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Insights on Remote Pay

| Apr 2, 2021 8:32:00 AM | By

Insights about remote pay from our co-founder, Thanh Nguyen


The office, as we knew it, has forever changed. And now, many companies are not only embracing the work-from-home model, but are implementing a broad remote pay strategy where the workplace is designed around employees working remotely -- permanently.



There are a lot of headlines around companies making this shift - from all the big names like Facebook to Salesforce, Reddit to Twitter --and the possible cost benefits, from lowered salaries to a massive reduction in real estate costs. But, unfortunately, what I’ve missed seeing is a discussion about the specifics needed to make it work...


It is important to understand the cost and resource implications of a remote-first strategy. Compensation for remote employees sits central to this discussion given that remote pay is almost always the largest start-up expense.


And yet, nearly half the HR professionals I have spoken with over the last quarter have a mandate from above to move to a remote-first (or something resembling it) model without thinking through the implications of remote pay.


This is more complex process than it appears, so let’s use these five questions as a guide to get more clarity before crafting your remote-first strategy:

1. Who does a remote-first strategy affect within your organization? Who is actually going to work remotely?

To answer these questions, look across your employee base and drill into the current roles and skill sets along with current and future hiring needs. From an organizational standpoint, which functions need to be physically close? For example, even with the availability of some incredible collaborative tools, it might be important for some “highly collaborative” roles to be able to meet regularly and in person. On the other end of the spectrum, most companies have figured out how less collaborative roles, such as operational office support, can run entirely on their own, from almost anywhere. Don’t forget to consider the outliers to these two obvious buckets: employees already remote, those who might want to move, difficult talent to acquire, and more. How and where will you make exceptions?

2. Where are the market gaps?

It’s a prime opportunity to conduct a competitive market analysis, paying attention to benchmarking and leveling, to uncover inequities in compensation within your organization. As you design your remote-first strategy, you can decide how to address compensation for remote employees. For example, if a valued employee is being paid under market but decides to move to a lower cost geography, you can bring them to the higher band within their new geography, increase share of equity or reward with a spot bonus.

3. Which locations will you be hiring in?

It’s tempting to think about opening the hiring pool as broadly as possible to get the best talent and reap labor discounts in cheaper geographies. But, the reality is that it’s very timely and costly to set-up entities in multiple states, let alone all fifty or international jurisdictions. Each state and country has its own local payroll and labor law and filing requirements which can also vary dramatically by employee group. Ask yourself if you actually have and want to spend the resources to manage this process?

The shift to remote workplaces has also significantly slowed the process to set up entities outside of your state headquarters. This, too, varies by state but where there’s a talent pool, the process will be slower. The last time we tried to hire in New York, we found out there’s a three month back-log to set up an entity there.*

The insights from the previous question should help you narrow the options by being able to see groupings of employees or indicate talent gaps. If you need engineering talent, for example, establish a presence within a university town with a prestigious engineering program. Do you have a strong client relationship in particular geography where it would be synchronous to have an employee base? There are always ways to group workers as many companies have done through the years in distributed workplace models.


4. What are the hidden costs?

Salary alone doesn’t drive cost and burn, especially with remote pay. There are still critical expenditures for remote home offices to run efficiently. There will also always be recurring overhead such as healthcare benefits, taxes, and insurance (and again, can be state-specific.) It’s also to consider measures to keep employees motivated and engaged while working remotely. For example, make sure to factor-in annual meetings or a merit and promotion budget to ensure you’re keeping your culture in-tact.


5. Do you have accurate comp data for current and future operations?

This might seem like an obvious one, but given my role advising on compensation for decades, it is worth emphasizing. You have to have good comp data to get this right. Whether you are comfortable with the comp data you have now, or need to look to other places to find it, don’t skimp on the work to get accurate numbers so you can appropriately forecast.


Once you go through this exercise, I think it becomes clear that the notion of remote-first can seem easy to manage on the surface, but in reality, it’s a very nuanced process and operationally taxing to manage, especially related to remote pay. And in any shift to a remote-first model, there will be employees who feel they didn’t benefit as much as someone else. Where you can, try to provide adequate compensation for remote employees that ease this perception. For companies who decide to pay based on geography, for example, consider adjusting the compensation over a period of time, increasing equity or providing a bonus to help ease the transition.

And while the pressure is on to make a remote-shift happen now for many companies, understanding the full compensation picture can give insights into whether your organization is truly ready for it. And in many cases, the answer likely lies somewhere in the middle and you can consider a more gradual or hybrid approach - or abandon the plan all together.