Should Your Pay Be Based on Where You Work?

Summary

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WSJ Your Money Briefing

Episode Title: Should Your Pay Be Based on Where You Work?
Date: July 7, 2021
Host: J.R. Whalen
Guests: Susan Schroeder (Compensation Advisory Partners), Peter Capelli (Wharton School)

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Episode Overview

This episode explores the increasingly prominent question facing employers and employees alike in the post-pandemic workplace: Should compensation be tied to where you work—whether in-office, hybrid, or fully remote? Host J.R. Whalen is joined by compensation expert Susan Schroeder and management professor Peter Capelli to dissect corporate debates, fairness considerations, market pressures, and future workplace challenges arising from location-based pay.

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Key Discussion Points & Insights

The Prevalence of the Work Location Pay Dilemma

[02:55]

• Susan Schroeder: Reports that nearly all corporate clients are actively discussing pay and location, struggling to identify what's "fair and reasonable" in the new landscape of remote and hybrid work.
  • Quote: "All of our clients are talking about it. All my friends are talking about it. It’s a huge topic."

How Companies Are Approaching Location-Based Pay

[03:15 – 05:06]

• Industry and Skill Set Drive Decisions: Tech jobs—especially in-demand roles—are unlikely to see pay discounts for remote work due to competitive market pressures.
  • Quote (Schroeder): "In some of these hot skills, especially in tech, I don’t think that there can be any discounts for remote working."
• Debate over Commuter/Remote Compensation: Bay Area firms question whether remote workers deserve parity with those enduring lengthy commutes, considering modest pay adjustments (e.g., -5% for remote).
  • Memorable moment (Schroeder): "The remote workers are getting their cake and eating it too on this whole commute thing."
• Complexity in Implementation: Companies experiment with permutations and algorithms but lack a clear consensus.

Historical Context & The Pandemic's Effect

[05:06 – 06:18]

• Peter Capelli: Prior to COVID-19, local labor markets justified some pay variation (e.g., admin support in NYC vs. upstate NY). For higher-level jobs, location-based pay often arose from employer-driven assignments, especially international ones.
  • With remote work as employee choice, "the arguments for having location-based pay just kind of fell apart."

[06:18 – 07:40]

• Tech Sector Leads Change: Some tech companies attempt pay cuts for those moving to cheaper areas. Capelli sees this as companies seeking to "grab something" back from workers who gain geographic autonomy.
  • Quote (Capelli): "If they simply said, we're going to tax you for relocating, that would sound bad. So they do this: 'We’ll pay you based on where you live…'"
  • Highlights the potential absurdity: "If you decide to move to Aspen...Are they going to give you the same pay? But if you move to your family in Stockton, they’re going to cut your pay?"

Recruitment, Retention, and Risk of Location-Based Pay

[07:47 – 08:27]

• Drawbacks for Employers: Reduced compensation for remote workers can hinder remote recruitment and risk losing talent to more flexible employers.
  • Quote (Capelli): "If you move...and they tried to pay you 15% less, you might find pretty quickly that some other company will pay you to work remotely…"

Broader Implications & Fairness Concerns

[08:27 – 09:54]

• Susan Schroeder on Equity Risks: Cutting remote pay could intensify gender pay disparity, particularly since the pandemic has pushed more women out of the workforce.
  • Quote (Schroeder): "I think that this whole topic is a slippery slope that we don't want to get into with the gender, any gender pay issues."
• Emphasis on HR Responsibility: Managers and HR must calibrate and monitor fairness to avoid systemic inequities.

Organizational and Employee Challenges

[10:04 – 11:28]

• Capelli: Organizations with mixed remote and onsite teams face supervision, inclusion, and development challenges. Research suggests remote workers often lose out on advancement, perks, and visibility.
  • Quote (Capelli): "The results are, frankly, all bad for the remote workers...They get promoted faster, they get ahead more."
  • Predicts potential for remote roles to be converted to independent contractor status.

Leveling the Playing Field: Perks & Benefits

[11:28 – 13:30]

• Schroeder: Companies can use perks—such as wellness stipends and home office equipment—to support both office and remote workers.
  • Example: A $250/month wellness benefit for all employees, in-office or remote.
• Personalized Perks: Lumpsum, discretionary benefits (e.g., for financial planning or legal services) allow employees to tailor support to their needs.
  • Quote (Schroeder): "Some people use it for financial planning or to do the a trust…So I've seen it very broadly that way."

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Notable Quotes & Memorable Moments

• [02:55] Susan Schroeder:
  “All of our clients are talking about it. All my friends are talking about it. It’s a huge topic.”

• [03:15] Susan Schroeder:
  “In some of these hot skills, especially in tech, I don’t think that there can be any discounts for remote working. It’s just not going to fly.”

• [04:10] Susan Schroeder:
  “The remote workers are getting their cake and eating it too on this whole commute thing.”

