Mark Zuckerberg is Wrong About Remote Pay

It has always been inevitable. Remote work was always going to become a major piece of the success of many companies. The current situation has just pushed many into the future sooner than they had planned. There is a lot to unpack with a remote workforce (perhaps something for a future series of posts). For right now, let’s just talk about compensation. A couple of weeks ago Mark Zuckerberg not only announced that many employees would be able to work remotely, but they should also expect their pay to be adjusted according to their remote location. GitLab uses a formula to adjust the pay of their workers according to their remote location. A recent article says Canadian employees should expect the same. My question is: Why should this be the case?

The prevailing thought seems to be that we pay people not based on what they do, or how they do it, we instead pay people based on how much it costs for them to live. This is the only conclusion one can reach from pay adjustments because a remote worker moves from somewhere pricey to somewhere inexpensive. Based on this stream of thought someone might think you should pay those who save and scrimp less than those who spend and waste.

Do you currently pay people who live farther away from headquarters less, simply because they wanted to save a little money on housing? Companies apparently believe that people will only move to cheaper locales and therefore allow the company to save some money on pay. If they were remote, who you also adjust their pay upward if they move from Queens to Manhattan, or Gilroy to Palo Alto (please take a moment to imagine your own proximate locations with lower and higher costs.

Let’s imagine a different world. This is a world where three individuals deliver the exact same quality and work productivity. Let’s call them Avery, Blair, and Cameron. They all live on the same block, just a mile from the home office, but they work remotely. Each year they receive the highest performance rating offered by the company. Every year they hit all of their goals. In year three Blair moves 60 miles away to a rural town where the cost of living is lower, and schools are better. How would you adjust their pay?

Does Blair get a cut in pay? Do they stop getting raises at the same rate as the other two? What if Avery then moves to the most expensive nearby suburb. Their partner is the CEO of a publicly-traded company and covers all the bills. Should Avery be paid more?  Less???  No Change? Do you need to learn first if Avery is a male or female? Do you need to know if they really “need” a raise? Is there any rational way we can support this type of system? No. No, there is not.

It isn’t often that compensation professionals get to truly change the way businesses do business. This is one of those times. Some or all of your business will be challenged by this issue soon, perhaps immediately. You need to get to work documenting the pros and cons and your recommended approach to addressing all of them. We all need to get to work on defining the best path(s) forward on this issue. If we wait for some non-compensation person to “lead” and create the best practice for us, we will surely regret it in the future.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

Comments

[E. James (Jim) Brennan]

You are completely right, Dan. While CEOs are paid to worry about stock values and market dominance, they are usually clueless about the effectiveness of total reward programs.

As the resident Cafe expert on geographic pay and cost of living differentials (entirely separate topics, of course), I am horrified that another fool is prepared to fall into the trap I documented in my second post here. http://www.compensationcafe.com/2010/06/of-course-they-want-cost-of-living-pay-but-do-you-1.html should be revisited and shared with those who actually control pay programs. Hint: they are NOT compensation or HR people.

The Law of Unexpected Consequences applies here. Paying for voluntary personal family lifestyle choices (where to live and how to spend income) is high on the list of worker desires; but it is totally irrelevant to the free market economic realities of employee replacement costs that truly drive total reward strategics and direct pay tactics. Bottom line: to the extent that geographic location (like industry, employer size, etc.) actually affects pay, it is ALREADY faithfully recorded and reported in statistically reliable pay surveys. Distorting pay via a ridiculously inappropriate double-snapshot harks back to the wild and woolly goofy days of double-digit inflation!

Never again, I hope. Speak up loudly, before the lemmings assemble for another frantic blind cliff-charge!

[Doug Sayed]

Nice job Dan. A reckoning is coming, and it's coming a lot more quickly, due to the incredibly fast changes in how work gets done occurring during this pandemic.

I fully understand why geography matters with regard to pay for staff at a certain office or manufacturing plant, but that is different than remote work, where geographic lines are completely blurred. We will have to adapt our strategies and advice for this new paradigm.