Compensation strategies for remote employees

The current market for job candidates is competitive, to say the least. Employers are trying to offer salaries that attract the cream of the crop. And the goal of many organizations is to ensure their pay is externally competitive and internally equitable. But what about remote employees? How do you compensate them so that they’re paid competitively and equitably? What factors need to be considered when creating a remote compensation strategy?

In a recent webinar, Ken Clemens, Solutions Consultant at salary.com, explained how to manage remote employee compensation.

Areas to focus on

There are several factors that need to be integrated into the process. One thing an organization needs to focus on right out of the gate is what’s the company’s interest in on-site versus remote work? Is the company mainly an on-site organization with a handful of remote employees? Is the organization becoming 100% remote or majority remote? Answering these questions is going to mold how formal the remote pay strategy needs to be. And it’s going to guide the overall approach, according to Clemens.

Competition within and outside the industry is also huge. “With compensation in general, you’re rarely just competing within your industry or location. And especially now with remote work, you’re even competing outside of your talents’ location,” he said. “So, understanding the impact of the various industries, other types of companies they could be talking to, and other places they could work is going to be important. If you’re in an industry like Tech, you’re competing with just about everybody. It’s a national, if not global, market now.”

Of course, the geography of where everybody sits is going to help form the strategy, too.

Single-rate compensation strategies

Several strategies can be applied when determining remote employees’ compensation. They fall into two main groups: the single rate and those that are more specific to employees’ locations.

The single rate has become popular with organizations whose headquarters are located in more competitive markets. “We’re finding a lot of coastal companies, and organizations in the Northeast, California and West Coast are using the single rate to basically pay their competitive rates across the entire country,” said Clemens. “This makes them very competitive in just about any market, and it’s easier to administer.”

Another approach is the national average. That’s a single rate as well. “But if you’re paying the national average, you might not be as competitive in some of the more high-premium markets that are paying15% to 20% higher than the national average,” he explained.

Location-specific compensation strategies

Location-specific options include metro-specific locations. “This is paying based on a hyperlocal location for a given remote employee and it can be very targeted,” said Clemens. “We have customers that are getting as granular as zip code, and the data is out there to support that. But as you can imagine it can be difficult to administer at scale. Setting up that type of pricing for every individual employee can be splitting hairs at a certain point, especially if you’re talking about employees that might be 45 minutes away from each other not actually making the same pay.”

Another popular approach is regional pay. It’s easier to administer than individual employee locations. Basically, it’s grouping regions like the Northeast or the Midwest. Outside of the U.S., it can be grouped by country or smaller locations. “I’d say the biggest drawback that we see with regional pay is that large regions … can still see some pretty drastically different pay markets.”

The last approach and one that Clemens said is growing in popularity, especially with larger remote-driven organizations, is zones. Instead of grouping locations based on geography and their proximity, they’re being grouped based on price. “So it’s grouping places like New York and San Francisco into one zone,” he explained. “Those employees sit across the country from each other, but they’re in similar competitive markets. It’s kind of the best of both worlds, where you get specific to those certain locations and remain competitive in those markets, but you’re still keeping them in easier-to-administer groups.”

Whether your organization uses a single rate or a location-based strategy, there’s a lot of data to gather and manage. Find out tomorrow how some organizations are figuring out and managing remote compensation.