Should remote work pay be based on location?

For the past 12 years, Brian Hartwigsen has worked remotely from Boise, Idaho. Now an engineering director for the analytics platform ChartHop, he first began working remotely for OpenDNS out of college in 2009, soon after.

At first, he didn’t realize that where he lived was a factor in his compensation. He felt that he was doing a job and he would be paid fairly for that job. “A little naive on my part,” he said.

but as he progressed For management roles in OpenDNS and later for Cisco, which acquired it, “it was very clear that the idea was that one of the benefits of hiring remote people was cheap labor,” he said.

Hartwigson eventually realized that he was being paid less than his peers because he was working in Boise. “It was a big drop,” he said. “For some reason, my geography meant I was worth less. And that sucked. It can also be very demotivating.”

As a manager, Hartvigsen could see a geography-based pay band for every position that could possibly report to him. Hartwigsen said he didn’t mind earning more money than direct reports, but the reason for the different compensation packages was location.

“When the only reason they’re making more money than me is where they live, not the work they’re doing, that’s a problem for me,” he said. “Knowing that if I extended an offer for the exact same position to someone in San Francisco, against someone in Austin, Texas, against someone in Boise, Idaho, that’s going to be three different country scales. There were, and on top of that, three different sign-on bonuses. … the entire compensation package changed dramatically depending on where you were. It just never felt right.”

Hartwigsen said it was not just the salary that was based on where people lived. “The minimum stock allocation for one in Boise was one-sixth of one’s minimum stock allocation. [San Francisco] Bay Area,” he said. “this is too much.”

A Cisco spokesperson declined to elaborate on how the company bases salaries and stock allocations on geography. “We design our compensation packages to be competitive with local talent markets and evaluate each employee individually to determine the right pay level for their role, experience and performance,” he told HuffPost. . “We regularly review compensation levels to ensure that employees are paid fairly and competitively among the relevant market and Cisco affiliates, regardless of whether the individual works in the office or remotely.”

Hartvigsen said he explored moving to the San Francisco area for OpenDNS, but he had already made his living in Boise. Growing up in a military family, he did not want to carry his four children around.

“I live a decent life, but I couldn’t move my family to the Bay Area and buy a house,” he said, even when relocation help in other job offers. included, “I would still have been left behind. Financial stability compared to anyone else my age, my time in a career and having been in those markets full time.

Although Hartwigsen said location-based pay bands weren’t a direct reason for leaving Cisco this summer, it was something he asked potential new employers in job interviews.

“I didn’t want to continue in that cycle — not only for me, but also for the people I hire,” he said. “If I hire someone in Boise who is doing the same thing as someone in the Bay Area, I want them to be compensated equally.”

The coronavirus pandemic was a wake-up call for many employers and employees that the old way of working was not working – at least for everyone. A July survey of Americans who began working remotely during the pandemic found that 65% said they were willing to take a 5% pay cut to continue working full-time.

Companies including accounting firm PwC and large tech firms including Facebook, Microsoft and Google heeded the request. They are now giving employees the opportunity to continue working from home where they prefer, but have made potential wage adjustments a condition of doing so in less expensive markets.

But a growing number of companies are also taking a location-agnostic approach to payments. Last year, Reddit eliminated geographic compensation zones for U.S. employees, announcing that it would instead set wage limits in high-cost areas like San Francisco and New York, regardless of where U.S. staff members live. Cloud software firm Okta decided in April to stop making pay adjustments when employees move, unless the move is to a new country or to a new position. And last month, Zillow’s chief public officer, Dan Spaulding, announced that the company’s compensation packages would now be tied to “role, responsibilities and performance” and that employees could move to the US and Canada without pay penalties.

“When you work for Zillow, your long-term earning potential is determined by your performance, and will not be limited by where you live,” Spaulding wrote in a LinkedIn post.

