Should Remote Workers Be Paid Based on Their Location?

Summary

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Podcast Summary: “Should Remote Workers Be Paid Based on Their Location?”

WSJ Your Money Briefing – September 14, 2021
Host: J.R. Whalen
Guest: Katie Binley, Wall Street Journal Reporter

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Episode Overview

This episode tackles the evolving debate around remote work compensation: Should employees who move away from high-cost cities and work remotely be paid less than their counterparts in expensive urban centers? WSJ reporter Katie Binley joins host J.R. Whalen to explore how employers are revisiting pay policies as remote work becomes a permanent fixture and how workers are responding to these changes.

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Key Discussion Points & Insights

1. Traditional Role of Geography in Compensation

• Background: Companies have long used geographic pay bands to set salaries based on local cost of labor—higher in cities like New York or San Francisco and lower elsewhere.
  • Quote: “Geography has played a pretty big role in employee compensation...if you lived in New York or San Francisco, where the cost of labor is higher then you would have people making more money. And then if they lived in areas where the cost of labor is lower, then they would be making a bit less.” —Katie Binley [02:19]
• Pandemic Shift: Remote work has ignited questions about whether location should continue to have such a significant impact on pay.

2. Worker Productivity and Expenses

• Employee Perspective: Many remote workers believe productivity has increased, with workdays stretching due to blurred home/office boundaries. Some miss out on previous in-office perks and shoulder new expenses instead.
  • Quote: “I am equally productive at home, and in some cases, I’m actually doing more work than I did when I was in the office. So then how does it make sense to reduce my pay if my output has actually increased during the pandemic?” —Worker via Katie Binley [03:17]
  • Quote: “One woman I chatted with said...she used to get her dry cleaning done at the Facebook office and eat a lot of free food there...Now she’s not using those benefits anymore...So again, why does it then make sense for me to make less?” —Katie Binley [04:09]

3. How Companies Are Adjusting Compensation

• Location-Driven Adjustments: Most pay adjustments for remote work are still primarily based on the employee’s location.
  • Hypothetical deductions range from 8% for moving to “lower cost” cities like LA, to potentially higher cuts for more rural areas.
• Examples:
  • D.C. to rural Illinois: 9.5% reduction (but significant cost savings on housing for the worker)
  • San Francisco to Austin: 10% reduction, with only a marginal cost-of-living improvement for the employee
  • Quote: “Her [the worker’s] cut was 9.5%...she was able to buy a four bedroom house for $120,000, which would be a lot harder to do in Washington D.C.” —Katie Binley [05:25]
  • Quote: “San Francisco to Austin, 10%...So there’s a range...I don’t think we yet have a ton of clarity about what exactly the cuts look like because they are different with each company.” —Katie Binley [06:12]

4. Competition for Workers and Talent Retention

• Companies must balance cost savings with risk of losing employees.
• Some firms have made pay location-neutral to bolster recruitment and retention:
  • Okta initially reduced pay for remote moves but reversed the policy, opting for standardized national salaries as a talent retention move.
  • Quote: “They publicized the fact that they were not going to be adjusting pay for people who were relocating...as a way to retain and attract talent.” —Katie Binley [07:32]

5. Relocation Bonuses and Worker Strategies

• Some companies offered one-time bonuses (e.g., $20,000) for employees moving out of expensive cities, combined with a salary adjustment.
• Workers increasingly realize the one-off bonus doesn't offset ongoing lower salaries. In competitive housing markets, cost savings for some are limited.
  • Quote: “You get that check once, but every year your pay is lower than it would have been if you stayed in San Francisco.” —Katie Binley [08:32]
  • Some are seeking promotions or raises to counteract looming pay cuts.

6. The Big Picture: Long-term Implications

• Short-Term Trends: Surging demand for talent (especially knowledge workers) is putting upwards pressure on wages, even for those outside high-cost cities.
• Long-Term Speculation: As remote hiring becomes normalized, there may eventually be downward pressure on salaries—especially if companies shift more hiring to lower-cost locations.
  • Quote: “If you are a company based in San Francisco and you can hire a talented engineer who lives in a city where the cost of labor is lower, then why would you keep paying people really high salaries to be here?” —Comment from an interviewee via Katie Binley [10:30]

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Notable Quotes & Memorable Moments

• On Why Pay Adjustments Seem Unfair to Some:
  “I am equally productive at home...so then how does it make sense to reduce my pay if my output has actually increased during the pandemic?” —Worker via Katie Binley [03:17]
• On Company Strategy:
  “They [Okta] view it as a way to retain and attract talent.” —Katie Binley [07:38]
• On The Future of Pay:
  “There’s so much demand for talent...we’re seeing upward pressure on wages...but...eventually there will be downward pressure.” —Katie Binley [09:52]

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Key Timestamps

• 02:12 – Traditional geographic pay bands explained
• 03:05 – Increase in remote work output and “bleed” into longer hours
• 04:33 – Location-driven pay adjustments; examples from workers
• 06:47 – Competition for talent; companies publicizing location-neutral pay
• 08:04 – Relocation bonuses and worker strategies to offset pay cuts
• 09:45 – Long-term implications for remote work pay

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Overall Tone

The conversation is balanced, pragmatic, and rooted in real worker and employer experiences. Katie Binley provides anecdotal examples but maintains a journalistic neutrality, emphasizing the complexity and evolving nature of the topic.

