The New Remote GEO Differential
It is time for a real change in pay. Like most real changes this is not a change driven by desire, it is a change driven by necessity. Less than ten years ago headlines crowed that working from home had failed at Yahoo and that everyone was being called back into traditional offices. Just a few months ago working remotely was usually viewed as a privilege of the few who had proven themselves worthy. Today we have entire companies working from their living rooms, and in-laws’ places in the country. Things have changed and will never go all the way back to the “old ways.” Our practices must adapt, quickly.
As soon as you have employees in disparate locations you have issues with pay. Geographic differential (GEO Diff) rates are the “go-to” solution to solve this problem. These rates show the differences in pay between two, or many locations. They allow us to confidently pay an engineer in Nashville, the home office location, less than an engineer in new San Francisco office. Lower cost marketplaces result in lower base pay. It just makes sense to pay what the market requires. We simply apply the GEO Diff and move on.
We have moved to a world where individuals, instead of employers, can choose their location. This is no longer a privilege for the unique few, but a reality for many successful businesses. If your employee chooses to move from Nashville to San Francisco should they get the same increase as if the company dictated that they needed to be in that location? It would seem that the correct answer is…no. But that breaks the base pay paradigm that we used for decades. How do we adapt?
Most companies will operate with a blend of “in-office” and remote employees. For this purpose, “in-office” is any location that is dictated by the company (even if it is an office at home). Remote is any self-selected location (even if it is in a company location). I am suggesting the creation of an entirely new GEO Diff. The “Remote GEO Diff.”
The remote GEO Diff is a manufactured differential from your home office pay. It is designed to reflect your pay philosophy and the value (or discount) you place on a job that is being performed by employees at the location of their choice.
Example: Assume your home office location is exactly aligned with the national average for base pay. Your market data indicates that an Accountant 3 should be paid $100,000 at the 50th percentile, your targeted level.
1) Let’s say your company wants more people to work remotely. You may set your Remote GEO Diff to 5% above the home-office location. You would pay people this amount even if they worked in the home office city, but NOT in the home office itself. If the person moved to San Francisco, you would also pay them based on the remote GEO Diff.
2) Your company offers amazing benefits and prefers people to work from the home office to reduce the complexity and costs of delivering these benefits. You may set your Remote GEO Diff to 10% below the home office rate (yes, even if the person is work from home in. the same city).
3) If you open a new office in San Francisco you would still apply a traditional GEO Diff to ensure your mandated location pays competitively. The same would be true if you opened an office in a less expensive location.
The New Remote GEO Diff is a way for you to have remote employees, pay people consistently, and reflect your company's approach for total rewards and compensation philosophy. It is already being done at some companies, so your time to get prepared is not before the 2020 compensation planning surge this coming Fall.
There will be more on compensation in the remote place to come in future posts.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.