers would take a 10% pay cut for the opportunity to work from home permanently. But maybe they shouldn’t have to take pay reductions. Stack Exchange’s annual survey found that remote developers earned 40% more than their office-bound counterparts.
The main reason for the debate? Geography. Major tech hubs like Silicon Valley justify their high salaries based on their locale’s higher standards of living. If remote work takes hold post-COVID, hinging worker salaries based on their location becomes more circumspect.
44% of workers would take a 10% pay cut for the opportunity to work from home permanently. But maybe they shouldn’t have to take pay reductions.
Standards for setting salary
Managing compensation is always a balancing act. Salary formulas are generally generated taking several factors into consideration, including:
Online data sets offer benchmarks for every position and industry, but setting a single amount isn’t enough. Companies also have to hit a sweet spot so they don’t overpay or underpay, while providing a motivating salary range to retain their hires.
When we factor in remote work — either for employees or contract workers — things often get a bit more muddled. Whether or not the location is a factor varies from company to company. Skills, expertise, and work history — as well the ability to communicate clearly with a distributed team — become much more valuable when determining how much to pay an employee.
Should location matter?
Tying income to geography may not make sense.
The main reason for including location as a variable for defining someone’s salary is because employers want to make sure their new hire has their needs met. In other words, their employees should be able to live off their salaries. After all, living in Los Angeles or New York is significantly more expensive than in Knoxville or Kansas City.
However, focusing on location rather than skills can mean forgoing value.
For example: Is a programmer based in Little Rock less capable than in one San Francisco? If both workers are remote and the only differential of their salary is based on location, we can see that there is an inherent issue with using location as an indicator of compensation. Location tells us nothing about the value that the employee brings to the company. What if the Little Rock programmer is more productive or the quality of work is higher — even if all credentials are the same?
When we look at productivity differences between office and remote workers, this question of value becomes more prominent. A recent study by Airtasker found that remote employees may actually be more productive than their in-office counterparts. They found that remote employees work 1.4 days more days every month, despite taking more breaks. A Stanford study found that allowing employees to work from home permanently boosted performance by 22%.
If remote workers are more productive, should they be paid more than office employees, rather than less and regardless of location? There’s no easy answer or prerequisite. If remote work continues to grow, it’s likely we’ll see major shifts in compensation for all workers. Expertise and skill sets may end up being the most important factors for compensation in a remote workforce — not geography.
The future of remote work
A Stanford study found that allowing employees to work from home permanently boosted performance by 22%.
Apart from salary, which still differs greatly, it’s also important to remember that many employees prefer having some office environment. Humans are social by nature and the isolation and lack of connectivity from working remotely could have downsides for companies if not properly managed.
In addition, remote work may or may not be right for everyone. While flexible hours and part-time working from home are likely to become more normalized after COVID-19, there is still a lot to consider when it comes to compensation for remote workers.
Whether Facebook’s experiment in cutting pay for remote workers will stick or not is yet to be seen. However, other companies don’t seem to be pinning salary completely on geography and there’s a chance that like work history, basing compensation off location may become a thing of the past.