07 February 2023
Are new compensation packages required for remote workers?
Today’s metropolitan cities are a mere shadow of their former bustling selves. Since COVID-19 tested the resilience of business as we know it, millions of employees have left city centers in droves. In fact, at the start of the pandemic, Facebook CEO Mark Zuckerberg predicted that 50% of Facebook employees could be working remotely within 5-10 years1 . Now, more than a year since his pronouncement, he may just be right. Most companies have come to terms with the permanent nature of remote work.
However, as remote workers are now the backbone of many businesses, these new work arrangements have forced many businesses to re-evaluate employee compensation plans. Google announced in August 2021 that employees who were once based in the same office before the pandemic could see different changes in pay if they switch to working from home. While salaries were once pegged with performance, the cost of living within an employee’s area of residence has now entered the spotlight.
The million-dollar question for HR professionals is: are new compensation packages required for remote workers? The answer, however, is not so easy. In this article, we examine the different ways that employers are approaching compensation for remote workers. While each direction may be different, the ultimate goal is the same - to maintain productivity, drive cost efficiencies, and stay ahead.
Finessing Salary Reductions: Trade-offs Employees Are Willing to Make
Salary reductions are a hypersensitive subject and tact and prudence is necessary. If salary is going to be taken away, employees must feel that they will be compensated in other ways to cushion the blow. As it turns out though, working remotely is a privilege that most employees are fiercely guarding.
A survey by Breeze2 suggests that 65% of employees are willing to take a 5% pay cut to work remotely. About 53% of the respondents said “yes” to an extra 10 hours of work per week in exchange for unnecessary commutes.
Some employees are also willing to consider alternative types of compensation.
In a comprehensive 2020 study on salaries by Hired, 31% of the tech professionals in the report declared that they would accept lower base salaries in exchange for stocks in publicly traded companies. Another 21% favored equity in privately held companies3.
Other companies are looking to reallocate resources to support remote workers directly.
Twitter, for example, already had geo-specific compensation plans in the works before the pandemic and now that most of their staff have gone online, the social-media giant is considering alternative compensation plans that include US$1,000 work-from-home allowances. These allowances include, at-home wellness programs, and parent resources regardless of the employees’ location4.
Financial Housekeeping: New-Age Employee Perks
Employee benefits are another way to take the sting out of salary reductions, however, this is yet another area of HR that is evolving. As the bulk of the workforce has shifted away from traditional city centers, many of the traditional in-office, transportation, and other employee benefits are becoming redundant.
It’s not all bad news though as employees are willing to let go of these benefits.
About 57% of DevOps software engineers and other tech professionals from San Francisco to London surveyed by Hired said they would not mind losing perks5 such as free lunches and fitness classes in exchange for working remote full time.
That means by shifting to remote work, companies can save significantly. In some cases, this might make it possible to avoid salary reductions.
A report by Global Workplace Analytics estimates that larger businesses could collectively save over US$500 billion a year - roughly equal to the GDP of Sweden, Belgium, or Poland - or almost US$11,000 per remote worker per year.
The report says, these savings are net of the extra costs needed to support remote work and the savings arise from increased productivity, greater agility, reduced real estate, reduced absenteeism, and reduced turnover costs.
The Case for Maintaining Salaries
On the flip side, there are companies that have chosen not to cut employee salaries and they have benefited from reputational gains. While such a move could be a costly gamble, the prospect of not having to live within commuting distance of a job, and the option to apply for a role anywhere could be a career game-changer for both job seekers and employers alike.
In October 2020, Reddit made waves by going against the tide, boldly stating that they would be removing geographic compensation zones for its employees in the US6. All Reddit staff can live where they want to and have their salaries pegged to high-cost cities such as New York and San Francisco.
When caught between a rock and a hard place, other businesses have chosen a hybrid model which gives employees customized work arrangements. These companies are encouraging employees to work remotely, but they’re still making office resources available for those who either are required to be onsite or prefer to be onsite.
Diagnostics Necessary: Consult a Reputable Advisor
As cliché as it sounds, organizations are formed from unique individuals with distinct cultures and identities - which means there is no one-size-fits-all approach when it comes to salary and benefits. Even as employees become more comfortable talking about what they need to perform at an optimal level, customization is the name of the game. HR professionals and C-level decision makers need to know how to ‘read the room’ to get an understanding of what is acceptable, and what could create a disastrous domino effect.
To help you read the room, Mercer offers Salary Benchmarking Reports on our website. These reports include our reputable total remuneration survey which spans more than 30,000 organizations from over 140 countries, as well as our global and regional compensation reports, and benefits reports that cover 110 markets, 11 job families and 50 benchmark positions. View a sample report here. The icing on the cake is smaller bite-size sub sections of the salary reports are also available.
Mercer’s reports are designed to help you make better decisions in your talent acquisition and retention plans. With them, you’ll be able to design competitive pay packages, benchmark your salaries by position and by country, and negotiate better.