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An Employee’s Perspective on Compensation: How to Attract and Retain Remote Talent

Setting compensation is something every employer has to consider and the decisions they make ultimately affect everyone they will go on to hire. This makes deciding how to approach compensation complicated no matter the makeup of your team, but with more companies embracing remote-friendly policies and expanding their hiring pool internationally, the layers of complexity naturally increase. In an effort to unpack all the competing arguments and intersecting elements, our Journalist, Bree Caggiati, is sharing a seven-part article series on Compensation for Global Teams.

One of the significant components of compensation discussions and something I haven’t spoken about much in this series yet is attraction and retention. Of course, we can talk about the philosophies of compensation approaches and which is more or less reasonable, but at the end of the day, whatever you decide has to work for your recruitment goals. What you offer has to be attractive to the talent you’re looking to acquire and good enough to make them stay long term. 

In this article, I’ll unpack what employees think about the different compensation models and how talent acquisition works in a remote world.

A remote talent pool removes local markets 

One of the major benefits, and indeed arguments, for a remote workforce, is the ability to broaden your talent pool. Organizations are no longer confined to hiring just those living within their city or those willing to move. Instead, as long as they comply with international labor laws, they now have access to the entire talent pool, worldwide.

This was something Mark Zuckerberg made note of in his now infamous address in May last year when stating Facebook’s intentions to go remote.  

“When you limit hiring to people who either live in a small number of big cities or are willing to move there, that cuts out a lot of people who live in different communities, different backgrounds or may have different perspectives,” he said. “Certainly being able to recruit more broadly, especially across the US and Canada to start, is going to open up a lot of new talent that previously wouldn’t have considered moving to a big city.”

The benefits of a broader talent pool go both ways. Underrepresented groups and those who are less able to move locations now have access to a broader range of positions. There are opportunities to reinvigorate small towns and economies by decentralizing the workforce and increasing the need for localized community amenities such as coffee shops and gyms. It also means employers can cherry-pick their new recruits by talent, not constrained by proximity to the HQ, and experience the many benefits of a more diverse team.

Conversely, it creates more intense competition for both employees and employers. 

As it stands, there is still a large portion of companies working co-located, but as we shift towards remote becoming more common, it makes sense that this would also shift what is considered a “market” too.

When companies are decentralized and indiscriminately hire across borders, potential recruits in Australia (for example) are not just competing against those in their local market anymore, but also those overseas in the US and India, and the UAE.

Under these conditions, if an organization opts to localize their compensation, they’re receiving the benefits of borderless hiring but not passing those on to their employees (by means of compensation). It’s almost as if they want to hire without the constraints of the market but impose it again when it comes to salaries. 

You can imagine examples where two identical candidates are vying for the same role — the one living in the cheaper market would likely win out. 

In fact, this is often a significant factor as to why companies go international in the first place. 

“The entire concept of remote work started because people wanted to cut down on operational costs,” says Lawyer and Founder of All Remotely, a remote work consulting firm, Bhagyashree Pancholy.

“So, regardless of what the companies say, I think that’s one of the main reasons why they hire globally and would continue to remain that.”

But does that make it unethical? Most companies are for-profit and therefore, will always consider cost part of the equation. Where there are employees willing and happy to work for less, why pay more?

Many people have used this argument against hiring internationally at all, for fear of taking all jobs overseas. While these concerns should be considered, they haven’t materialized as of yet. 

“When I take the step back, and I look at it from a business perspective, we’ve always considered whether we could afford to hire someone. So, that hasn’t changed,” says bethanye McKinney Blount, the Founder and CEO of Compaas, a compensation software and consultancy firm. “Is it likely now that a business is going to say, ‘I don’t want to hire anybody else in the Bay Area because Bay Area people are too expensive, I only want to hire people outside the Bay Area?’ Yeah, it’s totally possible that that’s going to happen. That’s been happening anyway.”

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In our previous articles in this series, I’ve covered how market salaries vary across locations. The reasons are complex and evolving, and shifting to a “global market” approach doesn’t automatically negate these complexities.

