Yesterday, we told you about two main compensation strategies for determining remote employees’ compensation – single rate and location-specific – to stay competitive in this tight labor market. Today in part two, we’ll talk about how organizations are figuring out and managing remote compensation.
“When it comes to managing your compensation, it’ll depend on the approach you’re taking,” said Ken Clemens, solutions consultant at salary.com, in the webinar “Learn how to manage remote employee compensation.” “Single rate obviously simplifies things quite a bit, but you’re still going through a fairly traditional compensation benchmarking exercise.”
Market pricing
The first step is determining what your base market will be and whether it’s going to be at your headquarters or whether you’re pricing on national-level data. It’s important to use multiple data sources to determine the market pricing of those benchmark jobs, but it can be quite an undertaking. You must go through the job matching process and make sure all the jobs are aligned correctly and that you’re using the correct data cuts to be competitive in each one. Then compare that to data from your HRAs (health reimbursement arrangements), look at individual people, and see where you stack up. After that, go in and build salary structures setting up your hierarchies to put more of a strategic structure in place.
“Not everyone, especially smaller and mid-sized organizations, is going to do this step. But it’s important in managing this at scale, even if it’s just ranges that are set up at the job level and then from there you can make sure you understand the target pay for each job,” said Clemens.
Location-based pay
The only real difference between this and more traditional market pricing is the organization is applying this to employees that are spread out across multiple locations. Organizations that choose to manage location-based pay in a spreadsheet-based approach will find it a little more complicated, Clemens noted.
These organizations will still need to gather market data and do the initial benchmarking. But first, they’ll have to determine what their remote-pay markets will be – metro-based, regional or zone – and their base market. That needs to be figured out first if they want to use geographic differentials to determine pay across areas.
“Even if you decide to use geographic differentials to say, ‘In this market, we’re paying consistently 10% higher than this other market,’ it’s still a good idea to go through a handful of your benchmark jobs and market price them to make sure there aren’t any outliers,” said Clemens. “For example, you might be prepared to pay 10% more in Zone One than in Zone Two, but there might be jobs within that area that might be very competitive positions and are 15% or 20% higher within each one. So, making sure you at least understand what it looks like job by job is going to be really important.”
After that, companies can use geographic differentials if everything appears to be in line. And then they can build their structure and decide how they want to break out their salary structures and ranges across all markets.
When that’s all done, employers can fine-tune things by analyzing the data versus their employees, and finding out where they sit.
Should the cost of living be considered?
The standard practice is that geographic differentials in cost of labor are what organizations should be using overall.
“I think what we’re starting to see – and this is anecdotal to my experience working with customers – is that people are starting to consider the cost of living a little bit more because it translates more into the quality of life that you’re delivering to your employees,” said Clemens. “And I think in a tight, higher-wage market, it’s an important thing to consider. It’s not the be-all-end-all – no data point is – but it’s an important thing to keep in mind when there are significant disparities.”
From the competitive side of things, the cost of labor is probably going to be the biggest indicator just because that’s more in line with what other people are paying. However, just keeping up with the competition isn’t necessarily the right way to pay when you consider all the different perspectives around pay fairness and pay equity.
“So, making sure that you are looking for situations and that you’re at least aware of the cost of living in a certain location is significantly higher in proportion to the cost of labor in one of those locations,” said Clemens. “That’s a good thing to be aware of and just understand the impact that it’s going to have on your employees and how that could potentially make a huge difference in the quality of life for someone.”
