How to create a compensation strategy for remote work

Payscale recently released research on the State of Remote Work in 2021 finds that 81 percent of organizations don’t have a compensation strategy for remote work.

That’s concerning.

Remote work has upended traditional workplace dynamics and employees have been vocal that they don’t want to return to business as usual when the pandemic ends. Working from home has its pros and cons, but the flexibility to work from home at least some of the time — without stigma — is something employees aren’t willing to give up.

Recruiters are certainly hearing about it. The question has become important enough that candidates are looking elsewhere if they aren’t getting assurances from employers that remote work will be continuing after the pandemic comes to an end.

According to Payscale’s research on the State of Remote Work in 2021, 43 percent of the workforce expects remote work options to continue after the pandemic. That’s a very high percentage when you consider how many jobs can’t be performed from home, representing 55 percent of the half a million workers that Payscale surveyed. When Payscale breaks this data down by occupation, we find that 71 percent of IT workers expect for remote work options to continue after the pandemic and 75 percent of marketing and advertising workers expect it.

chart on employee expectations for remote work to continue by occupation

This is not surprising. Some occupations can be fully performed from a home setting and have been for the better part of two years. Many employees (in white collar salaried professionals especially) don’t want to spend large portions of their day commuting back and forth to an office in heavy traffic. Some employees also find it easier to care for themselves or their families when they are able to work from home.

Payscale’s research on remote work also finds that job satisfaction correlates with the ability to work from home, with 69 percent of people who hate their job also not being able to do that job remotely.

job satisfaction relative to remote work

Of course, employees don’t necessarily want to be fully and permanently remote. Although job seeking behavior is highest for employees who can’t telecommute at all (55 percent), it is lowest for employees who say they telecommute most of the time (5 percent). It is actually a bit higher for employees who say they telecommute 100 percent of the time.

job seeking behavior relative to remote work

That is good news for organizations who are looking at converting their workplace into a hybrid or flexible office environment after the pandemic comes to and end. Before the pandemic, only 7 percent of businesses described their office environment as hybrid. After the pandemic, the percentage of businesses who say they are going hybrid skyrockets to 50 percent. However, although this shift is extreme, it is still only representative of half of organizations, leading some to wonder what the rest are thinking.

chart on work environments before and after the COVID-19 pandemic

Organizations are even more on the fence about their compensation strategy for remote work. Of the almost 700 organizations surveyed, 81 percent said they don’t have a compensation strategy that encompasses remote workers.

More organizations report plans to change their compensation strategy for remote work, with traditional salary structures centered around the employer’s headquarters becoming less popular in favor of location-based pay strategies that range from setting pay according to the employee’s location to using a national median with geographic differentials to grouping like regions into pay zones. A mixed strategy is also popular. However, nearly 30 percent of organizations remain undecided.

pay strategies to accommodate remote work before and after the pandemic

Hopefully the data provided in Payscale’s 2021 State of Remote Work Report will encourage organizations who have been on the fence until now to make some decisions where remote work is concerned. For those organizations, the following steps may be a useful roadmap.

1. Survey your employees on their remote work preferences

Surprisingly, less than half of organizations have surveyed their employees on their remote work preferences. If you are holding off on making a decision due to a lack of data, surveying your employees is a great place to start.

Some businesses have been surprised by the results of employee surveys on remote work, but this is all the more reason to conduct a survey—and the sooner the better. Also, if you conducted a survey asking these questions six months or a year ago, it might be time to run one again to see if opinions have changed.

2. Determine your policy when it comes to remote work

Remote workers aren’t the only employees you need to think about. The opportunity to employ workers from any location has a lot of appeal for many businesses for many reasons. It can give you access to talent you never thought you could hire before. It can help you meet diversity quotas. It can help you lower your carbon footprint. And in some circumstances, it can enable cost savings.

But if you embrace a partially remote workforce, you have to figure out how you are going to balance that with in-office employees who want to work from home some of the time or all of the time. This is especially true when you have both remote and non-remote workers in the same occupations, departments, or across teams.

