When the coronavirus pandemic was first declared in March 2020, teleworking was supposed to be a temporary emergency measure. But a year and a half later, its popularity has soared to new heights. Its impact has shaken up the traditional work structure, calling into question certain personal working-from-home choices.
For example, since many employees are no longer commuting to the workplace, we’re experiencing a form of urban exodus. The appeal of these outlying regions includes homeownership, open spaces and benefits to the family.
The big question now is: Should salaries be adjusted based on an employee’s place of residence?
Thing to consider
- American vs. Canadian laws
American technology giants like Google and Facebook Inc. announced they’ll be decreasing the salary of employees who move away from Silicon Valley to reflect the cost of living of the new place of residence. Seeing their neighbours south of the border take this stand may have Canadian companies wondering if they should follow suit.
It’s important to note that Canadian labour laws are different from American labour laws. In Canada, an employer can’t substantially lower an employee’s salary unilaterally. However, they can implement pay scales based on location, which could result in lower labour costs and, possibly, slow the salary progression of affected employees. The use of pay scales based on cost of living already exists, particularly within national and international companies. Therefore, it will be interesting to see if this type of practice will eventually gather momentum.
- Industry and job type
While adjusting salary based on the place of residence is currently generating interest, the reality is that this practice doesn’t affect the majority of Canadian employees, as many fields still require employees’ presence in the workplace. These include manufacturing, essential services, transportation, warehousing, the sciences and education. Working from home permanently is only an option for a minority of employees who mainly hold professional jobs.
Among other things, organizations tempted to implement regional pay scales must also think about: the perception of equity when there are compensation policies by employee group; salary treatment for jobs requiring physical presence and jobs that allow employees to work remotely; compensation for employees whose job requires them to be physically present in the workplace, thereby limiting flexibility; and the integration of elements from the salary policy in full compliance with the various laws dealing with pay equity.
- Organizational culture
While collective intelligence, in the broad sense, is at the heart of organizational culture, it’s likely that employers aren’t interested in facilitating their employees’ moves far away. Strong relationship building must be encouraged and valued through teamwork, collaboration and group performance, which can be difficult to reproduce if employees are far away and less physically present at the office. In the post-pandemic era, how will employees who moved far away from the workplace during the lockdown be managed?
- Competitiveness in the talent market
A salary decrease could be perceived as opportunistic on the part of employers trying to reduce their labour costs. However, with the current labour shortage, this type of practice could undermine an organization’s image, especially when a competitor could offer the ability to work remotely without a decrease in salary. With the growing popularity of teleworking, several organizations are thinking of formalizing and promoting their policy to expand their talent pool.
Furthermore, although the employer can’t significantly reduce salaries unilaterally, employees may want to discuss the topic to maintain the privilege to work remotely. An organization could take advantage of this opportunity to strengthen its employer brand by adopting a position of openness and flexibility in response to these requests.
Managing compensation based on the employee’s place of residence could be more complex than it seems.
First, employers must monitor relocations and analyze the cost of living of each region to which their employees have moved. A structure with multiple pay scales can become cumbersome to administer.
Then comes managing exceptions, such as employees with more than one residence (for example, one in the city and one in the country) or employees who live or move between two geographic regions with different pay scales (for example, an employee who lives between Toronto and Montreal, which both have different pay scales).
And finally, there’s the domino effect. For example, if 50 per cent of employees choose to work from home permanently, the employer will probably want to reorganize work spaces. Do they reduce space, transform to accommodate or promote shared space? Will employers want to allocate a certain amount to employees working remotely so they’re adequately equipped — for example, with furniture and IT equipment?
The move towards new forms of equity
- Internal equity
Reducing the salary of employees who make the personal choice to move to a region with a lower cost of living could create a perception of unfairness. Regardless of where they work, employees are doing the same work and their role and contribution still have the same value, so how can a salary decrease be justified? It’s important to remember that when employers determine a job’s compensation, they first evaluate this job relative to other jobs in this structure. This concept is known as internal equity.
- Local/regional/national equity
In light of new telework possibilities becoming open to everybody, it wouldn’t be surprising to see two equivalent jobs in two different regions with the same compensation potential in the coming years. The possibility of working from any region in the country could lead to national equity. In the short term, it would be surprising to see a significant change in international equity due to tax, cultural and administrative reasons. However, in the medium and long term, especially for professional and management positions, we could see differences in labour costs decrease or even disappear between different Canadian provinces and cities.
- Societal equity
The pandemic has also highlighted what’s called societal equity, which is the value of jobs in our society. During the crisis, the value of certain jobs changed considerably, whether they’re essential services (health, supply chain, food industry, etc.) or in fields that currently allow us to keep up morale and persevere in this situation. In the near future, the relative value of these jobs — which, until recently, was limited to a specific and impregnable reference market — could be tinged by their importance in a broader context.
- Customized equity
In recent years, a new form of equity seems to be emerging: customized equity. Employees have different expectations and needs. They appreciate flexibility and value options that can be adapted to their individual reality. This could be referred to as à la carte compensation, which is not a new concept.
The telework option must be looked at through this lens. While some employees swear by telework, others dream of the day they’ll return to the office or they believe alternating between these two options will be their ideal option. Organizations can’t ignore this diversification of needs or this expectation of customized equity. Therefore, it will increasingly become less possible for employers to have a uniform (and effective) compensation offering.
The return of pre-pandemic issues
Salary adaptation based on place of residence is currently a popular discussion topic among experts in the field. It’s so popular that the issues that existed before the pandemic — and which are already re-emerging — have been forgotten. Labour shortages and the war for talent will be even more important initiatives in the post-pandemic economy. Employers will also have to create solutions to maintain employees’ feelings of belonging, while physically and socially distancing every day. The employee experience should see a return to sharing moments other than virtually, meeting clients in person, brainstorming with colleagues or having a drink to celebrate our successes.
When making their decisions, organizations must consider the current situation as temporary and avoid focusing on solutions that are difficult to reverse. Adapting salaries based on the place of residence isn’t necessarily the best decision for all organizations. Other solutions could be considered to increase the flexibility of the total rewards offering. For example, allowing employees to work remotely at a certain time of year or allow them to work remotely permanently while adjusting other components of direct compensation, such as the bonus.
One constant remains: organizations can benefit from showing flexibility. These decisions must be consistent with the organization’s culture, their operational needs and their long-term vision.
Étienne Boucher is compensation practice leader and partner at Normandin Beaudry, and Clara Pochard is compensation associate consultant at Normandin Beaudry.