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This summary captures all main points and memorable moments from the episode, making it a comprehensive resource for listeners and non-listeners alike.

Transcript

[Katie Binley]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] Washingtonwise.

[J.R. Whalen]

Here's your money briefing for Tuesday, September 14th. I'm J.R. whalen for the Wall Street Journal. We've talked on the show before about how, despite the extra work hours, many employees have settled into working from home during the pand and giving second thoughts about eventually returning to the office. But some employers feel that staff members working remotely, especially from cities with a lower cost of living, shouldn't get paid as much.

[Katie Binley]

The case that some of the workers have made is just that I am equally productive at home, and in some cases I'm actually doing more work than I did when I was in the office. So then how does it make sense to reduce my pay if my output has actually increased during the pandemic?

[J.R. Whalen]

Our reporter Katie Binley has been talking with employers who see employees who've relocated as an opportunity to save on labor costs and employees who are pushing back. We'll talk with her about it after the break.

[Katie Binley]

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[J.R. Whalen]

We often hear about the case for equal pay for equal work. But should people working in a remote location be paid any differently than those working closer to the office or who have returned to the office? Some employers say yes, and that doesn't sit well with some remote workers. WSJ reporter Katie Binley has been checking in with companies and workers on both sides of the argument, and she's here to talk about it. Katie, thanks for coming on the show.

[Katie Binley]

Thank you for having me.

[J.R. Whalen]

So Katie, how have companies traditionally thought about location in determining an employee's pay, and how has that changed more recently?

[Katie Binley]

Geography has played a pretty big role in employee compensation. You know, you would have geographic pay bands in many cases where if you lived in New York or San Francisco, where the cost of labor is higher than you would have people making more money. And then if they lived in areas where the cost of labor is lower, then they would be making a bit less. What's now kind of changed is that tons of knowledge workers are now remote. And so geography is now being questioned. As, you know, people are kind of just asking themselves, like, hey, is this still how it should be that where I live is playing such a large role in how much I make, and perhaps it shouldn't have as much influence as it did previously.

[J.R. Whalen]

You know, one thing to come out of this pandemic is how employees work output has ramped up dramatically. You know, people spending endless hours online and on zoom calls.

[Katie Binley]

Yeah, and that's something I've heard from, you know, workers that I've chatted with who have, you know, been working remotely and who have moved. I mean, from their perspective, you know, they're like, in some cases, I'm working more hours than I did when I was in the office. Work is bleeding into, you know, many more aspects of their day than it used to. One guy gave an example of he used to commute, and now people know he's not commuting, so they'll put meetings on his calendar for 8am and that didn't used to happen. So the workday has been extended, certainly for many people, in both directions, you know, early mornings, late nights. And the case that some of the workers have made is just that I am equally productive at home, and in some cases, I'm actually doing more work than I did when I was in the office. So then how does it make sense to reduce my pay if my output has actually increased during the pandemic? On top of that, some people have talked about, you know, their individual expenses working from home versus what they used to get for from, you know, campus perks. So one woman I chatted with said, you know, she used to get her dry cleaning done at the Facebook office and eat, you know, a lot of free food there, and now she's not using those benefits anymore. So her thought is, I'm saving the company money by working from home and by not using those perks anymore. So again, why does it then make sense for me to make less?

[J.R. Whalen]

Now, you've been following the rollout of these compensation policies and those under consideration as well. Are companies making blanket pay adjustments for remote work or considering adjustments, or does it depend on an employee's exact location?