While working at home during the pandemic, many employees took the opportunity to move to a new location. Forcing these employees back into the office — or forbidding other employees from working from home when others in similar positions are allowed to — may not make sense and could increase your turnover rates. You really need to think about what you are trying to accomplish, how you value your talent, and how offering more workplace flexibility can add value to the culture of your organization and differentiate your business.

The way remote work shakes out won’t be one-size-fits-all for every organization and industry, but you do need to make sure your values are in the right place.

3. Figure out how your compensation strategy needs to adapt

Many organizations are on the fence about their compensation strategy for remote work because they haven’t figured out their remote work policy yet. If you’ve been putting this off, it’s time to make some decisions because your employees want to know what the future is going to look like and overhauling your compensation methodology and salary structures cannot be completed in a day.

Organizations are likely to customize their approach when it comes to compensation, so the right solution for you isn’t necessarily going to reflect what another organization is doing. You need to consider your business strategy, your talent strategy, your industry, the size of your organization, and your resources. There are different merits to different methodologies so weigh them all and invest in the one that is going to be the most manageable with the highest probability of helping you attract and retain talent and meet other business goals that are important to you.

Looking for a primer? Download our whitepaper on How to Formulate a Remote Pay Strategy.

4. Get transparent about how you pay

In general, organizations don’t invest in pay communications as much as they should. According to Payscale’s Compensation Best Practices Report, only 40 percent of organizations provide something like a total rewards statement to help employees understand how they are valued and only 36 percent train managers on how to have conversations with employees about compensation.

You shouldn’t expect that your employees are going to understand your pay philosophy and why their pay is fair if you don’t explain it to them. According to Payscale’s Fair Pay Impact Report, 51 percent of employee believe they are paid below market when they are actually paid at or above market. This research also finds that employees who believe they are paid below market are 50 percent more likely to seek opportunities elsewhere. It’s critical to understand that it’s perception of unfair pay — not actual pay or the practices that go into determining pay — that drives employees to seek “better” elsewhere. Fortunately, pay transparency mitigates job seeking behavior significantly.

There’s a lot of confusion when it comes to compensation strategies for remote workers in particular. News coverage around what other organizations are doing (e.g. Google and Facebook) can be misconstrued by the general populace and even stoke outrage. For example, most employees don’t think it’s fair to lower pay for people who work from home or even who move to another geographic location.

However, this is often couched in a misunderstanding of how pay is determined and — perhaps more importantly — how pay equity is maintained by being consistent. If your compensation strategy for remote work includes a transition to location-based pay with geo differentials, you need to explain to employees (both your current workforce and new hires) how your compensation methodology works and most importantly how your remote work pay strategy is designed to benefit them.

For example, you might explain that although employees who move to a less expensive location may lose a pay premium based on location, they would also incur a pay raise if they moved to a more expensive location. This rarely gets talked about when the companies being held up as examples are headquartered in San Francisco, but it may be relevant to your pay strategy. Just don’t assume employees understand this. Make sure you explain it.

The future of work is going to be more flexible

In conclusion, remote work isn’t going away and there are numerous reasons why it should be embraced. It’s good for diversity, good for the environment, and potentially good for controlling costs. A flexible workplace can also increase productivity. The ability to work from home at least on occasion is demonstrably proven to improve job satisfaction.

Most organizations are listening. Although they aren’t making the leap from traditional offices to being fully remote, the majority are opting into at least a hybrid environment where employees can work from home some of the time for the convenience and come into an office some of the time for the collaboration. The right balance to strike won’t be the same for every business, but offering employees more flexibility, more understanding, and more trust in how they accomplish their work is the right approach.

What has yet to be decided alongside a remote work philosophy for a lot of organizations is how your compensation strategy needs to adapt to this new normal.

Organizations that lack modern compensation technology, data, processes, and other resources may struggle to develop a compensation strategy for remote work. Fortunately, Payscale can help. If you aren’t a customer of Payscale currently, you should request a demo of our products to learn how modern compensation technology can support a compensation strategy for remote work—in all its forms. We also provide professional services to organizations that need more of a consultative approach to overhauling their compensation strategy and pay structures, as well as support in how to conduct pay communications.