Location-based pay during the 'Great Resignation'

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

It started with Google, Facebook, and Microsoft in early 2021 when they announced that employees who chose to work from home permanently would be paid less than those who operated from the office if the new location had lower labour costs than their original office location. These companies started determining salaries based on where remote employees are based.

Looking at the IT sector, a study evidenced that employees in the same roles experience location-based pay differences anywhere from 3% for entry-level associates to as high as 90% for software engineering roles. Another study conducted by Stanford University reported that "When you don't reduce wages for employees in remote locations, then employees in the workplace are going to be upset…They're going to pay higher rents, food and transport costs to live in Silicon Valley and come in for two or three days a week." Therefore, unless employees in remote positions are paid less, businesses could begin losing the hybrid workers they need on-site. This was becoming quite a situation to deal with until fall 2021.

A lot has happened since #wfh started, for some employees who remained fully remote during the pandemic period feel comfortable and productive in set-ups they've built for two years. But for others, it was a choice made out of necessity – because they've moved too far away [thereby reducing expenses] from the office to commute. Now, returning to the office would involve choosing between where they want to live and where they want to work.

Another survey by a think tank in the US shows that 55% of organizational redesigns during early 2020 were largely focused on streamlining roles and supply chains to increase efficiency. The problem with having a higher focus on efficiency is that it leaves certain systems in a place vulnerable due to a lack of flexibility during disruptions. In this context, the resiliency and thoughtful resource distribution by organizations matter significantly.

A study by Gartner last year shows that 32% of organizations are switching to contingent workers from hiring full-timers to cut down costs and increase efficiency. Naturally, there is a strong demand for gig workers or freelancers that comes with increased workforce management flexibility. While businesses argue that this measure would put HR managers in a difficult spot since it's harder to generate a performance management system for freelancers or giggers; at the same time, the freelancers are not entitled to employee benefits such as sickness allowance, pension medical, and the usual.

There have been debates around the much stylised now #WFH that also comes with the loss of personal connections and camaraderie that one experiences when working from the office. HR in several sectors have worked to address this by e.g., creating hybrid schedules that combine both in-person and remote work; reimagining and designing workplace settings to increase communication between employees when they are on-site; and also continuing with retreats and planning sessions where joint brainstorming and mapping ideas on a whiteboard (we can now do that virtually) can take place.

Location-based pay and monitoring employee well-being

Location-based pay has also created much buzz as many knowledge workers moved from the cities where their offices were located to relatively lower-cost towns and rural areas. The challenge is manifold since when these companies hire local recruits and decide to pay them less (to reflect the cost of living) than existing employees, it creates pay disparity and lack of fairness at the same time.

It is great that people can work remotely, especially knowledge workers, which also gives them an opportunity to assess their demand but it is harder for MNCs to allocate talent and resources across the globe in a systematic manner. It is harder to maintain a company's values, identity, and vision with the imperative to embrace a variety of workplace cultures when 60% of its employees are located in 60 different countries. The organizational culture that unites the workplace and defines what an organization stands for requires sharing experiences together and also monitoring the same.

Employee well-being and personal growth are now key areas of consideration. Efficiency remains the goal of well-managed corporations, but that's not enough anymore. Employers know that in order to ensure employee engagement, motivation, and retention, there is a need to allow enough space for flexibility, the possibility of new responsibilities and job revolvement, and a culture of trust all around to attract the best job candidates who will seek out employers that recognize this reality today.

Managing Talent Acquisition

For talent acquisition, fundamentally there are five areas that organizations have struggled with during the pandemic. Firstly, monitoring and rewarding the high performers in a hybrid workplace model as the majority of business leaders think that their performance-management system has not accurately identified top performers. Equally, the majority of employees don't feel that the performance-management process accurately reflects their contributions. A report by Forbes shows that given the above, it is essential to ensure to establish and quantify a transparent link that connects employee goals to business priorities while maintaining flexibility.

Secondly, even though it costs resources there is a strong demand for investment in managers' coaching skills. As opposed to contrary belief, it is even more critical when workers are placed remotely. Ensuring the managerial mindset is an outcome of diligent and focused coaching.

Thirdly, customising the task and allocating responsibilities aligned with the personal development goals of employees and their experience. Fourthly, finding and hiring the right people. As simple as it sounds, there are quite a few areas the managers need to responsibly act. During talent hiring, as an employee leaves their current job and moves to a new one, it is essential to understand the pros and cons of that at a personal level so as to ensure that moving the candidate to a new organization is not at a high personal cost in the end.

Also, there have to be discussions around the specific goals why the employee is brought in so that the deliverables and timeline of work are both clear. The first discussions are essential to have since talent acquisition is different from other recruitment, and organizations often get it wrong. Finally, managers need to think about the short and medium-term effects of large workforce transitions, and how reskilling helps close talent gaps.

At the same time, managers need to ensure that new recruits are updated on governance and processes around human capital measurement and disclosures relevant stakeholders engaged required on a measurement framework and how best to get it done timely, and last but not the least, ESG-related considerations.

Resuming 'Old Ways' of working, but how?

Rekindling the culture and office environment as one had experienced pre-pandemic isn't the same or simple as people change during the course of time. And a crisis period comes with new fears and perceptions, along with hope and recognizing new opportunities. This is a critical time to realize that returning to the old ways may have serious consequences for organizations. As various reports show, a large percentage of employees indicate their willingness to look for alternative jobs or multiple gigs if their employers want them for 40 hours a week on-site. For companies, it is not an easy choice regardless of how flexible they want to be and willing to engage employees around issues of workplace policies and culture to ensure they remain appealing.

At the same time, recognizing the evolution of Skills is vital for both employees and employers. Those who are going back to work also need to realize that a set of new skills might be required in order to resume work. This again brings back to what was discussed earlier in the article in regards to supporting the development of the workforce both internally and externally. For managers, training and development programmes should be good enough to drive the development of new skills and identify people for emerging roles and leadership opportunities. When employees sense that support, they report a positive impact on their well-being. Organizations can run temperature checks and short surveys to gather insights on the effectiveness of existing wellbeing and benefits programmes; understand possible gaps and overlaps of programmes to develop a multidimensional approach.

The adaptation to the era of remote work comes with a package, firstly, allowing candidates to interview virtually in a process that is smooth and transparent as a signal of company culture and values which isn't obvious at many levels. Secondly, there has to be a greater push for diversity. The conventional tools of recruiting, screening and vetting tools such as looking for keywords in a CV need revisiting for companies who are aiming to create a workforce that reflects our society accurately. At a broader level, and also essential that organizations look at ensuring the changed outlook on occupational health and safety change as a result of the pandemic, and updating every one of the latest versions. Leaders need to map out long-term risks and opportunities from the introduction of remote working and how that would affect organizational culture and day-to-day operations.