How to compensate a distributed workforce

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.

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.

What else we’re reading

• The “Feeling Economy” and Its Impact on Hiring — This ERE column notes that the rise of AI is still largely expected to be a tool to supplement people, stories and emotions.
• Half of talent acquisition teams do not trust their data — For hiring, performance and the decision-making, according to this report.
• Can remote work bridge the authenticity gap? — This HR Dive piece notes support for employees with disabilities.
• Free the nipple — and free moms from breastfeeding pressure — “While the conversation has shifted in the last couple of decades from WHO-UNICEF’s ‘breast is best’ to a more accommodating ‘fed is best’ in practice, the pressure to breastfeed persists.” Funny enough, my wife wrote this op-ed but the topic is one culture builders should understand in accommodating working moms.
• Talent Acquisition Benchmarking Report — This SHRM report is from 2017, but I return to it often so I wanted to share it. Among the notes: Average cost-per-hire is $4,425, which includes those easy hires and those far more expensive ones (with external recruiting and the like).
• 5 reasons why people hate recruiters — Well, because the pricing model disincentivizes quality, and you get a bunch of inexperienced staffers over-sending emails.
• How to spend way less time on email — Hey, I am an inbox-zero guy, but there are tips for all of us in here.
• Few employers say their current wellbeing and caregiving programs effectively support employees — Less than a third of employers report that their wellness programs worked during the hellscape that was 2020.
• The pandemic has proven L&D’s strategic value, LinkedIn says — HR execs say they’re investing in people, including telling those stories and learning and development for retention.

Company culture stories we’ve published lately

• This new First State Insights podcast spotlights remote work
• Get hired: Technical.ly’s NET/WORK jobs fair is free and virtual March 18
• New Delaware tech jobs are opening up as banks look beyond COVID-19
• This fintech industry veteran is helping global financial services firm Macquarie secure its data in the cloud
• Work is an activity, not a place