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Wages a sticking point for remote work best practices

In the shift to remote work, wages could become a major point of contention for workers after COVID-19. A move to lower-cost regions could also mean lower pay.

Firms are developing remote work best practices for life after COVID-19, but wages are a potential sticking point. Many firms are announcing plans to allow employees to work remotely full-time. They are considering stipends to support remote workers but also compensation adjustments that reflect where an employee lives rather than where an office is located.

A location-based pay approach means that employees who want to work from home may also have to take a pay cut. In an announcement last year, Facebook said its remote work compensation would be based on the cost of where an employee is living.

Experts question whether firms are sending their employees mixed signals by supporting remote work on the one hand but also discouraging it via the promise of a pay cut. Regardless, some firms are including compensation adjustments as a remote work best practice.

Seattle-based Tango Card Inc., which offers e-gift card rewards, among other services, is planning to localize wages for its remote workers.

The firm told employees that "if you do choose to move, your compensation is based on the labor market to which you move," said Becky Hathaway, director of employee experience at Tango.

There are "adjustments to be made there to make people really consider is that something that you really want to do?" Hathaway said at a virtual conference this week held by the HR Exchange Network.

Firms aren't specifying what a wage adjustment might mean for someone living in Silicon Valley or the Pacific Northwest and decides to relocate to Alabama, but wages vary widely by geographic location.

For instance, the prevailing wage for a software developer earning at the top of the pay scale in Seattle is $155,106; in Montgomery, Ala., that same occupation pays $113,298, according to government data.

But localizing wages for remote workers is not a new idea, and firms have ultilized the strategy well before the pandemic. "It has long been an industry practice to use location-based pay in hiring," said Kate Lister, telecommuting researcher and president of the consulting firm Global Workplace Analytics.

A post-COVID-19 workforce strategy

The fairness of it all

The prospect of a pay cut may be a disincentive for some workers. A survey conducted last summer of more than 2,000 workers included this question: "If you did have to take a cost-of-living reduction in salary, would you move anyway?"

A majority, 56%, responded no; 31% responded maybe; and only 13% responded yes. The survey was conducted by Global Workplace Analytics and Owl Labs Inc., which makes communication tools for remote work.

[Remote work hiring may become] a race to the bottom, where we can find the lowest-cost resources that we can find.
Thomas TunstallDirector of research, Institute for Economic Development, University of Texas at San Antonio

Thomas Tunstall, director of research at the Institute for Economic Development at the University of Texas at San Antonio, worries the pay differentials could prompt firms to hire in low-cost regions. He warns that there could become "a race to the bottom, where we can find the lowest-cost resources that we can find."

But there will also be limits to recruiting in remote locations because of the small talent concentrations, Tunstall said.

Another potential complication for remote work is the dearth of networking, which generally "means face-to-face contact," Tunstall said. Networking helped Silicon Valley become an innovation center, he said. "Does that get lost in this remote process?"

Plus, Tunstall questioned whether companies would uphold a location-based pay best practice if an employee moved to a city where the cost of living increased rather than decreased. For instance, if a firm is based in the Midwest and an employee decides to work remotely from Los Angeles, Tunstall said asking for a higher wage is likely to get a terse response.

"That will be a short conversation," he said.

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