Review Your Remote-Work Strategy: Location-Based Salary Changes Could Widen Diversity Pay Gaps

November 1, 2021
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Author: ThinkWhy Staff

It’s one thing to hire someone to work in a small-town office with market-based pay. It’s a completely different scenario to reduce the salary of an employee who followed company directives to move to a home office during the onset of the pandemic and continued to work dutifully to provide the same level of value to their company as when they commuted to the office.

Location-based pay cuts for employees who stay remote may exacerbate DEI pay and opportunity gaps.

As of August 2021, Google announced its employees in the U.S. who choose to permanently work remotely may get a pay cut based on where they live. Some remote employees, especially those living outside of large, expensive cities where they can better afford a home, could see salaries reduced up to 25% without changing their address¹, while those working remotely from within a large city may not. This appears to be a trend for large Silicon Valley employers.²

However, most U.S. companies are choosing not to penalize their employees who went — and are staying — remote, and possibly even moved to a lower-cost-of-living market during the pandemic. Rather, they intend to maintain broadly competitive salaries³ to avoid disrupting their talent supply. This more closely aligns with employees’ expectations that they will be paid based on the value they provide to the company, with only minor or no penalty for a remote work location.

Diversity Impacts of Location-Based Pay

In a recent podcast interview, Claudine Zachara, president and chief operating officer of ThinkWhy, said that adjusting salary based on location can open the door to unintended pay inequality, when remote employees doing the same work with the same responsibilities in two different locations end up being paid differently due to location.

“The large-scale adoption of remote work as a norm rather than an exception has caused people to examine compensation differently,” Zachara said. “They are now more likely to discount location as a factor in determining pay for remote positions.”

Women have remained remote or left the workforce at a higher rate than men, primarily due to additional caregiving responsibilities and higher risks of exposing the young and elderly. Minorities have also stayed remote at a higher rate due to increased rates of COVID-19 health factors, extended family living arrangements and related health risks.

Using AI (Artificial Intelligence) software such as LaborIQ® by ThinkWhy is one way to level the playing field and help establish equal pay while attracting and retaining talent regardless of gender, age and other factors. AI provides total-compensation answers that remove bias and set benchmarks for an organization's overall compensation strategy.

Data-driven results recommend the amount to pay for a given skill set, experience and job title, which in turn helps reduce the potential for discriminatory pay gaps and the risk of facing related discrimination claims. This method also helps to package overall compensation, giving an organization the edge when recruiting top talent.

Conclusion

A location-based compensation strategy can unintentionally result in greater pay inequality when remote employees doing the same work in two different locations are paid differently because of the location. A role-based compensation strategy can establish equal pay for equal work while attracting and retaining a broad array of talent. The challenge is to avoid discounting remote-friendly roles across the board, further increasing pay gaps for positions more frequently filled by women or minorities.

Sources:
1) forbes.com/sites/heidilynnekurter/2021/08/26/google-plans-to-cut-remote-workers-salaries-by-25-heres-the-impact/?sh=2c4c20c04fb2
2) businessinsider.com/tech-companies-cutting-salaries-outside-bay-area-twitter-facebook-vmware-2020-9
3) shrm.org/resourcesandtools/hr-topics/compensation/pages/remote-workers-expect-pay-to-reflect-their-locations.aspx

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