• [06:45] Peter Capelli:
  “I think it's almost completely just an effort to grab something from the employees, to be honest...If they simply said, we're going to tax you for relocating, that would sound bad. So they do this: ‘We'll pay you based on where you live…’”

• [08:37] Susan Schroeder:
  “I think that this whole topic is a slippery slope that we don’t want to get into with the gender, any gender pay issues.”

• [10:12] Peter Capelli:
  “The results are, frankly, all bad for the remote workers…They get promoted faster, they get ahead more...If I'm a remote worker, I should be worried about this, [that] they'll turn my job into an independent contractor.”

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Important Timestamps

• [02:55] – How widespread is the debate about location-based pay?
• [03:15] – Approaches to pay in different industries; commuting adjustment debates.
• [05:06] – How did location-based pay work before the pandemic?
• [06:18] – Pandemic’s impact and tech sector’s lead on the issue.
• [07:47] – Recruitment/retention challenges from varied pay based on location.
• [08:27] – Risks of exacerbating gender pay gaps.
• [10:04] – Organizational and career risks for remote employees.
• [11:28] – Perks and benefits as a possible equalizer.

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Summary Takeaway

Location-based pay is a deeply complex and evolving issue as remote work normalizes. While the tech sector tests pay adjustments for remote versus in-office roles, experts caution about unintended fairness issues, competitive risks, and broader social impacts—especially regarding equity. Companies are experimenting with alternative benefits and personalized perks to address disparities, but the long-term landscape remains unsettled.

The central question—should pay reflect geography or merit?—remains unresolved, with fairness and competitiveness hanging in the balance.

Transcript

[A]

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[B]

Here's your money briefing for Wednesday, July 7th. I'm J.R. whalen for the Wall Street Journal. Over the past year, as companies have mapped out the reopening of their offices, they've been rethinking where people are going to work. Maybe a hybrid workplace where some employees split their time in office and at home and some workers remotely full time.

[C]

You know, I think it's a big, big challenge for an organization to try to have one set of employees who are remote and another set on location, on site.

[B]

And that has given rise to questions about compensation and whether where you work should have an effect on how much you're paid.

[D]

It's going to be incumbent upon managers and then the HR people to really oversee the fairness and the calibration of the pay at the end of the day.

[B]

Coming up, we'll speak with two experts on how companies are rethinking compensation in the post pandemic era. That's after the break.

[A]

This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now, and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.

[B]

Hybrid workplace has become one of the more popular phrases in the post pandemic lexicon. As companies plan the reopening of offices, many employees expect to work some combination of in office and remote days each week, while others may remain on a remote work schedule full time by choice. But should a worker's location affect their compensation? Today we have two experts with us who've given the topic a lot of thought. Susan Schroeder is a partner at the executive compensation consulting firm Compensation Advisory Partners. Susan, thank you for being with us. Thanks, JR And Peter Capelli is a professor of management at the University of Pennsylvania's Wharton School. Peter, thank you for taking the time to come on the show.

[C]

Thank you.

[B]

So, Susan, I want to start with you. Your consulting firm works with a lot of companies in major US Cities. You know, we've talked about how some companies are rethinking their position on work location. How widespread is this shift?

[D]

Oh, everyone's thinking about it. All of our clients are talking about it. All my friends are talking about it. It's a huge topic. And everyone's trying to figure out what is fair and reasonable in this new world of remote working.

[B]

And what are you hearing in terms of options that companies are considering giving employees regarding, you know, location?

[D]

Well, I think it all really depends. I think it really depends on the type of industry and the skill set of the employees. In some of these hot skills, especially in tech, I don't think that there can be any discounts for remote working. It's just not going to fly. There's too much demand for the talent. And so people will just not put up with that and then go to another employer. And really, pay should be based on merit. And for the same job you should be paid the same, given all else being equal, your background and experience and performance and such. For the same job you should be paid the same, not based on your location. But companies are really struggling with this. And our clients, some of them do think that there should be adjusting for remote working. And it's interesting, the people up in the Bay Area where everyone has to commute to come to the office. Cause no one can afford to live in San Francisco. They said, well, it's not really, really fair to have these remote workers be paid the same as the people that have to commute into the office. Because these people are commuting, you know, two hours every day. So they're thinking about adjusting the remote workers down by like 5% or something to account for the commute time. And it's, I thought that was sort of interesting because they're like, well, the remote workers are getting their cake and eating it too on this whole commute thing. And then we also have clients that are trying to figure out this by doing these crazy permutations and algorithms to try to calculate this. So I don't know that there's really a right answer at this point, unfortunately.

[B]

Now, Peter, before the pandemic, location based pay was fairly Common. What did companies take into account and how has the pandemic changed that equation?

