Studies show that many employees would be amenable to a cost-of-living adjustment and that the benefits may offset the decrease.
Facebook's decision to join other big tech firms in allowing employees to work remotely--but adjust their salaries based on where they live--has many wondering if there will be a ripple effect.
CEO Mark Zuckerberg told employees the decision should help the company improve its retention rate and allow Facebook to hire people who previously wouldn't consider moving to big cities to work for the social media company. This would make the company more inclusive of people with different backgrounds and perspectives, Zuckerberg said during a recent livestream with employees.
Within 10 years, Zuckerberg believes about half of Facebook's 45,000 employees will be working from home permanently.
There has been a growing emphasis on the trend toward remote work in the past few years, as well as people and organizations moving to lower-cost, mid-sized cities, said Robin Jones, a principal with Deloitte Consulting. This movement is due in part to the rising cost of living in popular coastal cities and is often catalyzed by people being ready to own a home or start a family, Jones said.
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"The idea that professionals may now have the option to move away from the expensive urban centers where their organizations are headquartered, and in doing so have access to even more work options within their organizations and other organizations, adjustments for cost of living may be worth it to a lot of people."
Deloitte's 2020 Global Human Capital Trends report found that in the wake of uncertainty, organizations need to adopt compensation practices that aren't just based on data and numbers, but on a set of human principles that reflects how the organization values individuals, Jones said.
"This requires a shift to understanding what the workforce wants. We found that 58% of respondents reported that the workforce has little to no input in the organization's compensation strategy, with 24% reporting they have no input whatsoever,'' she said. "Giving people the option to work remotely from where they want with adjustments for cost of living is a bold move that allows people to have a say in their compensation."
Blind, an anonymous community of verified professionals with 3.6 million users, recently conducted a survey (PDF) to gauge whether tech and finance professionals, given a choice to work from home permanently, would consider relocating out of San Francisco Bay Area, New York, and Seattle Area. Some 66% of respondent professionals said they would consider relocating, Blind said.
Further, 38% of Facebook professionals said they would consider relocating with a pay cut, the survey found. Thirty-two percent of working professionals also said they would consider relocating with a pay cut, Blind said. Other findings from the survey:
The Bay Area (35%), New York (30%), and Seattle (31%) showed similar proportions of intent to relocate with a pay cut
New York (75%) has the highest proportion of those wanting to leave the metropolitan area
Only (25%) of New Yorkers would not consider relocating out of the metropolitan area
Another recent study by GoTo and LogMeIn revealed that 62% of US participants would take a pay cut if it meant they could work from home indefinitely. Other studies have shown that many office workers feel less guilty about the impact their commute has on the environment now that they're working remotely and that the financial benefits of staying out of an office (reduction in childcare, car maintenance, and gas), as well as increased quality of life, would help offset a pay cut.
Precedent for salary adjustments
Tech hiring site Dice expects to see tech companies continue to embrace more flexible schedules, offering more remote work options, or becoming entirely remote. But there will always be a need for some roles to be in-office and for some tech teams to collaborate in person when it's safe to do so, said Art Zeile, CEO of DHI Group, Dice's parent company.
The issue of pay adjustments for multi-location companies is a complex one, but makes sense, Zeile said. "Even the government has had a history of making cost-of-living adjustments to compensation based on locale,'' he said. "This, in my opinion, is a signal of a more complex world, but one that is fair to employees' conditions."
Jones agreed, saying that already, organizations with offices in different cities and regions often adjust compensation based on cost of living. "This practice isn't necessarily groundbreaking at its core, but this version of it allows professionals more autonomy in where they choose to live their lives, without being tied to a physical office."
Companies with diverse benefits and workplace options tend to attract a larger range of talent with varying values and priorities, she added.
Pay has always followed the dynamics of local labor markets, which includes factors like cost of living and local competition for talent and can vary widely across the country as a result, echoed Glassdoor Senior Economist Daniel Zhao. For example, pay data from Glassdoor's Job Market Report shows a software engineer in San Francisco makes an annual median base salary of $128,682, whereas a software engineer in Philadelphia sees a median base salary of $89,976, Zhao said.
But as many employees shift to long-term remote work, this becomes a tall order as employers must navigate how to ensure fair pay for a more dispersed workforce, he said.
"If employers decide to lower salaries for those who relocate, communication surrounding these decisions will be essential to prevent workers from feeling undervalued for doing the same daily work from a different location,'' Zhao said. "On the other hand, if employers struggle to fill key roles, they may keep salaries higher, even in lower cost-of-living areas, to attract and retain top talent."
The coronavirus crisis is expected to have a prolonged impact on the workplace, which is forcing many companies to re-examine existing compensation, "office perks" and other parts of the employee experience that change when employees aren't physically in the office, Zhao added.
Will others follow suit?
Companies that innovate first will be watched closely by others trying to navigate the right approach, Zhao said, "but don't expect things to change overnight. Wider adoption will be a more challenging and slower process."
If the option for remote work continues to be successful on a wide scale, Jones believes other companies will follow suit, "I think we'll see a lot more organizations feeling incentivized to offer the benefit as well,'' she said.
But the level of productivity is not totally clear right now and more needs to be done to make the case for remote work on a wider scale, she added. "In order to sustain remote work, more productivity tools will need to emerge at scale. For example, more consumer-grade virtual whiteboarding, visualization, and workflow tools. And of course individuals and teams will need to upskill in the use of these technologies to demonstrate higher levels of business productivity at work."
Historically, the tech industry has been at the forefront of remote working thanks to better infrastructure and capabilities to adopt this way of working, Jones said. "It stands to reason that opportunities to work remotely permanently--especially with the addition of smart tools to enhance productivity--will bring forth a new wave of adoption."
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