As the workforce continues to evolve in a post-COVID world, organizations are continuously moving away from conventional work structures and adopting a more distributed workforce (or hybrid) model. Two distinct working environments are becoming more popular: fully distributed work and remote work. While fully distributed work involves companies without any permanent or physical office spaces, remote work typically maintains a company presence through a headquarters and/or geographically dispersed hub locations and enables employees to work remotely (away from their workspaces) at their choosing. 

The driving force behind this transition to a more distributed workforce model is the employees themselves. One key factor in this post-COVID era is employees are quickly realizing they can maintain similar levels of productivity within flexible working arrangements. Also, the opportunity to live in a less expensive area or closer to their loved ones (while earning similar enough wages) is appealing. Remote work also presents an opportunity to provide improved work-life balance, which employees have come to appreciate. However, this new setup comes with unique challenges, particularly managing compensation packages. Adapting to changing employee expectations and a distributed workforce model is a key (and often complex) task for leaders at VC-backed companies. To assist with this, below are five items organizations need to consider when managing compensation packages for a distributed workforce. 

1. Build a Strong Compensation Philosophy 

Creating a comprehensive compensation philosophy is pivotal to managing compensation for a distributed workforce. This will not only engender competitive compensation packages at local and global levels, but also cater to essential business roles and top performers. Having a well-defined rewards philosophy for your organization is essential is creating the necessary foundation for which all compensation-related decisions will be made across your employee population, often spread across different geographical regions. 

2. Implement Distinct Pay Structures and Policies 

Customized pay strategies depending on mission-critical roles, locations, and performance levels are also a cornerstone of distributed workforce management. Companies often develop pay grades in alignment with cost-of-labor variations, resulting in salary arrangements influenced by the job function, level, and location. With the help of cloud-based HR Information Systems (HRIS) and compensation management software, companies can streamline processes and enhance operational efficiencies to develop meaningful salary structures. Moreover, policy creation around adjusting compensation packages for employees relocating can circumvent potential workflow disruptions. 

3. Establish Geographic-Pay Tiers 

Consider integrating different geo-tiers in your distributed workforce model, taking into consideration the living costs and local situations. For instance, one could envision different tiered levels for cities with different labor costs like NYC, San Francisco, DC, and Boston. However, any alterations to geo-pay tiers must align with the company’s location strategy, plans for expansion, talent market, and overall finance resource considerations. 

4. Encourage Effective Compensation Communication 

The importance of effective communication about compensation within a geographically diverse workforce cannot be stressed deeply enough. There is a saying “compensation IS communication.” Inaccurate pay differences in various locations can lead to misunderstandings, potentially harming employee expectations and the organization’s culture and brand. Transparent and clear communication is the key to avoiding such complications.  

5. Embrace the Changing Dynamics of a Distributed Workforce 

In these uncertain times, preparation and adaptability are crucial. Allowing remote work opportunities for specific jobs within your organization that you deem remote work eligible (through workforce planning efforts) can significantly add value to your company employee value proposition and plays a vital role in the attraction, engagement, and retention of top talent. It is beneficial to accept the new dynamics and seize remote work opportunities. However, before doing so, it’s imperative to design structures and processes that can handle the complexities of a distributed workforce. 

Build Your Distributed Workforce Model 

Mastering the nuances of this new work reality will be a competitive advantage, ensuring companies are positioned to adapt to the ever-changing business world. To support distributed workforce management, Sequoia has created Comp OS, which enables companies to define pay zones, establish pay ranges, keep your spending predictable, and comply with pay transparency. All Sequoia clients have free access to the Sequoia Comp OS until May 31st, 2024. Contact us for more information on Comp OS and see how Sequoia can help you hit your business goals faster. 

Calvin Croskey — As Director of Compensation Advisory, Calvin utlizes his deep total rewards expertise to empower Sequoia clients, enabling them to unlock their full potential, sustainability scale, and create long-term success stories.