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Compensation Structure Options for a Remote Workforce

Getting pay right for employees requires a specific strategy. This then is further complicated as many companies struggle with how to approach a compensation strategy for remote workers.

There are a variety of possible structures to consider:

  • Pay remote employees the same as in-office workers no matter where they live
  • Set pay levels with an initial focus on the market value of an employee’s skills and then factoring in their location (national pay scale)
  • Pay tied to the remote employee location

Pay remote employees the same as in-office workers no matter where they live

In some ways, a remote workforce is ideal for recruiters as a company can pick from the best candidates no matter where they live. This would seem to be a boost to corporate diversity efforts. However, setting pay based on location can be complicated.

Remote employees who receive a lower salary because they live in Pittsburgh, for example, may feel resentful that they are compensated less for doing the same job as their more highly compensated colleagues in New York, causing adverse effects on a company’s culture and employee experience.

As such, a company can adopt a compensation philosophy that is tied, to high-cost areas, regardless of where employees live. This can create the right balance of flexibility and support for employees, recognizing the varied tradeoffs people consider when deciding where to live.

Alternately, if you are a company based in Pittsburgh, the focus does not have to be on where a remote employee is located. You may opt to set compensation based on local standards. This way, your headquarters staff is not dealing with the distraction over the higher pay remote employees are getting in, for example, New York City.

Set pay levels focusing on the market value of an employee’s skills, then factor in their location (national pay scale)

This approach creates a compensation plan that allows a company to compete for talent anywhere, regardless of headquarter location. If headquarters are based in Pittsburgh, the company still has to be competitive in all locations it operates.

The national pay strategy will be beneficial if a company is recruiting for competitive, hard-to-fill remote positions. Accordingly, if you are attempting to hire the top-of-the-field engineering expert, the pay package will have to be the most competitive pay regardless of candidate location.

A variant to this national pay package to create a premium for several skills and distinct locations, such as New York City or San Francisco.

The use of a pay range or pay band provides plenty of flexibility. For example, the pay range starting point for position X, can be $80,000 – $110,000. There is ample room to pay a premium for desired and hard to find skill sets, and certain locations, adjusting for higher cost of labor.

Pay tied to remote employees’ location

First, compensation packages based on geography aren’t new, as companies have historically factored in a region or city’s cost of labor when determining pay. It makes sense that a company will adjust salaries based on cost of living. This is due to the cost of labor differential requiring pay adjustments.

Since the pandemic, companies are considering a more measured approach for certain positions, where jobs are going to be competitive regardless of where an employee is located. Companies may consider adjusting compensation based on the cost of living in the area in which an employee resides. A company could then keep everyone honest by monitoring the location from which an employee logs in to their internal system.

Others may consider offering employees an incentive to leave a high-cost area and then would see a reduction in their base pay after relocating to a less expensive location. For example, a company could offer a one-time bonus of $20,000 to move and then reduce compensation by 10%.

For an alternate option, a company may wish to consider a hybrid approach for its workforce. Under this option, compensation zones can be created based on cost of living and cost of talent in each area. For example, a three-zone approach may involve the following:

  • Zone A – highest salaries go to workers in the two highest cost-of-labor locations (e.g., San Francisco and New York City)
  • Zone B – next highest salaries for the next two or three highest cost-of-labor locations (e.g., those who live in California or New York and surrounding states, but too far from the metro talent hubs to commute)
  • Zone C – there would be a rung for all other employees with lower cost-of-labor (e.g., Atlanta, Philadelphia)

The key to any approach is understanding that the program must be flexible and adapted, as needed.