Compensate Accordingly

Four key questions to consider when building pay plans for a hybrid workforce.

By Jason Walker and Rey Ramirez

With U.S. COVID-19 numbers in steep decline and 2022 around the corner, many employers are now coming to grips with how to treat a newly empowered workforce accustomed to working wherever and however they please. The great opening up of offices remains a work in progress, and part of that process involves renegotiating compensation plans for remote or hybrid employees. The traditional context around may no longer apply. This influences many things from base wages to healthcare benefits.

Many managers and CEOs remain confused about how to navigate these new compensation waters. An overview of four primary questions and some strategic approaches to answering them may prove helpful.

1. Do workers still want to work from home? In one word, yes. According to a 2020 study by Center for the Digital Future, “only 10% of employees would maintain a traditional at-the-office work schedule. Fully 30% wish never to work in the office, and 37% would only go in ‘once a week or so.’” Arguably, these numbers offer both a statement about this decade’s telework realities as well as an indictment of traditional office culture in modern times. The truth may be bitter for some managers and executives to swallow, but that doesn’t change the data.

A September survey of 1,000 U.S. workers by beqom revealed that, despite the current spike in wages across many sectors, 65% of workers would accept lower pay to work remotely and 77% would take a sub-average salary for more flexibility in working hours. Employers need to work with HR to gather data that weighs measurable productivity against location, both individually and as groups. It’s not sufficient to maintain an office-based work model simply because “that’s how it’s always been done.” If the data shows that workers are more productive at home or with more schedule flexibility, then it behooves the company to respond appropriately. Whether employers want to use that locale freedom as a bargaining chip for lower pay is a separate issue—and one that should be treated with caution since many companies do not correlate pay with location.

2. Do salary structures align with remote work policies? Before answering this question, companies need to assess if they even have a bona fide pay structure. (The smaller the company, the more likely the answer is no.) Market data will reveal competitive rates for different roles, and this can inform the creation of a pay structure that is appropriate to the company in its region. Once a structure is established, try to review its competitiveness every six months to ensure that rates remain on target. Also, work within the bounds of the company’s timeline and economic realities. A firm in start-up/early funding will compensate differently than one that is private-equity–owned, which will pay differently than a publicly traded enterprise. Each type demands a different approach to base pay and compensation.

Some employers place all workers on a single salary structure. Some will have a standard structure and then another high-cost structure, such as standard plus 15%. Whatever system is selected, it must be implemented by policy, not emotion or favoritism.

Similarly, what remote work strategy will be used? Will employees be allowed to work wherever they want all the time or only some of the time? Which roles are eligible for remote work? Answers to these questions must be integrated. Managers cannot treat remote workers differently from office workers at will. Any differences in base pay, short-term and long-term incentives, stipends, or other benefits that derive from work location must be clearly defined and normalized across (preferably simple) structures. Increasingly, HR groups find that salaries based on role, market rate for that role, and the worker’s performance level should determine compensation, regardless of the location. It can be tempting for a company to hire a software engineer in San Francisco, then want to reduce that worker’s pay if he or she moves to Idaho or Wyoming. Rest assured, the engineer may not view a pay cut in line with regional cost of living changes with complacent understanding.

3. Are base pay and additional benefits delineated? Base pay encompasses compensation made for a role’s expected and completed work, assuming that work is executed to managements’ stated standards. Benefits may cover health and welfare insurance plans, including medical, dental, life, prescription, eye care, and disability. Additional benefits might include 401(k) matching contributions, annual profit bonuses, stock options, and stipends for everything from parking spaces to gym memberships. For remote workers, benefits might include stipends for internet access, mobile phone service, and office equipment, which can span from a desk and ergonomic chair to computer equipment and software (e.g., Teams/Zoom, Microsoft Office, and Adobe Creative Suite). Some organizations simply provide a monthly expense budget for the employee to spend as needed.

Hybrid work scenarios tend to muddy the benefits waters. One possible solution is to allocate a percentage of remote benefits according to time spent out of the office. For example, if an entirely remote worker receives $500 per month for stipend spending, a hybrid worker who is in the office two days per week might receive $300, or 60%, of the usual remote stipend (equivalent to three days per week remote).

4. What is the best compensation strategy for remote workers? Some executives would prefer a straight answer to grinding through compensation nuances. To be clear, there is no single right answer. But if a quick, overgeneralized answer is needed as a starting point for more developmental discussions, perhaps it can be this: Treat remote workers like office workers. Offer the same rates of pay for a role, regardless of location, because in the end, it’s productivity that matters. For those that doubt whether remote workers are, in fact, more productive, consider a 2017 FlexJobs survey of over 5,500 workers that found two in three employees felt working from home to be more productive. Their main reasons involved fewer distractions (including from colleagues), lower commuting stress, less office politics, quieter environment, and greater comfort. A similar Cisco-sponsored survey, which included 100 managers, confirmed that teleworkers are more productive, provided there is trust, good management, and adequate tech support.

The Worker Has Won (Sometimes)

Between the shift to remote work and the ongoing Great Resignation, which has only exacerbated the prior labor shortage, workers have more bargaining power now than in the past several decades. Companies must develop compensation packages that are at least fair if not generous to talent. Skilled laborers can now demand to work where they wish.

This should not be taken as advice to give the worker free rein on locality. Companies cannot be doormats to workers’ whims, otherwise chaos ensues. The COVID-19 pandemic resulted in large numbers of workers moving to be with family, sometimes over great distances, and not all those pieces have yet been picked up and organized. Companies need solid data on where its people are located, if only to ensure proper and legal payment within those locations.

Depending on the organization and role, the company may not have implemented new metrics or monitoring methods to ensure that workers are achieving the same performance levels remotely that they achieved in the office. This awareness is critical to overall productivity. Some workers may complain about privacy invasion. HR may need to formulate new policies around what can and can’t be monitored and how that monitoring gets done. There are no established rules in this regard, but the golden rule provides a fair start: Monitor workers as you would wish yourself to be monitored.
The above factors form the core of an overall total rewards strategy. There are many other considerations, but this is a time of sweeping change in labor and compensation, so it makes sense for a new rewards construct to begin with policies around remote work. Remote and hybrid staff, if treated well, will deliver the same or better organizational value as their office-based peers. To keep them, compensate accordingly.

Jason Walker and Rey Ramirez are the co-founders of Thrive HR Consulting.

Tags: Benefits

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