The Investment Capital Growth Blog

Remote workers fleeing to cheaper towns may see their pay cut. Why firms think this is necessary.

Silicon Valley made Julia feel claustrophobic, and she didn’t like living far away from her elderly parents. So after moving back home to Austin because of the pandemic, she decided to stay there. Her company was fine with the decision, provided she would agree to a 15% salary reduction.

Julia is fictional, but the circumstance is becoming all too real for workers at a handful of large tech firms. In yet another new pandemic reality, organizations trying to set level salaries for a geographically dispersed workforce are taking back pay from workers who elect to permanently work remotely away from office locations. Naturally, the reductions aren’t winning any fans.

For their part, these companies argue that they are already paying cost-of-living premiums to staffers in expensive locations. That premium shouldn’t apply to those who move away, they say. “But this isn’t as straightforward as it appears,” says Don Lowman, a Korn Ferry senior client partner and global leader of the firm’s Rewards and Benefits practice. Most companies don’t mention this premium when hiring talent, he says, so adjusting pay now will seem like a “significant takeaway.”

There are other factors, as well. Experts say the idea of putting people first by not forcing them to come back to the office is undermined by cutting the pay of those who elect not to. The end result could be a morale buster that leads to lost productivity and higher turnover, says Tom McMullen, a Korn Ferry senior client partner and a leader of the firm’s Total Rewards practice. “In an increasingly competitive environment, these kinds of changes may prompt talent to look elsewhere, particularly since geography may no longer be a constraint,” he says.

To be sure, Jamen Graves, a Korn Ferry senior partner who specializes in leadership and talent consulting for tech firms, says it’s important for both organizations and talent to look at potential salary changes as a result of relocation through the context of job performance. “While newly hired candidates will generally accept wages that are adjusted for location, those already employed will not respond well to lower wages as a result of moving,” Graves says. He adds that the pandemic has proven employees’ claims that where and when they work doesn’t impact their ability to get the job done.

Experts say there are other ways to balance pay with a change in location that don’t involve reducing salaries. At least one company, for instance, is offering a relocation stipend to employees who move to lower-cost areas to offset pay cuts imposed by the move. Another option is to decrease salaries only for those employees who exceed the maximum range for the role. McMullen says companies can also employ a two-tiered system, with non-location-based differences used for employees hired pre-COVID and location-based wage scales for those hired post-COVID.

Even more simply, “organizations can freeze pay at the current level for two to three years until the cost-of-living difference is eliminated,” Lowman says.

Contributing Authors: Don Lowman, Global Leader, Rewards & Benefits, Tom McMullen Senior Client Partner, and James Graves, Senior Partner

Contributing Authors: Gary Burnison is CEO of Korn Ferry

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