Redefining compensation strategies in the remote work era
In the new era of remote work, should companies localize employees' compensation based on where they choose to live?
COVID-19 is expediting the adoption of permanent remote-first work across many companies. Twitter, Slack, Square and Shopify have all committed to allowing employees to work from home indefinitely since the start of the pandemic. The ability to work remotely on a permanent basis offers employees many benefits, such as the freedom to live and work from anywhere.
But what happens to an employee’s salary if they choose to move to a city with a lower cost of living? Facebook’s CEO Mark Zuckerberg says his company will localize employees’ compensation based on where they choose to live.
Related: Why businesses can’t go back to the same compensation models
This comes as no surprise, considering employee compensation is the top expense for most organizations. In fact, salary and wages can account for up to 70 percent of an organization’s total costs. As the COVID-19 crisis continues to force the implementation of immediate cost-cutting measures, many companies are likely rethinking their compensation strategy to align with today’s predominantly remote workforce.
While some employers may opt to adjust employees’ salaries based on location, they have other options to balance financial needs when evaluating their compensation strategies. For example, employers can adjust various benefits no longer necessary to remote employees, like commuter and parking benefits. At the end of the day, all decisions must be made with careful thought and consideration as compensation directly impacts employee satisfaction, performance, turnover and loyalty. Let’s dive into the top five considerations for compensation strategies in the remote work era.
Legal compliance
Before implementing any changes in compensation strategies, organizations must ensure changes are compliant and meet all state or federal regulations, which differ by state and employee group. Local and federal government employment laws govern many facets of workers’ pay and hours, such as outlining the minimum wage and number of hours an employee may work on a weekly or daily basis before they’re allowed overtime pay. Companies that do not comply with compensation laws could face lawsuits and various penalties from their state and federal governments.
Employee morale
Employee morale and job contentment are directly proportional to compensation. Often there is equity that must be reached between the monetary value that the employer is willing to pay and the value and appreciation felt by the employee. When employees are appropriately compensated, they add value to the company because their morale increases which encourages them to go to work and perform well. To prevent employee morale from taking a hit, organizations must ensure any potential change to their compensation strategy would result in fair and equitable employee pay.
Productivity
Happy employees are productive employees. Equitable compensation makes employees feel appreciated, which increases their motivation and productivity. When rethinking compensation strategies, organizations can include incentives like bonuses, stock and gain sharing to further drive exceptional job performance and productivity. This is especially important when re-developing compensation plans for a remote workforce, as the less structured work from home environment can potentially hurt productivity, depending on the employee.
Recruitment
Recruiting talented employees is one of the most common goals employers share, and to accomplish this they must offer competitive compensation packages to attract the best candidates for the job. When developing a compensation strategy for new hires, employers must do so with the perspective that they are competing against many companies looking to hire from the same candidate pool. This is especially important for remote positions because employers are competing against companies all over the globe.
To ensure salary offerings are competitive, organizations must use a market-based compensation structure rather than a national average compensation structure. From a comparative perspective, it is neither competitive, fair nor equitable to price jobs based on national averages as the cost of living varies greatly across state lines.
Loyalty
When employees are being paid fairly and feel valued, they’re more likely to stay with an organization for the long run. Loyal employees means less turnover, and saves businesses from spending time and resources hiring and onboarding new employees. As organizations reevaluate their compensation strategies and potentially shift from office-centric to remote-first, competitive compensation packages are key to ensure that employees stay and grow with the organization.
The shift to remote-first requires employers to take an in-depth look at their compensation strategies, which in return creates an opportunity for beneficial change for both the employer and employee. Communicating these changes is key to giving employees the opportunity to understand if and how their salaries could change before it happens, and helps to build trust, loyalty and understanding.
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