[Katie Binley]

I mean, from what I've heard, it seems to be largely driven by the location. So they might do them in bands where like if you're moving to these handful of cities, you can expect, you know, I'm just throwing out numbers that, not that companies have specifically used these ones, but just as like a hypothetical, it might be, you know, if you're moving to LA or somewhere else with a similar cost of labor, you'll get maybe an 8% reduction or something. If you're moving to maybe like a Raleigh, maybe it would be a slightly larger reduction. So, you know, the cost of labor in those markets still is influencing it. One thing I have tended to hear from people is that some of the companies that are based in New York and San Francisco who are now recruiting from like areas with lower cost of living and lower cost of labor, what I've heard is that they're, I've heard this from like CEOs based in those cities that the coastal companies are offering sort of somewhere in between the local market rate and a coastal salary. So they're able to poach employees this way by this sort of sweet spot of we'll pay you more than what a local company would, less than what you would make if you lived in San Francisco. So in some cases the cuts, they're not necessarily huge. Like one woman I interviewed for the story, she moved from Washington D.C. to rural Illinois, a very small town with like a lot of farmland. And her cut was 9.5%, which some people would consider as a pretty good deal. She was able to buy a four bedroom house for $120,000, which be a lot harder to do in Washington D.C. and then another guy I interviewed who works for a different tech company, he moved from San Francisco to Aust Austin and his cut was 10%. So it's kind of interesting, you know, San Francisco to Austin, 10%, D.C. to rural Illinois, 9.5%. They took almost the same cut. So there's a range. I've heard of other people where cuts are less, other people where cuts are more. And so I don't think we yet have a ton of clarity about, you know, what exactly, you know, the cuts look like because I do think they are different with each company.

[J.R. Whalen]

Yeah, you mentioned companies poaching employees and we've talked on the show before about how there were a record number of job openings for, and competition for workers growing. And so have companies considered that docking someone's pay based on where they live could put the company at a disadvantage?

[Katie Binley]

Absolutely. I think this is a huge question for companies is how do we sort of toe this line of, you know, not paying everyone, San Francisco and New York salaries While still hanging on to our top talent and kind of giving them the flexibility that employees clearly want these days. I did a story several months ago about a handful of companies that were really just trying to make like turn this into a competitive advantage. So they publicized the fact that they were not going to be adjusting pay for people who were relocating and that they were going to go with sort of these nationalized salary rates. And more companies have started doing that since I reported that story. So Okta is this cloud software company. They originally were adjusting pay for people who were relocating and then in April they actually reversed that policy and now they're no longer doing that. And they, they're. The company explained that they view it as a way to retain and attract talent.

[J.R. Whalen]

Now we've heard about some companies that have offered relocation bonuses for employees who wanted to move out of expensive cities and work remotely. Why would they be doing that?

[Katie Binley]

A couple companies did. They were, you know, they might have offered like, I think there were some companies that did like $20,000 one time bonuses and then you. But your salary would be reduced. So early in the pandemic, people were grateful for flexibility. It was like, wow, my company is going to let me go do my job. From the town I grew up, I can be near my family again. Like, I don't have to live in San Francisco anymore. So I feel like early in the pandemic there was this sort of feeling of, you know, just being grateful that for the flexibility and thinking, all right, like I'll get the one time bonus and then, you know, my pay will be reduced. But when, when you think about a one time bonus, you got to remember that you get that check once, but your pay is now, you know, like every year your pay is lower than it would have been if you stayed in San Francisco. The guy I mentioned earlier who moved from San Francisco to Austin, he's like, I'm not actually saving that much money living in Austin. He put three offers in on three different houses that were 20% over ask and he didn't get any of the houses. Like it's an extremely competitive market. He doesn't feel like it's that much cheaper to go out to dinner, do any number of other things. In Austin he's gotten more space for his money, but this hasn't been this huge cost saving move. So for him he's going to, he's planning to try to get a raise before his pay cut takes effect to offset it. So I think you're going to see more of that, of this Sort of, all right, if I'm going to take the pay cut, I need to get promoted before that happens. And kind of employees trying to come up with sort of clever ways to avoid these cuts.

[J.R. Whalen]

Now, if we assume for a moment that we'll eventually return to some sense of normalcy where a majority of people are in the office and some are working remotely, you know, how it was pre pandemic, what would be the long term effect of these pay cuts on remote work?

[Katie Binley]

It's difficult to say right now, but there are like a couple of, I don't know, I've heard people sort of speculate about which way things could go, you know, for now, because there's so much demand for talent and for knowledge workers specifically, we're seeing upward pressure on wages. So as I mentioned in those examples earlier, you know, people who are living outside of, you know, San Francisco and New York are starting to be able to make a little more money by virtue of being able to work for, for these well funded companies that can pay them a bit more than the local companies can. So you're seeing upward pressure in that sense, longer term. I have heard people speculate that eventually there will be downward pressure because one guy I chatted with for a story a couple months ago made the case that if you are a company based in San Francisco and you can hire a talented engineer who, you know, lives in a city where the cost of labor is lower, then why would you keep paying people really high salaries to be here? So his thought was kind of we might eventually just see things settling somewhere a little, you know, a little down from where they are now.

[J.R. Whalen]

All right, that's Wall Street Journal reporter Katie Binley with us. Katie, thanks for coming on our show.

[Katie Binley]

Thanks for having me.

[J.R. Whalen]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Katie Binley]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise.