Location-Based Pay Doesn't Make Sense for Remote Work

A proposal to companies willing to find a harmonious balance between working remotely and working from a corporate office

As remote work becomes the new norm, companies should be reevaluating how to compensate their employees fairly. One approach that's been commonly used is location-based pay, where employees are paid based on their location rather than their skills or performance. But does this approach really make sense?

The Problem with Location-Based Pay

Paying remote workers based on their location creates several issues:

  • Skills and performance matter, not location: A software engineer's skills, experience, and work quality should determine their salary, not their postal/zip code.
  • Cost of living varies, but work quality remains constant: A remote worker in a smaller city may have a lower cost of living, but their work output and value to the company remain the same as their colleagues in more expensive areas.
  • Location-based pay perpetuates inequality: By paying workers differently based on their location, companies inadvertently create a pay gap between employees, which can lead to feelings of unfairness and demotivation.

Case Study: Google's Company Pay Calculator

Google's company pay calculator, introduced in August 2021, is a prime example of location-based pay in action. The calculator determines an employee's salary based on their location, which means employees who work from home in areas with a different cost-of-living may receive a pay cut. While Google's approach may be well-intentioned, it raises questions about fairness and equity.

Other Companies, Same Approach

Google is not alone in using location-based pay. Other companies, like Facebook and Microsoft, have also implemented similar policies. However, some companies, like Reddit and Zillow, have opted out of this approach, choosing instead to pay their employees based on their skills and performance.

A Call to Action: Performance-Based Pay for Remote Workers

It's time for companies to rethink their approach to remote worker compensation. Instead of location-based pay, companies should focus on performance-based pay that reflects an individual's skills, experience, and work quality. This approach would:

  • Encourage meritocracy: Pay would be based on individual merit, rather than location.
  • Foster a sense of fairness: Employees would feel that their compensation is fair and reflects their contributions.
  • Attract and retain top talent: Companies could attract the best software engineers from around the world, without being limited by location.

A Compromise: Location-Based Pay with a Twist

If companies value a return to office over remote pay, then they should consider a compromise: a pay increase by a static percentage for that region over their generic remote salary. For example, if a company offers a 10% pay increase for employees who work in their San Francisco office, then employees in that region would receive a 10% increase over their remote salary. This approach would:

  • Reward employees for returning to the office: Companies can incentivize employees to return to the office, while still acknowledging the value of remote work.
  • Provide a sense of fairness: Employees would feel that their compensation is fair and reflects their contributions, regardless of their location.

As remote work continues to shape the modern workforce, it's crucial that companies adapt their compensation strategies to reflect the global nature of talent and work. By prioritizing performance-based pay or offering a location-based pay increase for in-office work, companies can create a more equitable, inclusive, and effective remote work environment.