Jun 24, 2021
Over the past year, remote work has enabled employees across industries to become adept at virtual collaboration. Technology has transformed meetings where co-workers, colleagues and clients have become familiar online faces.
Employers have realized efficiencies in remote work productivity as they continue to hire and onboard new employees virtually. This flexible work model expands the reach for skilled talent by allowing employers to recruit from new locations while scaling down on overhead expenses.
Employee compensation is one of the most important investment decisions a company will make. Newport has a dedicated team of Compensation Consulting Services experts, who provide competitive market analyses to help ensure a company's pay is market competitive and aligns with a company's goals.
A common question Newport's team is hearing from organizations is: How should we factor in location to determine employee pay?
Consider a few different scenarios:
- A mid-sized business with an office located downtown in a large city is considering maintaining remote work for an indefinite amount of time. They hired several new employees in lower cost of living areas at lower salaries. Several employees have also moved from the city to lower cost of living areas. The employer is considering salary adjustments to decrease pay for employees no longer living in the city.
- Another mid-sized business in a moderate cost of living area just acquired an organization in a large city. Some employees will be reassigned to the new organization in the large city with the opportunity to work remotely several days per week. This employer is considering salary adjustments to increase pay for these employees.
What is the best approach?
In either case, organizations should revisit their compensation philosophy. This is a strategic decision to determine how competitively pay levels should be set compared to the labor market to attract, motivate and retain qualified employees. With a remote workforce, the labor market may now be more broadly defined and no longer limited to specific locations.
There are several approaches for organizations to consider when factoring in geography to set pay to local labor markets:
- First, an employer can set pay rates by their main office location or regional offices. Employees can be assigned to specific pay structures based on the office closest to their remote work location.
- Another approach is to set pay based on the employee’s home or remote work location. If, for example, a highly skilled tech job candidate is located in high cost of salary labor market, the employer may need to account for the employee’s salary expectations based on the local labor market in which he or she lives.
- A third option that may be suitable for employers in moderate cost of labor areas is to set employee pay to the U.S. National level. If a company relocates employees to a significantly higher cost of living area, location pay could be added to account for higher living expenses. Conversely, if a company relocates employees to significantly lower cost of living areas with no change in job, the location pay may no longer be applied.
Conclusion
Pay is a product of many factors including an individual’s experience, performance and skills, as well as market value of the job and the organization’s compensation philosophy relative to the market.
Organizations should develop a clear remote pay policy, communicate it to their hiring managers and build it into the employee handbook to ensure consistent pay practices. When pay practices are more transparent and applied consistently, employees will have a greater understanding of how their organizations make pay decisions and increase their perception of fairness.
It is important for employers to consider the approach that works best to support their business strategy and to follow that approach consistently.
Newport is Here to Help
Newport’s Compensation Consulting Services team provides expertise to employers of all sizes and industries including healthcare, manufacturing, financial services, not-for-profit and professional services, to name a few.
Our team has the expertise to develop a competitive pay program framework and evaluate employee pay to ensure your compensation program is internally equitable and externally competitive. Supporting clients is what we do best and is our number one focus.
For additional information, contact Rena Somersan, Managing Principal, Compensation Consulting Services at 414-312-8189 or visit our website here.
Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services.
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