Technologists and employers are beginning to question salary levels that are centered on location. A few companies are abandoning them altogether.
In setting salaries regardless of location, technology companies including Reddit Inc. and Zillow Group Inc. are making a potentially expensive gamble to retain talent and gain hiring advantages. This may require maintaining relatively high salaries for employees to be relocated and adopting an adjusted salary scale for new employees. Although it is too early, this move challenges a long-standing notion, but it is not static. The idea is that where people live should determine what they do.
Some large technology companies, including Facebook Inc., knew early in the pandemic that people moving from the Bay Area to cheaper cities will see salary cuts. Payment platform Stripe Inc. offered a one-time bonus to workers who moved out of San Francisco, Seattle or New York-and agreed to cut wages by up to 1
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But Jake Rosenfeld, a professor of sociology at Washington University in St. Louis, said that wage cuts for any reason are detrimental to the morale of workers. He said: “Employers really have to do some dance to prove that it is reasonable to workers.”
Workers who consider more flexible work scenarios are also divided. In November last year, the job search platform did conduct a survey of 600 skilled workers and found that 60% of the respondents were willing to cut their wages to permanently work remotely, while 40% were not.
Zillow, a Seattle-based real estate search company, told its 5,600 employees in October that if they choose to relocate from their current city, their pay will not be adjusted. Zillow Chief Officer Dan Spaulding said: “We will not make this change to save money.” “We are making this change to retain our employees.”
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Since the announcement, about 50 employees have decided to move to other states. The company has decided to try this salary model at least before the end of 2021. With the addition of new employees, Zillow plans to work towards a national salary standard over time.
Spalding said: “If people think that the world will return to 18 months after the pandemic started, then I think it is unrealistic.” “Your best talent will have many choices.”
Reddit, a social media platform with about 700 employees, made a similar move to eliminate the regional wages people get in the United States when productivity in remote areas is still high at the end of October.
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Nellie Peshkov, Reddit’s chief culture officer, said the company hopes to “eliminate the trade-offs that employees must make to lower wages when they move to low-cost areas.”
Reddit used to have three salary zones in the United States, with the vast majority of its employees-located in New York and San Francisco, respectively. Ms. Peshkov said that as part of this shift, some Reddit employees in other cities are raising salaries.
Ms. Peshkov said that in addition to retaining existing talent, the company expects that this move will help cultivate a more diverse workforce.
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Peter Cappelli, a professor of management at the Wharton School of the University of Pennsylvania, said that employers tend to combine the cost of living with labor market prices in specific regions. He said: “The reason they make a lot of money is because this is where the competition is.” “If you don’t pay them that much on Facebook, someone on LinkedIn will hire them.”
Capelli said that while keeping wages the same, it may help to retain employees, but you can’t let people who move to the office sit next to their colleagues and do the same work, but make less money. In addition, people who stay in high-cost areas may hate those who move and keep their wages.
He said: “The employee might say,’Hey, the money you pay me is similar to someone who lives in a cheap place.’ “Their salary is higher than for me. “
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Ms. Pederkov and Ms. Reddit said that due to the high cost of living in the Bay Area, she has not heard of complaints from San Francisco staff that the move was unfair.
She said: “There are actually no negative reactions.” “They appreciate this general philosophy and think that people give influence rather than where they live.”
Mercer’s employee strategy and analysis partner Tauseef Rahman said that leaving aside the emotions of employees, paying salaries without considering their residences would add significant costs.
He said: “Because you have to pay national taxes, it can be said that the expenses you paid exceed the requirements of the local labor market.” He added that companies will have to determine whether there is a financial advantage in increasing salary competitiveness nationwide. . He believes that one result is that localized companies only pay for certain roles and not for other roles.
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He said: “The extent to which geography affects wages is not the same in all types of jobs.” “If you consider the roles that are really needed and there are not many people who can do something, then you will pay for it.”
So far, it seems that few people get rid of regional wage standards. Some companies take the opposite approach: In June, a national spokesperson for Slack Technologies Inc. stated that the company increased its nationwide salary scale from two to five because the company wants more employees to be located in San Francisco and New York. Outside the region.
Slack Chief Personnel Officer Nadia Rawlinson said: “We created these bands to provide transparency and fairness to our employees. The company believes that adjusting wages based on the local cost of living of workers will help avoid inequality.
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Sahil Lavingia, the founder of the 24-person e-commerce startup Gumroad, heard from hundreds of job applicants after tweeting that he will no longer consider geographic location when determining salary.
But even within his relatively small team (which has been a distant team since 2016), this move is not without complications. He said that he cancelled the highest salary grade for future employees, one of whom was a grandfather, and set a cap on the weekly working hours to offset the salary increase of some employees.
Mr. Lavingia said that many of the technicians he heard were located outside the United States, including India, Nigeria, Singapore and Eastern Europe. He predicts that as more and more people compete for complete remote work, the progress rate of technical work will eventually decline.
He said: “In the long run, this will actually bring higher interest rates to almost everyone in the world, but only a few people.”