When Covid forced employees to work from home, many existing and most new salaries became what’s known as “value-based” (assessed by using the national market rate and the employees’ experience level).

However, with corporate offices reopening, many companies have returned to “location-based” salaries (Using employees’ zip codes to determine pay).
The outcome of these practices has been revealing and is impacting recruiting and retention of many remote workers.

From the perspective of a job seeker, the difference is substantial. Using some top tech firms as an example, Zillow and Reddit pay value-based salaries while Google and Facebook determine wages based on zip code.

SF vs. Austin

The corresponding chart uses two equally skilled IT professionals. Both work from home, but employee Jessica lives in Austin Tx. and Michael lives in San Francisco, Ca. Michael will earn $175K more than Jessica in just three years while doing the same work from their respective living rooms.

How do you think Jessica would feel about her company in this scenario?

An anomaly arises when a remote worker who works blocks from the office receives the cost of living increase, and the worker who commutes 15 miles to get to the office gets a lower wage based solely on his home address.

In addition, minimum stock allocation, bonuses, and commissions are often tied to specific regions and base pay.

Although wage is one of the lowest reasons, an employee leaves a company, a discrepancy of this magnitude will likely result in an increased remote worker turnover. With recruiting and training costs exceeding 40% of employees’ first-year salary or deciding to replace the vacancy with a higher wage “local” worker, this company would recognize very little overall savings.

Affecting Diversity

It’s proven that diverse workforces (He/She, Older/Younger, multiethnic, and multinational) produce more comprehensive ranges of creativity higher-rated customer experiences. Companies using a merit-based structure are given a greater pool of diverse, qualified applicants for satellite offices and remote workforce.

According to Pew research, in 2020, women average 84% pay of their male counterparts. Women are also overwhelmingly the head of household in single-parent homes, likely to have gaps in employment, and live in lower-income, more affordable housing.

These hurdles prevent many women from living in the higher-wage zip codes.

Here are a few suggestions to consider

• Merit-based pay staying within the top 25% of national averages
• Revisit and adjust advancement and skills mapping monthly or quarterly
• Reward tenure as a stand-alone bi-annual event
• Tenure Bonuses can be creative rewards, trips, company stock, or bonus checks — thereby rewarding tenure without conflating the value of work
• Enforcement using fair criteria behind pay should be transparent and evident through analytics tools

If your company requires certain positions similar to remote workers, operate onsite. These positions should be clearly defined and renamed accordingly. Allowing transparency as to why a pay differential or cost reimbursement or use of company perks are included.

In the end, the decision to have a remote workforce is a relatively new approach. Why not consider new ways of compensation?