The pandemic has changed everything about work.
Far more people now work remotely. Hybrid and flex work arrangements are all the rage. Employees are quitting in droves in the Great Resignation. There’s the labor shortage, the skills gap, and remote hiring. The list goes on.
So, how do we decide how much to pay people? And if you’re interviewing for a new job, how do you decide how much to demand?
Two opposing incentives are creating uncertainty about pay. On one hand, most employees prefer remote work so much that they’re willing to take a cut in pay. And they need less pay if they move outside expensive areas.
On the other hand, the skills shortage, labor shortage, and Great Resignation movement are driving up salaries and bonuses, as companies work to incentivize employees.
Adding to the unpredictability: Many companies are still in lockdown mode, so it’s unknown how many jobs currently remote will remain so. And inflation is changing the cost of living.
Tech giants like Alphabet, Amazon, Apple, Meta, and Microsoft announced pay cuts for remote employees who left Silicon Valley—which is notorious for its high cost of living (the median home price in Palo Alto in Silicon Valley is roughly $3.5 million). But many other companies, including real estate website Zillow, have said that pay shouldn’t vary based on the cost of living.
When the dust settles, it’s likely that pay at most companies will generally reflect the cost of living of the employee as it always has. Companies will tend to pay whatever the market will bear in the labor market, and it will prove easier to hire good employees at lower salaries in areas with lower costs of living.
One of the seismic shifts that occurred in employee expectations requires a rethinking about compensation. For example, most employees now say that flex work or remote work is more important than bonuses and other monetary compensation increases. Companies are experimenting with and planning costly benefits like workcations, sabbaticals, teamwork trips, and various other incentives.
That provides the opportunity and challenge of possibly providing no salary differences between, say, office and remote workers, but differences in non-salary benefits and compensation.
The complex compensation calculus
It’s important to consider morale when making compensation decisions, and part of that thinking needs to take into consideration the morale of employees in the office and flex/hybrid workers who may be disgruntled if colleagues in less-expensive locations are paid the same.
You want all employees to be happy and none resenting other employees with different work statuses.
This is especially true of those workers in the IT department who need to be on-site to provide provisioning, hardware support, datacenter tasks, and other important duties. If IT employees working remotely make the same pay, then resentment can arise.
It’s also important to prevent decision-makers in your company from hiding pay bias (based on gender, race, and age) inside new policies around hybrid and remote work pay.
Paying attention to pay . . . and policy
I recently wrote about the need for a hybrid work policy. One idea to consider is to add criteria for how any difference in pay affects status, such as full-time remote, part-time remote, the location of remote workers, and whatever other factors do affect pay. And if you do decide to base pay based on location and the cost of living, be prepared to explain to your employees how you calculated that cost of living. Simply telling someone they live in a less-expensive locale without backing up your rationale with numbers could leave workers wondering whether they’re being short-changed.
This will help clarify how the company thinks about compensation as well.
But whether there are rules around compensating employees differently based on their role in the official hybrid work policy—such as HR, hiring managers, supervisors, team leaders, executives, or others—your company needs to develop its own policy on compensation for clarity and consistency, and to avoid the pitfalls of bias and unfairness.
Get the decision-makers together, figure out what you’re planning to do around compensation, write it down, and communicate it either with those involved in hiring and compensation or with all employees. Above all, avoid ad hoc, uneven, and arbitrary approaches to employee compensation.
In other words: Everything is different in the new world of work. So, pay attention to pay.
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