Companies that hire across different cities — not to mention different continents — have always needed to consider location when crafting plans to recruit and retain the right people. Now, in a world where most knowledge-work roles can now be effectively performed from anywhere, how can businesses be transparent, fair and competitive when hiring people located in different areas?
Some business leaders have made efforts to completely level the playing field, such as Dan Price, CEO of Gravity Payments, who gained media attention after putting his entire staff (including himself) on a minimum wage of $70,000 in 2015. But as Patrick Luther, a principal at human capital management company Ceridian, points out, this is far from a typical business practice in any era.
“We have different prevailing wages in different parts of the country, primarily due to things like supply and demand of labor, influence/adoption of organized labor and variations in [cost of living], including local tax rates,” he said. “Meaning, in order to pay equal wages for equal work, independent of location, there would need to be a massive undoing of existing pay structures. This is where the complexity and equitability issues arise.”
Location has always been fundamental to setting salaries, from tech startups in West Coast hot spots to workers performing essential public-sector duties in city centers.
“Up until the recent Covid-related modifications to work location, the vast majority of work was location-based,” Luther added. “Employees were hired into a physical office location and if that office was in places like New York/San Francisco/Boston/Washington, D.C., the employees would be compensated based on the going rate in those high-cost locations with an above-average cost of living.”
“If, on the other hand, your office was in Little Rock or Topeka, the wages/salary would typically reflect a much lower cost of living. In the end, the goal from an HR standpoint was some level of equitability in living standard for equal levels of work/experience. This is a common practice in industry and the government as there are cost-of-living adjustments made to compensation based on where you are working.”
The challenge now is that someone can be hired by a New York office, negotiate 100 percent remote pay and then decide to relocate to Little Rock, or even much farther afield. If that person had been hired from Little Rock, the employee’s compensation would not have included a salary premium for living in a high-cost city, Luther says.
“There are many variables to consider, including: Should organizations adjust this category of worker’s salary, or should it be left the same? Or, perhaps, should organizations grandfather existing employees’ salary as they are, and implement a new policy moving forward?” Luther said.
Retention, salary and the ‘Great Resignation’
From both a contractual and cultural point of view, imposing a retrospective pay cut would be problematic at a time of business uncertainty and unprecedented churn in the skilled workforce, human-resources professionals say.
According to Harvard Business Review, the U.S. Bureau of Labor Statistics indicates that 4 million Americans quit their jobs in July 2021, with a record-breaking 10.9 million open jobs at the end of July. Between 2020 and 2021, resignation rates for mid-career employees aged 30-45 have seen the greatest increase, and are highest in skilled roles, including healthcare and tech.
Root causes are hard to state definitively, but a combination of burnout and ongoing uncertainty are clear factors, experts say.
Many large enterprises are still putting out mixed messages about intentions, against a backdrop of constantly changing health and economic circumstances.
Still, as Luther pointed out, “what the workforce has experienced the past two years is uncharted territory. Companies have done their best to communicate their intentions throughout the pandemic, but given the unprecedented nature of the past 18 months, many have had to pivot and make quick changes as conditions have evolved.”
“Many companies have not even formalized post-Covid rules about remote work, hybrid work or whether there will be salary ramifications or not,” Luther added. “However, having a set of benchmarks established early on that can be quantifiably measured is critical so employers know early on whether or not they are successful and can make quick course corrections.”
The future of business demands flexibility
For some organizations, this will require a cultural shift to embrace a more agile and responsive approach to HR policy, as well as an acceptance that things remain in a state of flux.
Keeping lines of communication open and ensuring trust will help, as will consultative policy development around new issues, like work-from-home vs. work-from-anywhere norms.
“While the cases of stealth nomading are relatively low, they are nevertheless real,” Luther continued. “We are starting to see limited rollout of formal policies on ‘working from wherever,’ as many HR functions are still hashing out details and having discussions with their tax advisers on areas of compliance risk.”
“With respect to monitoring, this is even less established, as it would typically follow the rollout of a formal policy,” he added. “At a minimum and as a first step, employers should be communicating rules and policies about where workers are working from and when notifications to the employer are required. There are both domestic state-tax compliance rules that come into play based on where the remote worker is located and similar issues with foreign-country payroll and taxation if the employee has moved internationally.”
Above all, remaining responsive and data-driven will help ensure that organizations remain compliant and competitive — and being competitive in 2021 means being regarded as a good place to work. This occurs when businesses listen to its people, take account of what’s happening in the bigger picture and take proactive steps toward retaining personnel, Luther notes.
“As technology evolves and the sophistication of software and the availability of data becomes more prevalent, HR departments are better enabled to get more meaningful insights and make more informed decisions based on real-time data,” Luther said, encouraging employers to monitor and respond to prevailing trends, metrics and expectations.
“Having the data to support the continuation of a policy [if it’s working] or an adjustment of the policy [if it’s not] in real time or close to real time is something that the forward-thinking HR functions are adopting in order to move fast in the future of work,” he concluded.