VMWare, Twitter, Facebook, and Stripe have all announced pay cuts for employees choosing to relocate outside the Bay Area.
Most companies have now experienced having and maintaining a large remote workforce. They have evaluated the challenges and advantages thoroughly in the past eight months, and the work-from-anywhere model is evolving. With the rise of such a model, companies need to preempt and plan for new complexities.
CNBC reportsOpens a new window how the tech companies are revisiting their current compensation strategies to address the new remote work situation. Companies have announced varied approaches.
Reddit has announced that it will not cut the pay of its 600 U.S. employees irrespective of where they live in the U.S.
However, Facebook and Twitter have shared that they will cut the pay of employees who choose to relocate away from their head offices in the San Francisco Bay Area.
Stripe said that it will provide its employees with $20,000 to help meet their moving costs, but after that, they will cut pay by 10%.
VMWare has also said that it could reduce relocating staff salaries by up to 18%.
With new work models come new compensation approaches. Some might be debatable, but they are all indicators of the first set of process-related changes that companies are implementing for their remote workforce.
Employees are increasingly opting for a complete or hybrid remote work approach, and hence companies have to reinvent their reward philosophy to meet this change and remain profitable.
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How Are Remote Workers Reacting to Companies’ Decisions to Cut Pay?
With the disruption of location centricity, the new pay structures might become more prevalent. CNBC also shares survey findings from 2,000 tech professionals’ responses, of which more than half (53%) said that they would move to a lower-cost city if their work-from-home policies became permanent. Additionally, the majority (56%) said they would not take a pay cut to do so.
The challenges are primarily related to employees’ financial constraints and a loss of talent for employers. The significant advantage for employees is that they can get a restructured package, which includes remote working allowance and allows them to work from anywhere. For employers, it opens up a huge talent marketplace to choose diverse people from once location is no longer a restriction.
For the past year, most tech companies have been working remotely and performing better than usual. Having demonstrated increased productivity, workers are now questioning the validity and fairness of having to undergo a pay cut for not living in the same city as headquarters.
As per surveysOpens a new window , workers are not keen to take pay cuts since they believe their performance has not been compromised due to the crisis or sudden shift to remote work.
A survey by Forbes shares a different perspective, wherein 44% of workersOpens a new window say they would take a 10% pay cut for the opportunity to work from home permanently. However, if this applies to roles that are already paid better than office-based roles, the impact might not be too significant.
On Blind, an anonymous professional network, a Bloomberg user ran a poll askingOpens a new window , “Are folks willing to take the trade off in this new Covid-19 future we have?â€
61% of VMware professionals responded to the poll stating, “Happy to take a paycut for better WLB and reduce Total cost of Living.†47% of Twitter employees responded to the same statement.
A VMWare professional commented:
I’ll gladly do this. It’s only a reduction on base, and base makes up half of my TC. So a net 6.5% decrease in my TC to move to a place where houses are 20% of the price and taxes alone make up ~5-6% difference? Sign me up.
In an opposing point of view, a user at Hulu responded to the poll saying:
You guys aren’t getting it. It doesn’t matter that “pay is always based on location.†That old way of thinking needs to die because it exploits labor. The employee’s labor provides the same value regardless of working location. The circumstances changed, so we need to force things to change as well. Don’t accept a pay cut for changing your location. Ask the company tough questions. Is my value to the company less if I live in North Carolina or Colorado? If they won’t budge, quit.
An Owl Labs surveyOpens a new window found that 23% of full-time employees are willing to take a pay cut of over 10% in order to work from home at least some of the time. Interestingly, the same survey also shared that if after COVID-19 respondents were no longer allowed to work remotely, 44% would expect a pay increase.
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Will Cutting Pay for Remote Workers Prove Feasible in the Long Run?
These studies’ findings are varied, but some common themes indicate that remote work and associated compensation is still an equation that has not entirely evolved for a clear trend to be formed. Also, employees do not think their location should be a reason for them to be paid less or more.
A big issue emerging with this approach is the possibility of internal inequity across the same role – pay differential for the same responsibilities because of an employee’s location. Another concern that will result from this is whether companies might hire subpar talent at a place with a lower cost of living to manage the wage costs.
It seems likely that some employees may not stand for lower pay for doing the same work. Interestingly, this is the entire premise of outsourcing.
Will this approach stand the test of time?