Is Geographic-based Compensation Still Relevant?

For a full year now, or more, employees whose job roles allowed for it have been working from home. Some companies didn’t miss a beat, but it upended companies in more traditional industries like banking. In the end, working at home generally worked out just fine. Employees remained productive, their work/life balance felt, well, balanced, and bottom lines didn’t bottom out because people were working remotely.

Now, as we see light at the end of the pandemic, HR is evaluating the merits of returning to the office full time, or at all. You can find survey after survey confirming the fact that most companies are now noodling a hybrid model of remote and in-office work. Many factors of working life are being impacted by this, not the least of which is the seismic change in the commercial real estate markets as companies begin to downsize their office space en masse. But another factor that is being rocked by remote work is compensation.

A few questions HR is pondering when it comes to compensation in the post-COVID world:

  • If employees can work from anywhere, will we see a meaningful migration of people to different places in the country, or even the world? After all, if you can do your job from anywhere, wouldn’t it make sense to move someplace with better schools, a more temperate climate, or a place that’s closer to family and friends?
  • If an employee chooses to move from, for example, the bustle of Manhattan where the cost of living is extremely high, to the calm of a little town in upstate New York where the cost of living is more affordable, what will happen to his or her compensation rate?
  • If employees choose to move to locations with lower costs of living, will companies have the ability to lower their salaries?

One way to approach changes in geographic pay structures

Compensation analytics firm Aon contends that since more people are working remotely and will likely continue to do so, it’s prudent for companies to rethink their policies for geographic-based pay. This issue isn’t really at the forefront of people’s minds yet, but it will be, and soon. Having a policy in place before it becomes a problem will save HR headaches later on. It’s especially true if your company has operated out of one geographic area and employees decide to move away from it.

The bottom line is, if you can work from anywhere, you might want to work from somewhere that is more desirable to you than your current location. If you took a job based in Philadelphia but are from Minneapolis, wouldn’t you want to move home to be nearer family if you could? Maybe you’d like to be a non-retired snowbird spending the winters in Florida or Arizona.

As HR ponders the permanent changes to the workplace caused by the pandemic, compensation for remote work should be on that list. 

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