In an era of
A salary based on cost of living is not a new trend: according to WorldatWork's Geographic Pay Policies Study, 67% of U.S. employees expect their salary to be based on where they live. However, as it becomes less standard for an employee’s location to be the same as the company’s location, employees run a risk of their salaries being reduced — a San Francisco hire may earn more than a Sacramento hire, where the cost of living is 66% higher and employers are in a talent market with increased pay expectation.
Due to the pandemic, WorldatWork’s survey showed that 38% of companies are considering expanding the pay differential by location, while 20% want to consolidate or reduce the geographic pay difference. With
Babak Varjavandi, CEO of human resource and financial management solutions company Nakisa, knows first-hand location does not necessarily decide what people deserve. Born in Iran and now working for a Canada-based company, Varjavandi sees geographic pay policies as an equity issue.
“I am very proud of my background,” says Varjavandi. “In Iran, many people are educated but do not have the same opportunities as those who are living in Canada or in the U.S. Location-based salaries do not consider the full value, talent or capabilities of individual employees working in different cities or countries.”
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Employee Benefit News spoke with Varjavandi to learn more about how location-based salaries risk creating inequity and how employers should envision salaries moving forward.
Why would an employer choose to have location-based salaries?
The pandemic has taught both employers and employees that we can all successfully work from anywhere and hire talent from anywhere, which companies may use in an attempt to cut costs.
Some employers believe an employee who lives in or relocates to a less expensive city can be paid less, when really this mindset will only end up hurting employers in the end, because it will lower morale and well-being among employees, causing them to be less productive overall. To ensure companies are getting the most value from employees, they need to feel like they are being treated fairly among their colleagues, and that includes in pay structure.
Do location-based salaries offer fair compensation to a global workforce?
Location-based salaries do not consider the full value of individual employees working in different cities or countries and contribute to a culture of inequality. When companies use location-based salaries, they risk creating pay inequity among employees, causing the company to become less competitive and have a hard time retaining talent in the long run.
Paying an employee for their work and productivity instead of location can reduce employers’ innate bias when learning where an employee is from or the cost of living in that area. Companies must look past salary as just the cost of having employees complete their work.
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In an era of remote work, what can employers do to ensure they fairly compensate all their employees?
Companies need to determine whether their current pay structure supports and reinforces their organization’s culture and values. Conducting regular pay equity audits among employees is a good way to identify any pay discrepancies among employees who are in similar positions but may be living in different locations.
Tech can also help employers of large companies analyze the current salary and roles among thousands of employees for further insight. Employers can assess pay among their workforce by investing in pay-equity tech, which can provide real-time analytics and recommendations for moving forward with a solid pay structure without the bias of location affecting compensation.
What factors does Nakisa consider when compensating its employees?
When we hire a new employee, we look at the market and aim to be as competitive as possible. Depending on how critical the position is and how important it is to fill it, we often offer a higher salary than the market.
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However, after working with the individual, we go through regular assessments and ensure that they’re compensated fairly based on the value they’re adding and the impact they are having on the company. A highly engaged, high-performing employee is worth more than ten average-performing ones — regardless of location. At Nakisa, years of experience do not matter when it comes to compensation either. Doing a great job is the number one factor. Companies should avoid only rewarding employees when at risk of losing them – employees should be rewarded constantly for a job well done.
What should employees look for when choosing a company with a global workforce?
Employees should look for companies who value their talent and what they can bring to the table; not where they happen to be located. I recommend employees take part in any survey their company does about culture and values and speak to your manager about any concerns you have, whether that’s related to pay, remote work or anything else. Employees should seek out companies who instill a culture of well-being and take feedback into consideration when setting any policies.
