How to compensate a distributed workforce - Technical.ly

Company Culture

Mar. 8, 2021 7:02 am

How to compensate a distributed workforce

One HR pro's take: "The job is worth what you’re paying for it, no matter where the employee is." Check out Technical.ly’s latest Culture Builder newsletter for more.
How should you pay a Brooklyn-based employee compared to one in, say, Baltimore?

How should you pay a Brooklyn-based employee compared to one in, say, Baltimore?

(Photo by Mario Cuadros from Pexels)

Written by Technically Media CEO Chris Wink, Technical.ly’s new Culture Builder newsletter features tips on growing powerful teams and dynamic workplaces. Below is the latest edition we published. Sign up here to get the next one this Friday.


I first managed a direct report who worked remotely from another city in 2012. A year later, I had two, and they were living in two cities with very different costs of living — one in Baltimore and another in Brooklyn.

To have in Brooklyn the living conditions you can maintain with $50,000 in Baltimore, you’d need to make more than $80,000 a year, according to data from Nerdwallet. Unfortunately I was a 26-year-old first-time entrepreneur who, frankly, didn’t entirely understand the ramifications of such a difference. The cost differences weren’t baked into our pricing strategy.

Widespread cost of living differences are not new for setting compensation. McKinsey, like other big management firms, have long established pay scales that incorporate location. Most global companies have long dealt with the geography factor, though gender and racial pay equity audits are proving even the giants may have not solved this.

After a full-year of pandemic-sparked all-remote teams, nearly all organizations are considering compensation for a distributed workforce. No surprise remote strategy is one of the main themes ofTechnical.ly’s inaugural Hiring and Workplace Culture Trends Report, which was the focus of our webinar last week. More than half of the nearly 100 culture leaders at the webinar reported having or needing a variable compensation plan for remote workers.

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Tamara Raspberry, D.C.-based HR consultant, took a firm stance: “The job is worth what you’re paying for it, no matter where the employee is.”

No doubt Raspberry’s point is well-taken. Silicon Valley tech platform companies like Facebook plans to adjust compensation on where their employees live. In contrast, the CEO of one of Technical.ly’s Maryland clients told me last week that they’re strategically hiring in lower-cost markets, while maintaining their same compensation rates.

“It’s like we show up in some of these places with a salary bonus over their local options,” he told me.

This, though, is considering only one pathway for compensating remote workers: from high-cost center to lower-cost community. There’s another direction: from low-cost center to higher-cost community. This was where I stumbled almost 10 years ago: The “cost of the job” was built and anchored in lower-cost cities like Baltimore, not Brooklyn.

What should you do? If you have your own answers, respond here and let me know. I spoke to several comp executives, HR pros and CEOs of established distributed teams in the last week, and there are a couple simple rules to follow.

Do set fixed, transparent pay levels as a base. Don’t go below them, even if you’re hiring in a lower cost center. If you want to compete for talent living in higher-cost communities, consider a housing stipend, as some in management consulting do. There’s psychology to this: Give someone more, don’t threaten to take away. We call it loss aversion. Someone tell 26-year-old me that.

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