Compensation structure in the post-COVID era of remote work | Spilman Thomas & Battle, LLC

The pandemic generated a migration of employees from metro offices to smaller, more affordable communities where they could work from home. New complexities – mostly centered on the pay scale – have arisen with this shift to remote working. Many companies have struggled to find fair ways to compensate their employees, and some employers have decided to pay them less.

Following the announcement by Meta, Facebook’s parent company, that workers could apply to work remotely full-time after the pandemic, Meta also announced that remote workers who left Silicon Valley for a more affordable location might expect their pay to be adjusted. While this seems specific to the seismic shift to working from home post-pandemic, it was actually part of typical Meta compensation practice. Indeed, companies like Meta and Twitter were already using location-based compensation to ensure pay equity across the organization. This announcement was only a continuation of this pre-existing practice.

Unlike Meta and Twitter, companies like Airbnb, Reddit, and Sourcegraph have eliminated location-based compensation adjustments for their employees. With a tight labor market and increased competition to attract and retain talent, these companies are hoping to demonstrate to workers that they are paid for their skills, not where they live.

Employers’ methods of managing compensation in this new work-from-home environment have been as diverse as employees’ opinions on this issue. Although a significant number of workers consider the pay cut worth living wherever they want, some remote employees question the validity and fairness of a pay cut when productivity has increased.

Before the pandemic, remote work was the exception and setting pay rates relied on a traditional two-factor approach:

  1. The cost of living in a particular area, which has been determined taking into account the price of goods, services, housing and tax rates in the area; and
  2. Labor cost, which looked at the predominant salary for a particular role in a specific location taking into account industry, years of experience and/or seniority, and responsibility.

With the rise of remote work and the movement of employees from site to site, the traditional compensation model has been challenged. There are now four approaches employers can consider when setting compensation levels for employees working from anywhere:

  1. Align all compensation with corporate headquarters. This approach is based on the philosophy that a role has a certain value, and it doesn’t matter where the role is. This approach is likely appropriate with an employer who is relatively open to work-from-home arrangements.
  2. Set the current market-level salary for the employee’s remote workplace. Pay remote employees based on how their location’s organization pays for a similar position. The employer must maintain a competitive salary offer per location for each remote worker. This approach could be difficult if the employee resides in an area where the employer does not have an established workforce.
  3. Develop a geographical differential structure. This approach recognizes differences in compensation by areas rather than by individuals and locations.
  4. Pay according to the cost of living. Employers set the salary based on the location of the head office, then adjust the compensation based on the cost of living where the remote employee works.

When deciding on the right compensation approach, employers should consider what works best to support their business practices, and then follow the approach consistently. A clear remote payment policy should be developed, included in the employee handbook, and clearly communicated to hiring managers to ensure consistent compensation practices. Employers evaluating the appropriate compensation structure may consider an upfront compensation audit to ensure pay equity across the organization.

Ida M. Morgan