The increase in full-time remote work has prompted 44 percent of organizations to either modify or consider modifying their policies around geographic pay or localized compensation, according to a recent study by WorldatWork. The study, which looked primarily at organizations' US operations, attributes this move at least partly to the high percentage—67 percent—of employees who expect their compensation to reflect their location.
According to the findings, organizations with more locations are more likely to consider creating a geographic pay policy, especially if large numbers of their employees work remotely full-time. 41 percent of organizations will handle the resulting pay differentials by applying a premium or discount to existing pay, but 33 percent will go to the additional effort of creating a separate base pay structure for each geographical location.
However, the study also found that determining those differentials can be tricky. The biggest considerations in addressing localized compensation are how to expand or consolidate the pay differential by geographic location. In addition, organizations will most typically determine an employee's geographic pay location by reporting location, and 55 percent will differentiate geographical locations by whether it is a city area or a metropolitan/suburban area.
In addition, the findings indicated that employees are willing to move around if the pay differential is sufficiently large, and employers have no objection either. 50 percent of employees responded that a pay adjustment would be very or extremely influential in their decision to voluntarily relocate, while almost all organizations responded that they are willing to be at least somewhat flexible about such voluntary relocations for full-time remote workers. The few employers that said they do not allow relocations outside of pre-existing geographic or legal entities cited legal, regulatory and tax implications as the biggest hurdle.
Scott Cawood, CEO of WorldatWork, observed that this growing openness to pay adjustments is driven by employees' ongoing demands for remote work. “With remote working requests continuing to emerge and surprise leaders, companies are reevaluating how to create cohesive, consistent, and fair geographic pay policies as employees push to straddle multiple geographies," he said. "What used to only be an occasional issue is now a frequent request and savvy employers will need to respond with fair, transparent, and attractive geographic pay policies for distributed workforces if they wish to remain competitive."