The shift to remote and hybrid working are among the most widely discussed employment trends in recent years, but should employers reduce salaries for employees who no longer work in the office full time? How hybrid working is set to influence UK salary benchmarking is yet to be seen but remote and hybrid models of working are here to stay and will have a huge impact on the future of work.

Companies such as Google and Facebook are already using location to determine their compensation levels, attracting largescale employee discontent. This dissatisfaction from employees goes against data which suggests employees would be willing to accept pay cuts to continue to work from home. A survey by GoodHire found that 61% of workers would be willing to take a pay reduction if they could keep remote working status.

Choosing whether to use an employee’s working location to determine salary levels is a difficult decision for any business leader. Let’s explore some of the pros and cons of using location to determine salary.

Benefits of benchmarking salaries according to location

Adjusting salaries based on working location could be perceived as unfair, however, there are benefits for organisations:

  1. It increases fairness for in-office employees
    Whilst some employees may be able to work fully remotely there are industries in which a remote working model may not be suitable for some or all their employees. Others may prefer in-office working. Those workers who remain in the office may feel discriminated against as they continue to pay commuting costs, higher rents and other costs whilst receiving the same salary as someone living in a lower cost area and working from home.
  2. It encourages hybrid working
    Many businesses have adopted a hybrid working model, citing the advantages of in-office collaboration and communication amongst employees. However, there is a concern that a preference for remote working amongst employees could end the hybrid office before it takes off. Adjusting salaries based on working location could encourage workers to come into the office one or two days a week.
  3. It reduces operating costs
    It’s well known that a benefit of remote working for employers is the ability to reduce costs by ditching expensive office space. However, this may not be an option for every business. Organisations that need to keep their physical locations may be more likely to opt for hybrid models and location-based salary benchmarking offers an opportunity to reduce operating costs.

Disadvantages of location-based pay

There are also disadvantages for businesses who choose this route:

  1. Talented employees leave
    Organisations who choose to adjust compensation for employees working remotely to encourage office participation run the risk of reducing trust, increasing unconscious bias and increased employee resentment leading to higher staff turnover. Those talented employees who want to remain working remotely will vote with their feet and move to those employers offering remote work and higher levels of pay.
  2. Access to a smaller talent pool
    Traditional office-based working models ensure talent is concentrated in large cities or have led to professionals with certain skills being attracted to specific areas, such as Silicon Valley. However, remote and hybrid working allows employers to source talent from across the country or even the globe. Additionally talented employees will now be able to relocate to lower cost of living areas and work from where they choose. Those organisations that remain solely office-based may find they have access to smaller pools of talented candidates.
  3. Potential to exacerbate pay gaps
    A survey conducted by Slack found 52% of women would prefer to work fully or partially remote compared to 46% of men. The same report found that in the US, 81% of Asian and Black employees preferred remote and hybrid options compared to 75% of white workers. These preferences have the potential to make existing gender and racial pay gaps worse should employers choose to pay remote workers less than their in-office counterparts.

All evidence suggests that remote and hybrid workers do not experience a drop in productivity or efficiency, therefore businesses should carefully consider whether the pros outweigh the cons when adjusting salaries and benefits based on location.

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Dave Rose

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