Technical workers and employers are beginning to question location-focused salary scales. A handful of companies are trying to abandon it altogether.
Technology companies, including Reddit Inc. and Zillow Group, pay pay without considering the location Inc.
make a potentially expensive gamble to retain talent and gain a rental advantage. The move could involve retaining relatively high salaries for relocating employees and adopting a revised scale for new staff. Although it is early, the step challenges a long but not universal idea that where people live should determine what they make.
Some big tech companies, including Facebook Inc.
was clear early in the pandemic that people moving from the Bay to cheaper cities would see a saving on wages. The payment platform Stripe Inc. offered one-time bonuses to workers who moved from San Francisco, Seattle or New York – and agreed to a pay cut of up to 10%.
But a pay cut for whatever reason can be bad for the morale of the workers, said Jake Rosenfeld, a professor of sociology at Washington University in St. Louis. “Employers really need to dance a little bit to justify this to employees,” he said.
Workers considering more flexible work scenarios are self-divided. In a November survey among 600 technology workers by the job search platform Indeed, it was found that 60% of respondents are willing to take a salary to work permanently remotely, while 40% say they will not.
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Zillow, the Seattle real estate survey company, told its 5,600 employees in October that if they chose to move out of their current city, their salaries would not be adjusted. “We are not doing this change to save money,” said Zillow chief executive Dan Spaulding. “We are making this change to retain our employees.”
Since the announcement, about 50 employees have decided to move to another state. The company has decided to try this payment model at least by the end of 2021. With new appointments, Zillow plans to work on a nationalized salary over time.
“If people think the world is going to return to 18 months after the pandemic started, I think it’s not realistic,” he said. Spaulding said. “Your best talent will have options that can come from this.”
The social media platform Reddit, which employs about 700 people, took a similar step to get rid of geographically based salaries at the end of October after seeing productivity remain high while people were completely remote.
The company wants to “eliminate the compromise that employees have to make if we reduce their remuneration when they move to a lower-cost area,” said Nellie Peshkov, Reddit’s head of people and culture.
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Reddit previously had three pay zones in the US, with the vast majority of its employees – those based in New York and San Francisco – making the best. Some of Reddit’s employees in other cities are receiving wage increases as part of the shift, Ms. Peshkov said.
In addition to retaining the current talent, Ms. Peshkov said the company expects the move will help develop a more diverse workforce.
Peter Cappelli, a professor of management at Wharton School of the University of Pennsylvania, says employers tend to reconcile the cost of living with the market rate for labor in a particular area. “The reason they make a lot of money is because that’s where the competition is,” he said. “If you did not pay them so much on Facebook, someone in the street is going to hire them on LinkedIn.”
Although the salaries are the same, it can help retain employees, Mr. Cappelli said: you can not have the people who moved in with colleagues doing the same job while earning less. Alternatively, those who live in a high-cost area may resent those who have moved while retaining their wages.
“Employees might say, ‘Hey, you pay me similarly to someone who lives in a cheaper place,'” he said. “Their salary extends beyond what I’m entitled to.”
Me. Peshkov and Reddit said she had not yet heard of complaints from San Francisco workers calling the move unfair because of the high cost of living in the Bay.
“There was actually no negative reaction,” she said. “They appreciate this overarching philosophy of paying people for impact and not where they live.”
According to Tauseef Rahman, a partner in the strategy and analysis of the workforce at Mercer, employees’ sentiment can shift aside without considering where they live.
“Because you pay national rates, you probably pay more than the local labor market would require,” he said. Businesses will have to determine whether it is financially advantageous to be nationally competitive on payment, he added. He believes one result is that companies only pay for some roles, and not for others.
“The extent to which geography affects pay is not equal for all types of work,” he said. “When you think of really popular roles where there are not many people who can do something, you pay the current rate.”
So far, those who get rid of geographic wage scales appear to be in the minority. Some do the opposite: in June, Slack Technologies Inc.
A company spokesman said it was going from two nationwide pay levels to five as the company expects more of its employees to be outside San Francisco and New York.
“We have created these bonds to provide transparency and fairness to our employees,” said Nadia Rawlinson, Slack Chief People Officer. The company decided that adjusting the compensation based on the local cost of living of workers would help it avoid inequalities.
Sahil Lavingia, founder of the 24-person e-commerce company Gumroad, has heard from hundreds of job seekers on tweet that he would no longer consider geography when determining wages.
But even within his relatively small team – which has been completely remote since 2016 – the move was not without complications. He said he had removed the highest pay level for rent in the future, and hired one employee, and that he worked weekly hours to compensate for the salary increases of some employees.
Mr. Lavingia said many of the tech workers he heard of were based outside the US – in India, Nigeria, Singapore and Eastern Europe. He predicts that as more people compete for jobs that are fully remote, the current rate of technological work will eventually decline.
“In the long run, it actually leads to better rates for almost everyone in the world, but for a select few,” he said.
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