Survey: Compensation Policies in the Era of Untethered Workers Challenge Many Organizations (i4cp login required)

Productivity

When the COVID-19 pandemic drove masses of
employees from corporate offices to work from home, it also prompted
unprecedented numbers of relocations—temporary and permanent moves by employees
across states and regions.

For total rewards leaders and others responsible for setting
compensation policies in the U.S., those worker migrations present complex and
ongoing challenges when it comes to decisions about pay, benefits, and
taxation. 

Compensation professionals representing large employers
(workforces of 1,000-plus) across the U.S. who responded to the Institute for
Corporate Productivity’s (i4cp) latest survey, Compensation in the Era of
Untethered Workers
,
confirmed that they are facing a variety of issues
related to remote work situations. 

“Developing compensation structure for remote workers and
policy on how to handle employee-elected relocations” is how a director of global
compensation in a firm serving the defense and aerospace industries described
her company’s two-fold challenge.  

Other respondents reported similar issues—a compensation
manager in a financial services organization spoke to additional effects of
changing work models: “Discussions are currently underway regarding whether or
not pre-existing geographic differentials continue to make sense in light of
projections that a sizable portion of the employee population will continue to
work remotely in the future.” 

Pay localization policies predate the pandemic

The sudden expansion of remote work and relocations is
attributable to the pandemic, but pay localization policies (adjusting salaries
of remote employees based on location) are not new for many organizations.

More than a third of those surveyed (35%) said their organizations
have a pay localization policy in place, and another 18% acknowledged that they
are considering one. But the 40% of respondents who said their organizations have
no policy revealed a fairly even split in current practices. 

Of organizations with localization policies, about a fourth
(26%) differentiated between employees working in company offices and those
opting to work remotely. Further, all respondents with such policies said the
measures had been implemented prior to the onset of the pandemic. The greatest
proportion of that group (44%) reported that their policies had been in place
between three and five years, and 11% said they’d had policies for more than a
decade.

Companies are shifting further toward standardized pay structures

Four in 10 survey participants confirmed that their
organizations standardize pay structure/rates for roles or work done,
regardless of where in the U.S. that work is performed. Suggesting a greater
shift toward standardization, another 20% of respondents said they planned to
go that route or were considering it.  

The largest portion of those with standardized structures (42%)
reported a single national pay rate, while 29% noted regional rates. 

pay strategies

Commenting on the findings, Ivor
Solomon, Head of Total Rewards at Genentech and Chair of i4cp’s Total Rewards Leader Board, expressed surprise at the percentage of companies
opting for national rates versus those that “have or will use some form of
geographic differential to pay employees based on local cost of labor.”
However, some total rewards leaders say they have shifted to national rates as
a simplification strategy in a time of increased complexity. 

Solomon suggests that movement toward national or regional
rates could greatly influence relocation decisions of employees who can work
anywhere. “Permitting remote work can open new talent pools for organizations,
enabling a recruitment pipeline for more diverse talent,” he says. 

Organizations track employee locations

Asked in a write-in question about their most pressing
compensation and benefits challenge in the post-pandemic era, many survey
respondents cited remote work and the questions it raises for compensation
professionals. 

Given that top challenge, it should come as no surprise that
nearly two-thirds of those surveyed (64%) say that their organizations track
the movement of their U.S.-based employees who choose to work remotely. That
tracking enables reporting and deduction of appropriate payroll taxes based on
workers’ locations.  

Although 26% of the professionals surveyed said they don’t
currently track their employees for that purpose, 19% of that group
acknowledged that they are considering doing so.  

Understanding where in the country employees work and reside
can be an important factor for organizations when it comes to benefits
considerations, too—especially in ensuring access to healthcare coverage.
Perhaps anticipating that issue, many employers represented in the survey
already offer healthcare plans that cover their workers nationwide. Only 1% of
survey respondents said they’d change plan providers to make coverage
available, and 10% reported adding or expanding provider networks. 

Overall, survey findings—and especially the relatively
robust percentages of “we’re considering it” responses—suggest that many
organizations continue to struggle with sweeping implications of shifting
business models in the wake of the pandemic. And that compensation and benefits
leaders have more work ahead to evolve policies that ensure appropriate pay and
benefits practices across their organizations’ varied work settings.  

Carol Morrison
is a Senior Research Analyst at i4cp

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