Influx of Remote Workers Puts Geographic Pay Policies in the Spotlight

Geographic pay policies, a.k.a. localized compensation, are in flux. Of the 62% of organizations with existing geographic pay policies, 44% are considering modifying or have recently modified their policies due to the increase of full-time remote work, according to WorldatWork‘s Geographic Pay Policies Study. With 67% of employees expecting their compensation to reflect their location, geographic pay is a critical issue for employers 1) striving to improve the workforce experience and 2) recruiting/retaining top talent. Pay policy prevalence, geographic pay philosophies, determinants of employees’ geographic pay location, modification approaches, remote work flexibility, and limiting factors, among other variables, were measured. Organizations and employees were surveyed separately.

Findings:

• Expanding (38%) or consolidating (20%) the pay differential application by geographic area are the top two considerations for organizations addressing localized compensation.
• The more locations an organization has, the more likely they are to consider creating a U.S. geographic pay policy, especially as full-time remote work rises.
• 41% of organizations apply pay differentials as a premium/discount to either structure or individual pay, and 33% create separate base pay structures for each/different geographic location.
• Employee geographic pay locations are most often determined by their reporting location.
• 55% of organizations use city/metro area as the indicator in which geographical pay differentials are based, and cost of labor is overwhelmingly a greater influence than cost of living for determining the pay policy approach.
• Almost all organizations are somewhat or moderately flexible regarding voluntary relocations for full-time remote workers. However, only 29% are willing to establish a legal entity anywhere in the U.S.
• Of the organizations that do not allow relocations outside of pre-existing geographic or legal entities, the biggest challenges for these organizations are legal, regulatory and tax implications, followed by cost.
• 50% of employees say that a pay adjustment would be very or extremely influential in their decision to voluntarily relocate.

“Work is no longer a place. With remote working requests continuing to emerge and surprise leaders, companies are reevaluating how to create cohesive, consistent, and fair geographic pay policies as employees push to straddle multiple geographies,” says Scott Cawood, CEO, WorldatWork. “What used to only be an occasional issue is now a frequent request and savvy employers will need to respond with fair, transparent, and attractive geographic pay policies for distributed workforces if they wish to remain competitive.”

Methodology
Survey data was collected over seven days ending 2/18/21. 1,566 responses (1,063 organizations; 503 employees) were received, representing organizations of different sizes and across multiple industries/geographies.

WorldatWork is the leading global nonprofit organization for professionals engaged in the critically important practice of Total Rewards. We serve those who are responsible for cultivating inspired, engaged, productive, and committed workers in effective and rewarding workplaces. We guide them in the design and delivery of Total Reward programs with our education and certification; idea exchange; thought leadership; knowledge creation; information sharing; research; advocacy; and networking.