Remote work is here to stay for many companies and their workers. Companies like Figma and REI are embracing this shift and making necessary changes to adapt. For employers that subscribe to a location-based pay policy, this represents a tremendous opportunity to take a hard look at pay equity—and take action against pay gaps. As employees relocate to areas with a lower cost of market, you can reallocate that recovered budget to make pay equity adjustments for other employees. Here’s how:
1. Measure your stats
Before going remote, track compliance-oriented measurements so you know where you stand. Begin by looking at your Compa-ratio by gender, race and ethnicity, and age. Go beyond salaries, and include stock and bonus compensation as well. Measure mobility and time to promotion, and level and seniority distribution, for each protected group. Continue to monitor these key stats over time to understand the impact of going remote.
You may also want to layer in each employee’s base of operations—whether they’re office-based, part-time remote, or full-time remote—and their geography. This can help you understand whether these factors impact Compa and mobility. For instance, remote employees and employees geographically farther from your leadership team may be less likely to receive promotions and raises than their colleagues. Tracking these stats can help you better address issues and support your team—no matter where they are. Then slice this up by manager, department, and function to learn how the transition to remote work has impacted different groups of employees.
Track where you are today, identify your pay gaps, and set tentative goals and targets for adjusting Compa-ratios across demographics. Determine how much budget you would need to close your pay gaps.
2. Measure your cash
Take a look at where your compensation budget is going. Which teams have an overall high Compa-ratio? Which teams are highly compensated in general? In technology companies, these are likely your technical workers. In a biotech company, these are going to be your scientists and researchers.
Then look at which roles are eligible for remote work. For instance, a hardware engineer likely needs access to your lab, and would be unable to work remotely. Look for an overlap of high-salary jobs and remote-eligible jobs to measure your opportunity to improve pay equity.
Some quick calculations can help you measure the budget that could become available if high-paid workers relocated to areas with a lower cost of market. Let’s assume that your six San Francisco-based engineers command a $1,000,000 payroll budget. It’s been estimated that 30 percent of employees would opt to work remotely if given the choice, and in this example we will assume a 20 percent cost of market reduction for employees leaving San Francisco:
Engineering team in San Francisco: 1,000,000 (6 engineers)
Multiply by 30% = $300,000 (likelihood to go remote)
Multiply by 20% = $60,000 (average salary decrease)
Transitioning to remote work could allow you to redistribute $60,000 from your highest-paid employees to your underpaid employees—while maintaining competitive pay practices. Use your discretion when making these calculations so you can get a good estimate of your cash opportunity. If your employee salaries are tied to expensive regions, you have a greater opportunity to improve pay equity in the move to remote. Otherwise, your recovered budget will be more modest.
3. Build a plan based on your data
Now, use the data you’ve gathered to build a plan to improve pay equity. As lower-Compa employees go remote, adjust them to a higher Compa. For instance, you may have a goal to keep all employees above a 0.9 Compa, but an engineer is currently at 0.8. Use your recovered budget of people moving away to cover pay equity adjustments, even if it must be done over two compensation cycles.
As people relocate and have compensation shifts, track your recovered budget and keep a running tally of how it’s being spent. It’s a best practice to do this in both HR and finance so that you can check each other.
You may also find that low-Compa employees relocating to areas with lower cost of market will essentially get a pay equity adjustment with no cash outlay.
Let’s assume that one of your San Francisco-based engineers is earning $112,000, with 0.8 Compa—but your goal is to keep all employees at or above a 0.9 Compa. If that employee relocates to a new region with a $120,000 salary midpoint or target, their new Compa-ratio would be 0.93 without needing to make any adjustments.
4. Get buy-in on your pay equity adjustment plan
Finance is typically responsible for understanding the budgets, controlling the budgets, and thinking about the cost outlays for the company. It’s important to make sure that you’re partnering with Finance and helping them understand where you’re coming from.
Be clear that pay equity is not a “nice to have,” it’s a priority for your company for strategic and compliance reasons. Share how a remote work transition is a unique opportunity to remedy pay discrepancies, because you’re already adjusting compensation for existing employees, both up and down.
And, finally, make sure you say the magic word: reduced cost or cash-neutral. These pay equity adjustments are being made on a reduced cost or cash-neutral basis by making smart adjustments with recovered compensation budget.
Final thoughts on improve pay equity during remote workforce transitions
The transition to remote work has given us a unique opportunity to adjust compensation as employees relocate. As you recoup cash from workers moving to areas with a lower cost of market, you can redistribute it to address some of your pay gaps. Just make sure you give employees plenty of notice. As soon as you decide to roll out a local-based pay policy, give employees at least six months to adjust. Try to be consistent in applying local compensation to everyone, and clearly document any exceptions.