How a remote workforce will change your compensation strategy

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The country may be reopening, but some employers are putting permanent work-from-home policies in place, giving them an opportunity to reconsider a compensation strategy that cuts costs and addresses their long-term goals and values.

Some 62% of American workers are currently working remotely, according to Gallup’s latest survey results, and companies including Twitter, Facebook and Slack have all announced they will allow employees to work from home permanently. The move to remote work gives companies an opportunity to consider how they compensate workers and what is involved in their total rewards packages.

“Organizations should look not only at their compensation and total reward strategies, but their human resources strategy,” says Stacy Strauser, director of compensation consulting at OneDigital, a strategic advisory consulting firm. “There are lots of benefits as well as drawbacks [from a remote-centric workplace], for both employers and employees.”

Adjusted salaries are just one piece of the puzzle when it comes to rethinking compensation, says John Bremen, managing director of human capital and benefits at consulting firm Willis Towers Watson.

“For the companies that reduce pay, it is often a nominal amount, not a significant amount,” Bremen says. “But that really is the exception.”

Both Slack and Facebook recently announced plans to adjust salaries based on updated geographic location for their workers, and Facebook’s employees may see salary decreases if they decide to move out of Silicon Valley and go fully remote, Zuckerberg explained in a May livestream.

"Our policy here has been for years that [compensation] varies by location," Zuckerberg said. "We pay a market rate, and that varies by location. We're going to continue that principle here." This market-rate approach means that if an employee moved from Facebook’s headquarters in Silicon Valley to rural Nebraska, they’d likely see a pay cut due to the vastly different cost-of-labor, or the “going-rate” for compensation in a specific geography, in the two locations.

Bremen says firms have several compensation trends to consider when it comes to how employers are approaching a permanent remote work model. While salary reduction is one method, Bremen says it’s more likely that firms will shift to a national average compensation structure, where compensation is based on national averages rather than averages for one geography, or choose to simply freeze compensation for employees for a set timeframe to let the market catch up with them.

A recent survey by global professional services firm Aon found that, for firms who planned to make changes to compensation for virtual workers, 15% said they would leave the salary level unchanged, 12% said they would adjust the salary right away, and 12% said they would freeze merit increases until compensation aligned more with local pay rates.

Employers must also consider their total rewards packages and what they plan to keep or adjust in their transition to a remote work model, says Strauser. Things like commuting costs or other voluntary benefits that may have been necessary before the transition might prove unnecessary to a remote workforce.

“When you're giving your employees a scenario of moving from an office location to a remote location, [remember] that not only do they have a base salary or incentives, but they also have other benefits,” Strauser says. “You can eliminate certain allowances that are no longer beneficial to them, like a parking allowance. It's not just a salary. We are talking about a package.”

This is also an opportunity for companies to consider how this will affect their hiring decisions. In his livestream, Zuckerberg noted that remote hiring will diversify Facebook’s workforce.

“When you limit hiring to people who either live in a small number of big cities or are willing to move there, that cuts out a lot of people who live in different communities, different backgrounds or may have different perspectives,” he said. “Certainly being able to recruit more broadly, especially across the U.S. and Canada to start, is going to open up a lot of new talent that previously wouldn’t have considered moving to a big city.”

While the future still remains uncertain for many employers, it is important to consider whether they are making decisions to satisfy the short-term, or taking a longer view, Bremen says.

“Companies right now are making a lot of short-term decisions, but they're going to have long-term implications,” Bremen says. “We know that companies are doing all kinds of things right now to survive in this difficult environment. But the most effective are taking a long-term view. It's not only how you pay these people in 2020, but how you are going to think about paying them in 2021.”

While some firms may choose to move forward with a remote workforce without making significant changes, the most important thing is that communication is clear and constant, Strauser says.

“You need to communicate with your employees,” she says. “Say, ‘This is the direction we're heading. We've decided due to COVID-19 that this is the best thing for our organization going forward. This is how we’re going to proceed.’ Communication is key.”

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Compensation Work from home Workplace management Benefit management Coronavirus
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