Did you consider moving out of a big city to a cheaper and/or more urban location or even to another country after remote working became the new normal?
Many urban workers have been tempted by this opportunity in hopes to bring their salaries with them.
While some economists had hoped this would rebalance economies by allowing good jobs to disperse out of crowded, expensive cities into areas that could use the economic boost, employers have begun to adjust policies to accommodate the post-pandemic world.
If you plan on moving to cut your living expenses, your employer may very well cut your pay to accommodate that shortly.
While this may sound extremely disappointing or daunting, it is not an unusual practice particularly in tech where remote work has been more predominant before the pandemic.
Google has long since determined compensation based on location while remaining at the top of the local market from which their employees work. Companies such as Facebook and Slack have announced they will follow suit.
Gitlab has even developed a compensation calculator to harness market salary data per location to determine a competitive rate for their 1,300 completely remote employees.
Organizations are in favour of location-based compensation as it ensures compensation costs remain stable and it keeps employees geographically diverse.
However, as more employees begin to work from home on a more permanent basis, companies that base payment on location run the risk of paying individuals differently for the same work or cutting pay for those whose jobs have not changed.
For example, if an employee lives in a commuter town as opposed to their colleague who lives in the city the company is headquartered in, they may be at risk for a pay reduction to accommodate their location even though nothing else changed. Economists generally agree that nominal wages can quickly become a slippery slope. Additionally, no one likes pay cuts, no matter how justified they are, therefore they are generally avoided at all costs.
There is fear that this scenario may tempt employees to trick employers by subletting rooms in more expensive locations to keep their previous salaries.
Chief Executive of Facebook, Mark Zuckerberg addressed this in a staff video, stating that there would be severe ramifications for employees who are not honest about their location.
Conversely, Reddit and Zillow have announced that they will pay employees the same wage regardless of where they are located. Reddit started in October of last year that the company plans to scrap geographic compensation zones in the United States, tying pay to high-cost locations such as San Francisco and New York.
This only fuels competition as fully remote work becomes increasingly common. Not only do remote workers have access to local jobs but further their national and the global marketplace. This puts more power into the hands of talent giving them the ability to accept jobs from anywhere in the world.
It is still too soon to tell if location-based compensation will become the new normal for remote workers apart from the tech sector or if employers from the likes of Facebook will have to reconsider their policies to remain competitive in the global marketplace.
Findings from a survey of employers in the UK by the Chartered Institute of Personnel and Development found only seven per cent of organizations who vary pay based on location have adjusted compensation of employees to reflect fully remote working thus far and sixteen per cent are keeping the issue in a review.
Currently, the power lies with talent able to compete within the global marketplace, however, the commonality of remote work and decision-making of local employers will play into how compensation is determined for the future.
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