Remote Compensation: 9 Best Practices to Guide You

5 min read
Jun 10, 2021 7:00:00 AM

Sixty eight percent of people say they’re successful working from home, and 70 percent of leaders say that working from home is the same or better for their team’s performance. Further, 42 percent of remote workers say if their current company does not continue to offer remote work options long term, they will look for a job at a company that does.

Given the attitudes toward remote work, it’s no surprise that 94 percent of midsize organizations plan to have some mix of in-office, remote, and hybrid employees, with one percent going fully remote. But with this shift comes new questions and challenges around compensation. Here are some best practices to guide you as you navigate this new territory.

1. Make some decisions—soon

As an end to the COVID-19 pandemic inches closer, a big question on everyone’s mind is the future of remote work. It’s time to make some decisions around remote work—and how it will affect compensation.

There are a few basic approaches to a remote compensation strategy:

  • Global rate: Use a single market to determine everyone’s compensation—no matter where they’re located. This may be the market where the company headquarters is located, although some companies choose to use other markets.
  • Zones: Group geographical areas with similar labor costs into zones, and tie each employee to a zone based on their location.
  • Local rates: Use granular local-market compensation to differentiate pay for employees in different locations. This might be done with custom pay ranges per market, or calculated with a formula.

Once you decide on an approach, determine how you will retrofit remote compensation for existing employees. Some companies are changing compensation at some future date or as employees move, while others plan to align newly remote employees to local target rates over several review cycles.

Finally, make sure to communicate about your new remote compensation strategy. Provide advance notice of changes to managers so they can be prepared to answer questions from their reports. Then announce the changes to employees well in advance, so they can digest the information and have time to adjust.

2. Write down your remote compensation strategy

A written compensation strategy is an important communication tool that can help everyone at your organization make consistent decisions around pay. Depending upon your level of pay transparency, it might also serve as a knowledge base for team members to understand how pay is determined. This is particularly important for remote teams and employees, who may need to access this information asynchronously, as the HR department and line managers are no longer just down the hall. 

Include your relocation policy, so team members understand how compensation might be affected. Include things like who is eligible for relocation, how relocation will affect compensation (if at all), and any benefits you have for remote employees (such as an office stipend).

3. Multi-source your remote salary data

Salary data may be limited in some regions, particularly for new roles. Use two or three credible data sources to make sure you have the right data to set competitive salary ranges.  These might include salary survey data companies such as Mercer and Radford, and self-reported sources such as Payscale and Comparably. It’s also a good idea to get real-time feedback from recruiters, who can let you know if candidates are declining offers for higher salaries elsewhere. Survey data can often lag the market, and this real-time feedback can be invaluable.

4. Enable team members to report discrepancies

You won’t get remote pay right all the time, and your team members are another excellent source of real-time feedback. Have a system in place that allows them to report discrepancies if your benchmarks or salary formula seem off. Review and address concerns, then either adjust accordingly or disagree and commit. This can help your team members feel heard, and can help your compensation team get your model right.

5. Be strategic about exceptions

For the most part, it’s important to be consistent in your compensation decisions—but there may be times when you decide to make exceptions. For example, when you want to retain a 10x team member who is relocating, or when you want to close a star candidate who’s currently earning above market rates. Be strategic about when you make those exceptions, track them so there’s visibility into why some employees are above-band, and make a plan to retain that talent long-term.

6. Beware of golden handcuffs

If you use a global rate, or to allow team members to keep their salaries when they relocate somewhere with lower local rates, beware of “golden handcuffs.” This occurs when team members earn a salary above their local market rates, and know they would face a significant salary decrease if they left. In turn, these team members stay at your company—even if they’re unhappy—which doesn’t do anyone any good. 

7. Develop career ladders

Remote workers in hybrid companies are often passed over for promotions and growth opportunities because they’re “out of sight and out of mind.” This hinders their ability to have increased responsibility and pay over time, and may lead to disengagement, low productivity, and turnover. Track mobility and promotion rates for remote and colocated team members, so you can take action if this is happening within your organization.

Career ladders, which clearly define the requirements needed for each job level, can also help managers and team members recognize when promotions are in order. Progress toward promotions should be discussed regularly, so each team member knows exactly where they stand and what it will take to get to the next step in their career.

8. Run regular compensation analyses

Lack of visibility may also be causing remote workers to fall behind on raises, as review cycle stakeholders allocate more of their budgets to the employees they see more often. Run regular compensation analyses to see how remote team members stack up against their colocated counterparts. You may have a problem if remote employees are often on the lower end of their salary ranges, and office-based employees are on the higher end. Look closely at outliers to try to understand the factors at play, and make strategic adjustments as needed.

9. Use the right technologies and tools

Compensation is already a complex practice, but it becomes more so as employees relocate to areas with vastly different costs of market. If you’re going to tackle remote compensation at a reasonably high level, consider an investment to update your HR technology to more fully support your transition to remote work. Sophisticated compensation management software can help you better manage and communicate the complexities of compensation for your distributed workforce.

Final thoughts on remote compensation best practices

The prevalence of remote work grew more in 2020 than it did in any year before it. With that growth comes some trial and error, so give yourself some grace as you figure things out for your organization. The best things you can do are learn from other organizations, and keep a pulse on your team’s needs and sentiments. There will not be a one-size-fits-all approach to remote compensation, but many of these best practices will carry through the various approaches.

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