The market rate for developers in Silicon Valley isn’t just high because the rent is high, it’s because the competition is. With a hub of tech giants in the area, it’s become a desirable location for ambitious developers (and other tech positions). This, of course, leads to an influx of talent to the area, which overloads property and amenities, forcing the cost of living upward. For organizations that consider the cost of living metrics, this affects market salary and flows on to increase these companies’ desirability and, therefore, competition.

By opening up the market further afield, and allowing national and international talent to compete for these roles, there is an opportunity to see a reduced geographic variance in pay.

But this could go either way. 

Where one major organization bids against others in order to appeal more to potential recruits, we could see averages increasing. But with more recruits competing for the same amount of roles, averages could decrease.

These conditions are, of course, influenced by your industry, level of competition, and how many qualified workers for your role/s already exist.

What do remote employees think?

After the uptick in WFH during the COVID-19 pandemic, and the subsequent media attention around localizing salaries, there have been some surveys and studies around remote work that asked questions pertaining to compensation.

One such example, the annual Owl Labs State of Remote Work study, asked: “How fair do you think it is for your employer to make a cost of living adjustment (reduction in salary) if you moved to a less expensive area and worked solely at home?”

The answers varied across the spectrum, but overall, 71% of respondents thought it would be unfair.

However, on a separate question, 44% of respondents said they would still consider moving even if their compensation would be adjusted.

When only looking at individual contributors, the respondents who thought localizing compensation was unfair went up to 79%, while comparatively 67% of managers felt the same. 

“Our takeaway: CEOs, team leaders, and managers that are responsible for business decisions see both sides, and understand the benefits (or the need) in lowering salaries,” the report says.

Similarly, Hired’s recent 2020 State of Salaries Report found that “90% of tech talent believe the same job should receive the same pay, regardless of remote work.” 

Interestingly, 40% said they do support location adjustments but when asked if they would reduce their salary expectations for a remote role, 67% said no. 

“So, tech workers agree that people should be paid the same wages for the same work, but they’re more split on the idea of cost of living adjustments—what happens if we bring the question to their doorstep? How many would be willing to accept a lower salary if their employer moved permanently towards work from home? Our insights revealed that there is far less of a split,” the report said. 

While these findings are certainly interesting and worth taking into consideration, it’s also worth noting that both studies have a decidedly US-centric scope. Owl Labs included 2,025 full-time workers in the United States as their respondents and while Hired didn’t disclose where the 2,300 tech workers included in their study reside, much of their reporting focused on “big tech.” 

With the lens, localization is framed as a pay cut if you decide to move rather than paying an adequate (or even desirable) wage within each employee’s specific market.

As always, it’s important to view how these questions are asked, what the context is, and read the full studies for clarity. 

Anecdotally, Help Scout has publicly stated their employee response was integral in shifting their compensation approach from localized to the global philosophy they hold now.

“Over time, we got quite a bit of feedback from employees about the geography variable. So in 2018, we updated our salary formula and removed geography as a consideration,” Nick Francis co-founder and CEO of Help Scout said in an article titled Remote Employees Shouldn’t Be Paid Less Based on Geography. “A magical thing happened: Everyone was happy, and everyone thought it was fair.”

Julie Menge, Help Scout’s HR Operations Lead, corroborates this. 

“Our engagement survey asks all kinds of things, like, ‘Do I have the right tools to do my job? Does my manager care about me?’ But then it also asks, ‘Do I feel like my pay is fair compared to similar roles in the industry?'” she says. “And pretty consistently we hear people say, ‘Yep, it’s pretty good.’ We tend not to lose people, just for salary. And we tend not to miss out on hires, just for salary.”

So what does this mean for companies that do localize compensation? 

As of yet, I don’t think it means too much. 

Globalizing compensation is a relatively new philosophy and one that has been born out of the privileged tech industry, and those already working at the top of the market. 

