Remote pay models can be challenging. There have been several surveys showing that companies recruiting for in-office positions are usually having to offer considerably more than to get the same person working remotely. Some people have twisted this and decided that since people were hired for in-office jobs, and are now working remotely, maybe they should be paid less. While few workers would be comfortable with the second argument’s logic, it does bring up the fact that our compensation models are no longer viable.
How Much Does the Job Pay?
In the past, this has usually been a fairly straightforward answer. It usually is some range that HR has to play with based on how badly they want you and what you are willing to take. Some of the factors that went into the number included known competition salaries, union agreements, internal costs, cost of living, and all too often a bit of discrimination if you weren’t a white male. So definitely room for improvement.
If you are still locked into an office-present employment model, many of the same factors apply. You will be competing against others down the street who is in the office as well and competing against those in your industry who have opted to reduce costs.
If you are looking beyond the office, now you have a broader range of talents to pick from. Depending on where they live, they may have even broader salary expectations. Applicants for the same job from San Francisco, the Philippines, and Romania are going to have very different salary expectations. Depending on your work model, even if you are 100% remote, you may want to plan for corporate gatherings a few times a year. Suddenly the low salary expectations of the Philippines may mean much higher travel costs. There is no one right model. But one thing is for sure, it’s no longer based on what the local market will bear.
Picking a Remote Pay model
Here are a few different approaches to consider when developing a remote pay model. There are advantages and disadvantages to each depending on your business model. ;
No Difference
The one size fits all model makes for simplicity. Salary is unaffected by location and generally benchmarked to the company HQ market. While being the easiest to administer, it may be the most expensive of the models.
HQ + Other
This model is generally tied to a headquarters in a major metropolitan area. It assumes the higher cost for that area but treats everyone else the same. This two-tiered approach typically has one high-cost tier based on HQ, others are generally 10-15% lower.
Regional Tiers
Some companies will have 3-5 geographic pay tiers. They are regionalized for simplicity with exceptions for high-cost markets. Drawing the borders can be a bit tricky. And there will always be someone on the edge of one area that thinks they should be in the next tier. You can’t please everyone. Or can you?
Highly Localized
This approach isn’t necessarily complicated, but it does require some planning and rules. Salaries are individually adjusted with no standardization across markets. Localized rates are usually based on the cost of labor, not the cost of living. But you don’t need to do it that way. The U.S. government has had a Cost of Living Allowance (COLA) model for decades. If you want to adopt that model, the government publishes the annual COLA rates for the whole world. You can easily adapt it to your company’s needs.
Regardless of the model, it’s important that everyone understand the differences and that the structure is properly communicated. This is especially important if you are changing from an existing model to something different. There also needs to be rules about changing locations if you adopt a localized approach. Constantly adjusting pay for someone who likes to move around a lot can be a pain. Someone is going to have to do that if your pay model supports it.
The Owner of Remote Work?
Since remote work has a variety of new things to think about, many companies are creating heads of remote positions. They make sure the distributed workforce has what they need and that things run smoothly. They are often responsible for developing and implementing pay models, as well as many other aspects of remote work. It may be a full-time head of remote position, or it may be a fractional head of remote position depending on the size of your company.
In Aug 2020 only 2% of companies had a designated leader over remote work. By Feb 2021 it was up to 15%. This can be key to the effectiveness of remote work in many companies going forward. This role might be in Operations, HR, or some other area. And for smaller companies, it may be a contracted position on a part-time basis.
Remote pay models are just one of many things that companies need to look at for remote to be an effective strategy. Coming up with the right model, and the right person to manage it can make all the difference.
