WFH or WFA (Work From Anywhere)? What's the Impact on Your Compensation?

By Jeremy Spake and Bonnie Low-Kramen

Employees who work from home are choosing to take “remote” literally. They are moving to new cities and new qualities of life, as nature may become the new corner office. So…when they choose to move, what happens to their compensation?

Make no mistake – a workplace revolution is happening right now and these types of conversations, decisions, and new policies are being formulated right now. It’s a whole new world and we are never going back to the way it was pre-pandemic. The “traditional” Monday through Friday, go into the office, that is. The truth is, that even before the Covid-19 pandemic that sent thousands home to create in-home offices in March 2020, the workplace was already – quite literally – in motion.

Pre-pandemic, many leaders resisted the idea that employees could be equally, if not more, effective, creative, and productive working from home. Then, the crisis forced the hands of leaders and HR. 

And to the leaders’ relieved surprise, their workforce responded in positive ways. The work – and profits – did not suffer. Since schools were closed, parents were relieved to have their children safe at home too. In a matter of days, the world and the way we worked and lived changed. Forever.

WORK FROM ANYWHERE IN ANY TIME ZONE + IN-OFFICE WORK = HYBRID = NEW POLICIES

It’s no secret, 2020 threw a proverbial wrench in the talent management processes of many organizations. As COVID took hold, many organizations had to quickly shift operations from onsite to remote work, and many organizations were forced to act quickly to contain costs.

As the pandemic set in and the landscape of work shifted rapidly, addressing compensation implications in times of crisis became mission-critical for many organizations – not only from a cost-containment perspective but also in regards to how organizations acted to reward employees while offering the flexibility many employees needed to balance the increasingly blurred lines between work and home.

While many organizations have held conservative views about remote work, COVID forced the remote work experiment from a “nice-to-have” benefit for employees into the default mode of work for many. Recent research including over 800 organizations highlights that productivity was the same or higher than pre-COVID levels – assuaging the fears of many had about potential losses in productivity for remote teams.

“Historically, there has been a perception in many organizations that if employees were not seen, they weren’t working—or at least not as effectively as they would in the office,” said Lauren Mason, a principal and senior consultant at Mercer. “And in most cases, this forced experiment around remote working as a result of COVID-19 has shattered those perceptions to prove that most employees can actually be trusted to get their work done from home. As organizations are thinking toward the longer term, they are looking at how they can execute flexibility at scale to deliver on the value of flexible working, like enhanced performance and productivity, a better employee experience, an expanded talent pool, and, in some cases, potentially reduced costs.”

WORK FROM HOME PERMANENTLY – FOREVER? 

According to new research from the Pew Research Center, among those who can, 71% of Americans work from home most of the time, 87% say they have excellent technology tools, and employees are roughly as engaged as they were pre-COVID.

Remote work has quickly become the new normal for many, and companies like Twitter announced their plans to allow remote work for all employees to continue – permanently. 

Many other organizations have since followed suit – opening the doors for broader recruiting pools for talent as well as options for employees to relocate away from onsite offices. Google recently announced it projects saving over $1 Billion a year by allowing employees to continue to work remotely, pointing to not only sustained productivity but cost savings other companies may expect should they also allow permanent remote work. 

“The iconic Silicon Valley garage idea just became a remote desk,” says Jocelyn Kung, CEO of the consulting firm, The Kung Group. 

Allowing this type of flexibility has its challenges for organizations to contend with – particularly around compensation actions that may be tied to geography or cost zones.

As organizations consider permanent remote work, compensation policies around remote work are taking shape – with different approaches being adopted by various tech giants.

For employees relocating, Facebook will reduce employee compensation if they move away from the Bay Area to lower-cost locations. This action raises questions for organizations now contending with a mobile workforce seeking to capitalize on the flexibility of remote work.

Conversely, Reddit has announced all U.S. employees will keep their current salaries if they relocate to a lower-cost zone. 

Total Rewards professionals are central to developing the compensation philosophy and strategy for organizations. Formulating a clear and transparent policy around compensation actions that may result from employee relocations is critical – as is communicating that policy openly and often so employees considering relocation are fully aware of any potential compensation impacts.

For organizations considering allowing permanent remote work – there are fundamental considerations that require policy to ensure equitable compensation for employees regardless of geography.

IDENTIFY REMOTE ROLES + THE SECRET SAUCE

Organizations need to do a full audit and assessment of all roles, levels and functions to determine which roles may shift to permanent remote work.

After determining the roles and functions that can shift permanently to remote work, this provides talent acquisition with a broader talent pool to recruit from nationally or even globally. 

Once remote roles are identified, it is critical to establish policy around the market data used to determine pay rates and salary structures for the organization. 

