30 Nov Location-based Pay Cuts May Discourage Remote Work
Many companies have accepted remote work as the new normal workplace set up due to the highly transmissible Covid-19 virus. Another term that’s thrown a lot during the pandemic is work-from-anywhere. This workplace model allows employees to experience the highest flexibility when it comes to their work location options. This must have contributed to the many reasons for the occurrence of the “Great Resignation” last summer when employers couldn’t offer this freedom.
Companies have been noticeably executing different strategies on location-based pay. For instance, Google, which encourages employees to make investments in staying in locations where on-site work is anticipated, reportedly planned to perform pay cuts on employees who decide to move from expensive locations to less expensive ones. This was reported back in August all the way to November last year.
The thought of undergoing pay cuts due to geographic reasons has its employees thinking of looking for other jobs to satisfy their demand for remote work in their desired location. In a Wired article, a senior software engineer from Google was reported to be job hunting. The tradeoff isn’t going to cut it according to the employee. However, he placed his hopes on the tech giant’s history of back-tracking pay-related decisions.
Others weren’t so patient. Another employee opted to leave the company after hearing word that she would get a 25 percent pay cut. Similarly, Facebook and Twitter plan to cut pay for remote workers who choose to relocate to less expensive areas.
These huge pay cuts have affected how employees view not only remote work but the company they’re working for as well. HR and global mobility professionals now have to make sound decisions on how to go about these trends in talent attraction. Is geographic-based pay the way of the future or is it actually a hindrance to attracting and retaining top-quality talent? It also remains to be seen whether these pay cuts transpired at all, as there has been no widespread report about it.
Zillow’s Chief People Officer, Dan Spaulding, didn’t think the strategy of these tech giants was necessarily the suitable one for the real estate marketplace site. Spaulding believes that regardless of where its employees work, Zillow determines its workers’ earning potential on the basis of their performance.
In a LinkedIn post, he mentions that a lot of thought went through in creating their compensation strategies. “As we evaluated our compensation philosophy to align with our new flexible work policy over the past year, we knew it needed to reflect our values and account for competitive realities. With this evolved approach, our nationally competitive compensation packages are primarily tied to an employee’s role, responsibilities, and performance, with less emphasis on geography,” he states.
There are rewards in implementing this compensation strategy. One benefit is the timeliness of offering performance-based compensation packages against geographic-based ones. It keeps companies competitive in recruitment. Their ability to offer remote work without having to reduce compensation based on location will entice top talent around the world. This competitive edge is timely and relevant in today’s recruitment landscape as the war for talent persists.
Reddit, similar to Zillow, reportedly isn’t adopting geographic-based compensation packages. Its Chief People Officer Nellie Peshkov explains in an interview with CNN that it discovered that employees’ impact isn’t affected by their geographic location.
According to Peshkov, employees expressed positive responses to their decision, appreciating the support and acknowledgment of their needs in the pandemic.
Moreover, the company is eyeing to make offices become a place where employees gather and spend time with others to maintain connection and engagement. So even if one chooses to work remotely full time, the company will offer them the option to visit the office throughout the year just to reconnect and build relationships with colleagues.
In Salary.com’s survey on compensation, 95% of 753 organizations are opting not to lower pay for fully remote workers with most of them predicting that geography-based compensation strategies affect morale, performance, and retention negatively.
US tax proposals will affect global mobility
Though there seems to be a divide on whether reducing compensation based on location is the best strategy in a health crisis, tax proposals will affect business executives’ decisions on the matter.
On September 13, draft tax proposals were released by the House Ways and Means Committee. AIRINC, a workforce consultancy firm, shares some of its insights on the impact of the proposal on global mobility:
- Increase in the top individual rate from 37% to 39.6% but the tax bracket would be lowered from existing income thresholds
- Increase in the top capital gains to 25%, not to mention the additional impact of the Net Investment Income Tax (3.8%) plus the new 3% surtax
- Modification of the foreign tax credit (FTC). FTC limitation will be determined by country-to-country basis and shortening of the carryforward period where there is no carryback and only an amount of 5 years carryforward is allowed)
Having gathered this information, AIRINC suggests global mobility teams accelerate income and consider conducting assignments to avoid costly relocation taxes in 2022. These can definitely help cut down the costs in the event the proposals pass.