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Pay Strategies

Although the COVID restrictions in NZ have been removed, many people are still working from home some, if not most, days of the week. Remote/hybrid working has become the new normal for many roles and may even be an expectation from employees. 

 

A recent Remote Work Report from Employment Hero has shown that 48% of employees would consider quitting their jobs if their employers forced them back into the office full-time. A large motivator for kiwis wanting to work remotely is that it reduces some of the pressures of travel cost and time, which are increasingly on the rise. Remote working seems to have shifted from a precautionary response to COVID, to something that alleviates the anxiety or stress around finances and living costs. 

 

So, we know that remote working has a great appeal and is something many employers may need to keep in attracting and retaining workers. But what about for those who are required or choose to work on site? 

 

Something I have seen a bit of talk about recently is the question around whether remote workers should be paid less than their city colleagues, and whether this could be considered fair compensation. Some organisations are starting to pay higher salaries for workers in certain regions to recognise the cost of living. 

 

That begs the question: Should organisations base an employee’s remuneration on the value an employee brings to the business or should an employee’s remuneration differ from others based on the employee’s work preference (i.e. WFH) or location/homebase? 

 

Benefits

When approached and applied well, setting different wage and salary levels dependent on work preference/location can benefit organisations. 

 

Economists in the USA have argued that offering remote working opportunities as a substitute for pay rises has lowered wage-growth pressures, slowing this wage-price spiral of increasing inflation. It has potential to lower costs for businesses and provide incentive for people to come into the office, taking some of the pressure off travel costs. 

In effect, with people feeling less of the financial pressures of traveling into work most days, this raises collegiality, social capital, and knowledge management within organisations. 

 

It also promotes employee retention and employer branding. 

 

Risks

However, Employers should consider this pay strategy with caution as it is not without criticism.

 

When Google announced to employees their intent to implement pay according to proximity to the office, employees expressed dissatisfaction. 

 

As the pandemic has shown us, remote working is just as productive as working from the office, if not more. Looking at remote working as a ‘substitute’ for pay rises creates an image of remote work becoming less of a perk and more of something we pay or have a trade-off for.

 

However productive remote working can be, this is assuming that workers already have the developed skills and little training is required. 

 

Questions then to consider are why we are doing this, what will it achieve (pros and cons), and what are the outcomes we are aiming to achieve? Consideration should be given to the consequences of disrupting an equal and inclusive environment.

 

Granted that a lot of this application and talk is based on America and other larger countries who base their pay around more expensive cities and commutability from those cities, it still raises a good question and thought to turn our minds to, especially when it comes to bargaining and remuneration strategy. So, does it make sense to apply this logic and thinking in NZ? In the end, it does come down to a company’s individual circumstances. They should be looking a location vs value-based compensation strategies, and at local market rates and cost of living vs industry and competitive market rates.

 

To avoid disadvantaging remote workers, employers could factor in compensation like utility subsidies or allowances for use of their home office space. 

 

Should Employers be evaluating their remuneration strategy to accommodate for this?

This topic raises the question of what is fair and reasonable, especially in relation to these new forms of work.  This is a controversial topic and one that seems to have different answers and opinions depending on the way you look at it. 

 

Three60 Consult created a poll asking people whether they thought it would be fair to pay less for remote work. Surely enough, 80% of people voted ‘no’. This included a range of responses from both employers and employees. 

 

We then reframed the question and asked whether people thought it was reasonable to expect to be compensated for travelling into work and living in an expensive city. Interestingly, many people (70%) voted ‘yes’. The question then becoming, ‘are we paying less for remote workers or are we compensating their counterpart for travel and living costs’?

 

Of course, this matter is more complex than framing it into these two simple questions, but this gives us a good idea and indication of where people’s minds lie.

 

The question ‘if remote workers are more productive and make more money for the business then why should they be paid less?’ often comes up. And that they may be reducing business expenses by not being in the office. So then there becomes the argument that remote workers should be compensated for their at-home setup and expenses. Also, that because a remote employee can reduce the costs to a business, that profits should be distributed out to them. Although, this argument currently lacks a focus on the growth and developments of knowledge and skills that can come from working with others. 

 

 

Employers need to think, ‘are we paying less for remote workers, or are we compensating those who come into the workplace for travel expenses? What kind of expenses do our remote workers have and what compensation could they reasonably expect?’

 

At the end of the day, it becomes a pay strategy/remuneration structure application of location vs value-based, and for what expenses or components are we ’compensating’ for. These are all important things for employers to consider especially coming into bargaining and with FPA’s coming into force. 

 

If you need assistance with your bargaining and pay strategies, get in touch with one of our associates today. 

 

 By Kayla Neems

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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