While there are still workers willing to accept local salaries, localization will continue, and there are many decent arguments why it should. 

Salary isn’t the only thing employee’s care about

While compensation is undeniably a major factor in the kinds of roles that are acceptable to employees, it’s certainly not the only consideration. Organizations can set themselves apart in many ways, including culture, values, extra benefits, and growth opportunities. You may find that these become the determining factors between otherwise equal competitors. 

“We’re making all of these choices about the sort of company we are and the culture and the working hours and the environment that we have,” says Shield GEO co-Founder and Director Tim Burgess, concerning the salary-setting at Shield. “So, we don’t necessarily feel we need to compete with [say, an investment bank] on salary. Because we can compete [with them] on other elements.”

These kinds of decisions ultimately determine the kind of company you are and may even end up being the very factor that attracts the right talent to you.

“If you’re doing ethical hiring and you have the same standards for everybody on your team, it’s also a good employer branding,” says Bhagyashree. “So you would obviously attract the top talent, but you would also attract a lot of good people who would be wanting to join you for all the right reasons.”

This isn’t to say compensation doesn’t matter, just that there are other ways to give your organization an advantage in your market bracket

“You need your salary to be good enough so that your talent pool is big enough, so you’re going to be able to hire and retain people,” Tim says. 

“But we’re always trying to think about that whole package of what we are and all of the ways that we can attract and retain people. If you feel heard and seen and respected, if you feel like your work is valued, if you feel like you’re growing as an individual, if you’re happier when you finish work. All those things matter.”

You may even find, depending on the talent you’re targeting, the breakdown of your compensation package begins to matter more. 

“Younger demographics generally focus on salary and stock options, where a more mature population will place a higher value on getting market practice (or above) level benefits,” says Ed Cha the Senior Vice President and Global Benefits and Property & Casualty Practice Leader at ABD Insurance and Financial Services. “With pre-existing conditions on the rise globally, getting competitive medical benefits is definitely something that attracts and retains employees.”

Spending time determining the kind of employee experience you want to offer is an investment into your company’s future. Not only will this help attract and retain talent but can also help as a determining factor for deciding between otherwise equally skilled candidates. 

“That’s the thing about compensation that is often, I think, misunderstood by people who don’t do it all the time, it isn’t just a simple matter of applying third party market analysis and saying, ‘Well, this is the number I heard’,” says bethanye McKinney Blount. “It’s very personal to the goals of that company, and what they’re trying to accomplish.”

If you pay local rates, know that these change with the market 

It’s worth noting that markets change and deciding to localize compensation means having to track these markets over time. 

This relates both to your current employees and new recruits. You may have a plan to scale salaries with the market gradually. For example, if the market rate increases by 15%, you may incrementally raise this over some time. If it decreases by 20%, you may choose to freeze any future promotions until they reach the level of their current salary. This avoids any volatile swings in pay and grants consistency in a continually moving area. 

However, you will also have to develop a recruitment plan. If the market has changed, you may not be able to attract a new recruit from the same country at the same rate as a previous employee. You’ll have to determine whether you increase both their wages simultaneously or hire the new employee at market rate while staggering the current employees’ increases.

It’s common to have set intervals of every six or 12 months to check the market for all employees and make any needed adjustments. These strategies to cover shifting market rates should be communicated to your employees via contracts or in-house policies. 

Will your compensation philosophy affect your attraction and retention? 

Attraction and retention are nuanced concepts full of both emotion and logic. While your compensation philosophy will likely affect the kinds of talent you attract, it’s probably not going to hold you back. Just as establishing and broadcasting company values help you attract like-minded individuals, so too will developing a compensation philosophy that makes sense for your company. 

As you would periodically check in on the changing market rates, it’s a good idea to check in with your employees’ satisfaction too. Whether that be through external studies or in-house surveys, this kind of information can be invaluable when creating metrics and strategies around compensation. 

— Bree Caggiati

 

Looking for more information on how to compensate your remote employees? Catch up with the full series here!

 

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