Designing a Compensation Strategy for an Increasingly Distributed Workforce

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May 19, 2021
This article is part of a series called ERE Digital: Back to the Future.

With today’s broadened talent pool comes a tricky challenge: How should location impact your pay strategy?

At ERE Digital, May 25-27, Tauseef Rahman, a partner at Mercer, will be delivering a presentation titled, “What’s Location Got to Do With It?: Designing a Compensation Strategy for an Increasingly Distributed Workforce.” He’ll reveal:

  • Emerging compensation trends for distributed workforces
  • What to consider as you develop a compensation philosophy, from employer and employee locations to national structures and more
  • How to determine what pay approach is best for your organization 
  • How to manage challenging situations that may arise when changing your comp model

I recently caught up with Tauseef for a sneak peak into his presentation.

Vadim Liberman: What do you see as a main challenge when it comes to developing a compensation strategy today?

Tauseef Rahman: Comp has always been a tricky issue, especially for jobs with limited supply of talent and high demand. It gets even more complex potentially when you factor in the idea of paying based on the geographic cost of labor in different markets. With employees moving as employers allow people to work “from anywhere,” this raises numerous challenges.

Such as what?

It’s important to consider differences between different types of families of jobs or skill sets. It is over simplistic to say, “All jobs in New York should pay X percent above national average or all jobs in Chicago should be Y percentage above national average.” You cannot say geographic variation is universal across all types of jobs. It’s a one-size fits-all-fits-none view. This challenge was a long time coming, but here we are today.

Organizations will need to get smart quickly about supply and demand of the skills needed for jobs. They’ll also need to look at how much they apply their geographic cost of labor approach to all jobs vs. differently for different jobs. There are some job families for which the geographic difference in pay is different from if you were looking at all job families.

What about existing employees who move to new locations?

We’re seeing different public statements on what companies are doing. Some pay the same range, while some are cutting pay for people who move. But there’s a practicality behind scenes that organizations aren’t talking about, and it centers on the criticality of roles. That is, cutting pay may not impact jobs equally. This goes to the idea of segmentation. If an employer is already willing to pay based on different market positioning for different job types — like paying above market for certain jobs — it’s not too far a step to say that it might cut someone’s pay if that person moves to a new geography. But then again, if that happens, that person might be picked up by a competitor that won’t cut his pay. So this is a real question to wrestle with. 

Is cutting pay fair? What is fair? There’s a conception of fairness that any job that moves from X to Y gets paid Z. But another conception is that not all jobs contribute the same value to the business, and not all have the same labor supply and demand. 

At the same time, it’s important that an employer makes a decision, stands by it, but is also willing to change. There is a space between not having a point of view and being unwilling to change. You can have a perspective, but also change your approach as practices evolve. It’s important for people to have clarity on your compensation philosophy. Otherwise, with incomplete information, they’ll make up information for themselves. 

The problem is that compensation is not an area that traditionally has much clarity or transparency.

Right, and this is a big opportunity. The pandemic has accelerated multiple things, and a push for transparency is one of them. Again, though, transparency can mean different things. It’s not about public disclosure of salaries — it’s about sharing what you will pay within certain bands in certain regions for certain reasons. And recruiters need to be able to understand all of that to help navigate candidates through the hiring process. Being able to clearly explain your organization’s logic will be a key differentiator in the war for talent.

Want more insights from Tauseef about how to improve internal recruiting at your organization? Join him at ERE Digital, May 25-27, for “What’s Location Got to Do With It?: Designing a Compensation Strategy for an Increasingly Distributed Workforce.” Register here to receive 10% off your ticket price.

This article is part of a series called ERE Digital: Back to the Future.
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