The necessity of remote work during the COVID-19 pandemic has sparked a migration to less expensive areas where employee compensation stretches farther. This mass relocation is also forcing employers to question whether employees should retain their higher San Francisco Bay Area or New York compensation in these cities that don’t have the same cost of labor.

Reuters recently reported Google is considering pay cuts of as much as 25 percent depending on remote employees’ proximity to the office and Facebook, Twitter, and Stripe have also indicated they plan to adjust pay for those continuing to work remotely once offices open back up.

Certainly, it’s important for companies to keep an eye on the bottom line and pay a fair wage based on cost of living when an employee is hired, but how should that change if the employee moves somewhere that has a less competitive labor market? Is it equitable for someone working onsite in San Jose to be paid the same as someone working from home in the same role in Boise? And is it sustainable for your company to pay top of the geographic market salaries for all its employees regardless of location?

These are sensitive decisions that should be reviewed category-by-category across the organization, not solved with a one-size-fits-all policy that could chase away top talent. Consider the following questions as you go through your decision-making on location-based pay adjustments.

  • What is your existing policy? While many companies already have location-based pay policies, these often pertain to new hires. How should that policy change for employees who moved during the pandemic to achieve some financial certainty? What does your policy specify? Does it pay for the duties of a job, or the duties of a job performed in a certain market?
  • How effective are employees in their new remote location? If business-critical employees are productive and working equally well or better from home in their new location, is it wise to consider a pay decrease, particularly at a time when remote job opportunities have increased dramatically? How much of a contribution are these employees making right now and what do you risk by telling these in-demand workers that their work is worth less?
  • Do certain employees need to be onsite? If certain categories of employees such as product managers, sales, HR, or IT professionals are found to be more valuable to the company on-site, should these employees be paid more to make up for these higher geographic costs? What was lost when certain teams were distributed remotely and has your company measured team effectiveness in a distributed environment? How valuable is it for your team to be in growth company ecosystem associated with high cost of labor areas? Is there value to the company having an employee in a geography that contains VCs, tech-focused banks, lawyers, growth advisors, and multiple opportunities for partnerships?
  • Is the bottom-line boost of pay adjustment worth the risk of retention? During what many are calling the Great Resignation, retaining valuable employees is critical. Just because a software engineer or data scientist lives in Texas or Colorado doesn’t mean they won’t receive above their local market offers, particularly if there is a shortage of talented workers in those areas. Tech salaries are catching up in many secondary cities, and monetary pay is still the most important factor in job decisions. However, if certain roles are not as hotly competitive and can be sourced from lower-pay markets, does it make sense to adjust for this category?
  • Can you objectively defend your pay decision? If your reasons for lowering employee pay aren’t well defined, there can be a perception of bias, which might lead to legal action. Likewise, if your decision disparately affects one group of employees over another you might find yourself in a defensive position.
  • Is it just about compensation or should the whole package be reviewed? If you plan to lower pay for remote workers, you’ll also need to consider adjusting benefits and perks to be more thoughtful and remote-friendly so these agile workers can unlock the full value of their total rewards.

Ultimately companies must decide where the greater value lies. While savings on real estate, commuter subsidies and other perks from remote work do provide some cost savings, how does it compare to the larger savings from pay adjustments?

To review your Total Rewards strategy, contact your Sequoia advisor or connect with them in HRX to get started.

Kyle Holm – As the VP, Total Rewards Advisory, Kyle is responsible for leading our team of Rewards professionals who ensure Sequoia clients have compensation programs that attract, motivate, and retain their employees. In his free time, Kyle enjoys spending time with his family, golfing and rooting for the Niners.