Good morning,
“When it comes to remote work and geographic pay differentials, I think organizations need to find the right balance, considering competitive pressure related to the recruitment and retention of employees, business needs, and managing employee perception of what is fair,” Garry Straker, senior compensation consultant at Salary.com, told me.
More than two years into a pivot to widespread remote work, many companies are still deciding on pay differentials for employees who moved during the pandemic to locations across the country. This decision often falls to the CEO and CFO.
“Generally, at Salary.com, we’re seeing employers continue to wrestle with this issue,” Straker says. “And for employers, simplicity of compensation administration is a key consideration.”
Google is one prominent company where this struggle is playing out. Inside Google’s push to nail hybrid work and bring its 165,000-person workforce back to the office part-time, a new Fortune article by Beth Kowitt, takes a look at how the tech giant is fairing with its workplace policies.
Kowitt writes: Google has always paid differently based on location. If you work out of New York or Mountain View, you’ll find yourself in “premium plus.” Chicago would put you 15% lower into “national” for the same job, while Raleigh-Durham is 25% less, in a category once called “discount” but since renamed “standard.” But these tiers, which have the unfortunate distinction of sounding like airline seating assignments, have taken on heightened meaning as some 17,000 Googlers have either relocated during the pandemic or gone fully remote. The premise of having your salary adjusted for doing the same exact thing, just in a different zip code, has become perhaps the biggest sticking point for employees—even those who are grateful for the option.
For some, the implications have been more dramatic. Laura de Vesine was working out of Sunnyvale, Calif., as a senior site reliability engineer when her managers approached her team about relocating to Raleigh-Durham, N.C. The move would mean more headcount and would ease the time zone challenges of frequently working with Europe. But it would also come with a 15% pay cut. The team agreed, but when de Vesine and her colleagues got the official email from the compensation team, the actual figure was a 25% decline. “I was going to be doing the same job in a way that was more convenient for my employer,” she says. “Why were they going to pay me less for that?” (Google declined to comment.)
Laszlo Bock, a former head of Google HR, told me the company’s pay decision may be principled, but it’s not pragmatic. Cutting someone’s salary is “one of the most insulting, emotionally difficult things you can do to an employee,” he says. “It really pisses people off. It’s a huge mistake, unless you’re trying to get those people to quit.” You can read the complete report here.
So, how are other companies fairing? Organizations are working towards simplifying their pay philosophy and policy surrounding geographic pay strategies, a new report by WorldatWork, an association of total rewards professionals, found.
Of the 57% of organizations with existing U.S. geographic pay policies in place, 55% of those are considering modifying or have recently modified their policies. The top two considerations for companies addressing localized compensation are expanding (28%, down from 38% in 2021) or consolidating (28%, up from 20% in 2021 ) pay differentials by geographic area.
About 56% of organizations surveyed use city/metro area as the basis for geographic pay differentials. The geographic pay locations for in-office or hybrid employees are most often determined by their nearest work location (45%). Meanwhile 54% said full-time remote workers are tied to their location of residence, according to the report.
There was a six-percentage-point increase from last year for companies using a single pay structure where pay is not differentiated by geographic areas—19% in 2021 to 25% in 2022. And 13% are considering eliminating the differentials by geographic area. The findings are based on a survey of 858 U.S. organizations and 312 full-time business professionals.
“Cost of labor, not cost of living, is the primary driver of determining the pay policy,” Straker says of WorldatWork’s report. And it’s “clear that employees value remote work and hybrid work opportunities, with 73% of employees surveyed expecting that their pay may differ based on geographic location.”
What are your thoughts on geographic pay differentials? Let me know.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
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Leaderboard
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