How Remote Work Will Change Competing and Paying for Talent

After more than a year of working from home, employees don’t want to return to a 9-5 office environment with a long commute in heavy traffic—at least not every day.

Candidates are all asking the same questions: What is your remote work policy? What will be your policy after the pandemic has ended? Are you planning to change your pay strategy because of remote work? Will you lower pay if I want to work from home or if I move? 

What’s surprising is how few organizations have answers to these questions, even after a year and a half of a pandemic where a sizeable chunk of the workforce has been working from home. 

The State of Remote Work

According to recent research from Payscale on the State of Remote Work in 2021, 73% of employers believe that remote work will change the competitive landscape for attracting and retaining talent. That is up significantly from when Payscale asked this question for the Compensation Best Practices Report  a little less than a year ago. At that time, only 32% of organizations agreed that remote work would change the competitive landscape for talent.

Employees haven’t exactly been shy about their reluctance to return to the office. And yet, Payscale’s Remote Work Report shows that only 50% of organizationsare adopting a hybrid or flexible work environment.

Sure, that’s a big jump from what it was before the pandemic (7%), but it’s still only half. The jump in employers going fully remote is even less impressive, from 4% before the pandemic to 6% after the pandemic ends. 

The ambiguity around remote work policies is leaving employees with anxiety, and that uncertainty is making employers vulnerable to turnover when turnover is already pretty high.

Employees are jumping ship in droves after over a year of pent-up frustration and concerns about how they were treated during the pandemic — from lack of safety protocols to skipped pay increases.

Although there are many reasons employees may be seeking to change jobs or stay out of the workforce altogether, lack of workforce flexibility either now or planned for the future is undoubtedly one of the driving factors.

The State of Compensation

The lack of planning around compensation strategy to accommodate the rise of remote work is particularly worrying. Payscale’s Remote Work Reportfound that 47% of organizations expect that 25% of their workforce or higher will transition to working at least some of the time remotely in the future.

Yet, 81% of employers surveyed said they do not have a compensation strategy that encompasses remote workers. 

Compensation is more complex than people outside of human resources often assume. Remote work is driving some organizations to consider a shift in methodology for compensation, which can take quite a bit of time to implement, especially if you have to overhaul all your salary structures.

Many organizations are looking to move away from a methodology that centers on the employer’s location and instead adopt a strategy that can more easily adjust pay premiums by location for a distributed workforce, either by basing pay on the employee’s location, grouping similar regions into pay zones or by utilizing a national median and applying geographical differentials to account for differences in cost of labor.

These methodologies are sound strategies for setting and managing compensation, but according toPayscale’s Remote Work Report, 81% of employers don’t have a compensation strategy that can encompass remote workers, and 30% of employers haven’t decided what they want to do.

Meanwhile, employees are asking about remote work policies and pay strategies. According to Payscale’s research, 43% of workers expect remote work opportunities to increase after the pandemic ends, which rises to over 70% for occupations like information technology and marketing and advertising. Employers don’t seem ready for this reality. 

The delay probably has to do with data not being available — or not sufficient enough where employers feel comfortable making such a significant change to their operations. Compensation is a very data-dependent function. Many organizations probably want to hold out until they get a sense of what other organizations are doing, especially regarding how businesses return to work after the pandemic ends. 

The problem is that the pandemic hasn’t ended, and no one knows when it will end or whether businesses will ever fully return to an office environment even after it does. But employees aren’t patiently waiting to find out. Payscale’s Remote Work Report shows a correlation between the inability to work remotely and job-seeking behavior.

In other words, those that know they want the flexibility to continue working at least some of the time remotely are actively seeking those opportunities. 

Steps to Take Next

The short of it is that if you want to be attractive in this market, you need to be able to answer questions about your remote work policy after the pandemic. If you don’t know, an excellent place to start would be to ask your employees about their preferences.

From there, you can evaluate the pros and cons of a more distributed workforce and then determine your remote work policy and how that will impact employee pay. 

The objective of the pay strategy is always to pay fairly, equitably, and competitively. All of the compensation mentioned above methodologies to accommodate remote work — whether basing pay on the employer’s offices or the employee’s location — are designed to do this. The location has always been a contributing factor in the cost of labor.

It’s baked into the employment data used tomarket price a job. However, when using salary data for a specific location or set of locations to base pay on the office’s location, employees are much more likely to be tethered to a commutable distance to that office, especially in larger companies. 

Basing pay on the employee’s location allows employees to work from anywhere and employers to hire from anywhere. However, this transition requires access to a more significant amount of salary data and a different methodology for determining pay, such as using geo differentials to calculate the difference in labor cost for a particular job between markets. 

The Future

Some organizations will continue to stick with the traditional approach of paying employees according to their office location — even for distributed workers.

This can be a competitive advantage for organizations with offices headquartered in areas with desirable pay premiums, especially if the size of their workforce is manageable to give everyone the same location-based pay premium even if not all employees live in that location.

However, this may change the cost of labor in markets over time. If this is the case, organizations need to be proactive. At the very least, they will need access to a broad array of salary data to keep pace with what is happening in the market and software to manage compensation more adeptly and continuously.

Given the corresponding impact that remote work is likely to have on competition for talent, you really can’t afford not to.

Amy Stewart is a writer, speaker, marketer, and author forPayscale reports.

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