Daniel Zhao, senior economist at Glassdoor, said that most workers mistakenly believe that companies adjust wages geographically based on cost of living, but it actually adjusts based on cost of labor. Companies “benchmark pay against other competitors in that sector, so if they see other competitors raising wages, they need to raise wages as well,” he said.

Since the pandemic began, there has been an increase in companies setting geography-based pay based on where employees live, rather than maintaining company offices. Before the pandemic, 32% of companies were using their headquarters location to set salaries for remote workers, according to a Summer Pay Scale survey of human resource leaders and compensation professionals who worked mostly in tech, but manufacturing. , nonprofits and also worked in areas including finance. , That number dropped to 17% after the pandemic began.

Amy Stewart, author of Payscale’s resulting “State of Remote Work” report, told HuffPost that companies typically calculate regional pay scales by applying a “geo differential”—a percentage variation that accounts for differences in the cost of labor between locations. adjusts to. She notes that although paying remote workers based on the employer’s location can make that employer competitive when the employer is located in an expensive area, it doesn’t work the other way around.

But many companies that have publicly pledged the geographic-based pay gap are located in costly areas, and cite a desire to remain competitive as a reason. In a blog post about the change, Reddit said it would “attract top talent by not needing to relocate people and increase the diversity of our workforce in the process.”

When the pandemic hit, Hartwigsen’s CEO at Charthop, Ian White, considered whether there should be a location-based pay adjustment as some of his employees moved away from company headquarters in New York City. But ultimately, White said it was a “no-brainer.”

“It is clearer and more consistent for everyone if people can trust that they are paid equally for equal work, and then they can make choices accordingly,” he said.

White said that if he went ahead with a location-based pay cut, it would put him in the “strange” position of police employees’ locations. That said, some companies have to measure whether people are living close enough to the metro area, which applies to the cost of living of the metro. “I didn’t want to deal with any of that,” he said.

Career coach Nadia De Ala said geographic-based pay cuts could perpetuate inequality for women and people of color, who already face pay gaps compared to their white male peers. According to a Pew Research Center analysis, 1 in 4 working women said they earned less than a man doing the same job, while only 5% of working men said they learned less from a woman doing the same job .

“More often than not, my clients are heartbroken because they find out, ‘Wow, compared to my counterparts’—usually white male counterparts—’I’m getting thousands of dollars less for the same work,'” D’Alla said. he said.

Those add up to thousands of dollars. Black and Latina women are the group most likely to be the single head of household and the sole breadwinner for their families. Women of color are also the group that is least likely to be able to cover loss of earnings such as a pay cut to walk or work remotely.

One of D’Ala’s clients, who was facing a pay cut to relocate, heard through informational interviews that she was already being paid less based on her original, current location.

“I imagine for my client, it was very hard for him to trust, ‘Is this fair? Is it everyone getting it?'” Ala said.

When people work remotely, they can also incur a financial burden, plus the decision helps the business’s bottom line. Those working at home can incur expenses such as setting up and maintaining an office and paying for high-speed internet and electricity that their employers used to cover. Danielle Clark, a utility administration professional, previously told HuffPost that opting to stay away during the pandemic resulted in a 10% pay cut, which she avoids by escaping her short commute.

“I personally don’t think you need to take a pay cut to work from home. I’m as productive as I am in the office, if not more so, Clarke said. “I couldn’t find any additional equipment. I was provided with a laptop and a monitor, but no desk or workstation.”

Zhao suggested how companies making geographic pay adjustments affect employee morale and are betting against the future of remote work.

“If five years from now, remote work is only 5% of the labor market, there may not be enough competition to drive up the local cost of labor to the rate you would see in the Bay Area and New York City,” he said.

Similar white thoughts: “A lot of companies that are taking location-based pay or location-based pay cuts are going back to an office again. And they almost want to motivate employees to come back to the office.”

He said that the advantage of such salary cuts and calculations is that it sends a better message.

“We’re going to rely on people as adults to make the decisions that make the most sense for them and their families,” he said.