The secret sauce in all of this working is crystal clear communication around expectations and job descriptions to avoid civil war between remote workers and in-office workers.

COST ZONES

Many organizations use the geographic cost zones to differentiate pay by geography. If your organization uses cost zones, it will be critical to develop guidance for employees moving between cost zones.

WorldatWork’s “Geographic Pay Policies Study” surveyed 1,063 respondents from organizations of varying sizes and across multiple industries, and found 62% of participants saying their organization has a geographic pay policy in place for United States-based employees. Among them, 35% reported that the rise in remote work since March 2020 has led their company to consider modifying their U.S. geographic pay policy. Another 9% modified their U.S. geographic option of expanding geographic pay policy in the last 12 months.

Composite Cost of Living Index 2020 1st Qtr. Photo courtesy of the Council for Community and Economic Research.

For employees moving between cost zones, typically organizations seek to maintain the affected employees’ compa-ratio in the salary structure between cost zones – sometimes this drives compensation increases as employees move from low-cost zone to high-cost zones, and compensation decreases as employees relocate from high-cost to low-cost zones. 

If relocation is due to the employee’s desire to relocate, adhering to this policy will be crucial to ensuring pay equity issues don’t result from relocation alone. If an employee is relocating from a high to low-cost zone because it is company-prompted for the role, standard policy is to not decrease the individual’s compensation to reflect that of the lower-cost zone due to the relocation being company-driven.

Being transparent about the compensation implications that will result from an employee-prompted move allows employees to consider compensation as a factor as they embrace the geographic flexibility of the new era of remote work. 

NATIONAL MARKET DATA

Other organizations may choose to follow Reddit’s lead, and embrace national market data to drive compensation rates for specific roles and function-specific salary structures for the organization. This allows for one structure applicable to all roles within a certain function across national geographies. 

“For those jobs that can be done remotely, I believe that in twenty to thirty years, there will be a national rate of pay for specific skill sets and roles,” predicts Steven Brink of AIRINC.

Potential considerations for adopting this model include determining if there are critical roles within your organization that may demand benchmarking national data at various levels. 

For example, for a tech company facing tough competition for developers nationally may decide to set their compensation philosophy to benchmark the 75th percentile of market for those roles, while benchmarking other roles in the organization at the 50th percentile. 

This allows for greater nets to be cast when recruiting top talent if geographic constraints are no longer in place – but will result in increased competition, which may require adjustments to your organizations approach to salary benchmark levels for certain mission-critical roles and functions. 

LEGAL CONSIDERATIONS

There remain various compliance and tax considerations for a distributed workforce that go well beyond compensation actions, so it is critical now for talent management professionals to continue to balance legal complexities, tax liabilities with the needs of an increasingly remote workforce. 

Diversity, Equity, Inclusion & Belonging initiatives are also increasingly center stage for many organizations and talent management professionals – placing pay equity considerations firmly in the spotlight as compensation policies around remote work are finalized. Thus, it remains a top priority that total rewards professionals remain educated on pay equity legislation relative to the geographies they operate in.

Pay Equity Laws by State:

https://www.dol.gov/agencies/wb/equal-pay-protections

https://www.worldatwork.org/resources/pay-equity-laws-by-state

CONCLUSION

There are new rules in the workplace. HR is having to re-think, well everything, associated with compensation, as company leaders work to envision the new future. It is absolutely clear that there is a need for pay transparency and clarity about job descriptions and expectations. Avoiding ambiguity and confusion among staff is becoming a pressing priority, as is the high stakes competition for top talent who are making decisions about where to call “home.”

It is not only vital that an employee have skills, connections, and experience, but one new question will need to be; Can you consistently exceed expectations while doing it all remotely?

In Reed Hastings (founder of Netflix) new book “No Rule Rules,” he describes the practice called the “keeper test,” in which they ask themselves: If a staffer were offered a job elsewhere, would you fight to keep that employee? If the answer is no, the person is let go.

The light is shining brightly on HR as ground-zero for the new policies around compensation and culture for remote workers. Deciding on compensation has always been an art and a science, and that has never been more true than right now. Welcome to the future of work and may every company have an ample supply of the secret sauce.

For more information, you can view another article from Bonnie here, and from Jeremy here.

Jeremy Spake, CCP has spent his career as a compensation subject matter expert in market intelligence, compensation plan design, implementation and consulting. He has experience as both a business leader and consultant in compensation, performance management, succession management, mergers & acquisitions, workforce analytics, and strategic planning. He has worked extensively in both technology industry and has provided consulting services to a variety of clients from aerospace and manufacturing, to healthcare and non-profits. Jeremy presents regularly to the Society of Human Resources Professionals, the WorldatWork Society and the Human Capital Institute and is a regular contributor to Workspan and ReWork magazines. www.cornerstoneondemand.com