[C]

I think there were two ways in which you saw location based pay. One was for labor markets that were really local. If you're hiring administrative assistants, you're hiring janitorial staff, those people don't travel all that much for those jobs. They don't move very far. For them, it's very much a local labor market. So they pay different in New York City than they would pay in upstate New York, for example. But the other and the one we're talking about more are for white collar jobs and management roles. And there, the reason we had location based pay is because the companies told you where you were going to go and you had to go. So, you know, it didn't seem fair, particularly for expats, if they were sending you to some foreign country that was very different and it was very expensive to live a more traditional American life there. Their view was, we shouldn't take it out on you because we're making you live there. But I think since we have moved toward a model where very few companies are moving people around anymore, the arguments for having location base pay just kind of fell apart.

[B]

How has the pandemic sort of changed that approach?

[C]

I think what happened was, particularly in the tech community, which is really the only place I hear they're taking this seriously, or seem to be, was the idea that after a couple of companies in areas that were quite expensive thought about cutting the pay of people who would move someplace else, then everybody jumped on and all the boards of directors thought it's really important for us to get something out of this. The employees are getting to live where they want. What do we get out of it? Right. And I think it's almost completely just an effort to grab something from the employees, to be honest. You know, the companies are saving money. When you work remotely, they're taking your office away almost always. Right. They're taking away all the office based perks that were associated with it. And you're not getting any of those things. And so I think really what they're doing is they're trying to find a way to grab some money back from you. And if they simply said, we're going to tax you for relocating, that would sound bad. So they do this. We'll pay you based on where you live, hoping that no one decides to move to a location that's just as expensive as Silicon Valley. Right. But it'd be amusing to see what happens if you did, if you decided to move to Aspen, for example, what are they going to do? Are they going to give you the same pay, but if you decide to move to your family in Stockton, they're going to cut your pay? I mean, it's just bizarre.

[B]

Okay, now if companies do decide to pay differently for office and remote, how does that affect their ability to recruit and retain members?

[C]

Well, it gets harder to recruit people remotely, you know, if you're living someplace else and they're going to pay you less than they would be paying the people at their headquarters, for example. That's kind of irritating. I think the other thing is that they would probably fine pretty quickly. I mean, some of the companies, the figure I heard, Susan, was about 15% is the discount they're expecting to get from people if you move, on average, if they tried to pay you 15% and you relocated, I think you might find pretty quickly that some other company will pay you to work remotely, something more than that, and then they'll just find that this just doesn't work and it'll just be kind of embarrassing for them.

[B]

So, Susan, some say location based pay could call into question how a company values employee performance. But are there more serious issues that a company could face if they go down that road?

[D]

Well, I think there's a number of things I agree with. What Peter just said is that some of these employees are just not going to tolerate the big discounts in pay. And the labor market is very tight now and we see that actually across all levels of positions. And so they'll just go to another employer. Right. But also I think that the topic that's been sweeping the country for the last several is this gender pay equity. And we've seen that this pandemic has really affected women more so than men, especially with when the school's closed and what to do with the childcare. And it's still a bit uncertain for the fall, you know, what's going to happen with schools and women have left the workforce and hopefully will be able to come back. But I think that this whole topic is a slippery slope that we don't want to get into with the gender, any gender pay issues. And so I think that it's going to be incumbent upon managers and then the HR people to really oversee the fairness and the calibration of the pay at the end of the day to make sure that women are not being treated unfairly if they choose the remote work.

[B]

Now, Peter, let's say a company's office workers and remote workers don't live in the same city. What kind of challenges does that pose to the company, but also what challenges does it pose to the worker?

[C]

You know, I think it's a big, big challenge for an organization to try to have one set of employees who are remote and another set who are on location, on site. And, you know, it's actually been studied fairly often in the telecommuting age, before the pandemic. So from late 1990s or so, we looked at this a lot in the research world, and the results are, frankly, all bad for the remote workers. You know, the people in the office know what's going on. They get better access to the leaders. You know, they maybe have more access to office perks, of course, and other sorts of things. And the evidence shows they get promoted faster, they get ahead more. And none of that's particularly surprising. But I think the other problem is if you are the manager on site and you're trying to supervise one group of employees who you see every day, and they're right there, and another group that you never see or rarely ever see, you know, they require really different things from you and arguably more focus time for the remote workers. Can the supervisors handle both of those at the same time? You know, my bet is probably not because we're not so great even at supervising our in office workers and to try to span to both, boy, this is going to be difficult. So it's a really hard stretch. And my bet is, and if I'm a remote worker, I should be worried about this, is they'll turn my job into an independent contractor.

[B]

And Susan Peter mentioned remote workers maybe not having access to perks and some other benefits and such in the workplace. So I want to look beyond salary for a moment. How could perks or benefits, you know, kind of even at the playing field,

[D]

we've seen that even with our own consulting firm where we have this wellness benefit, which is actually free money to the employees, it's a $250 month, and they can use that however they want for a gym membership, for their paying off their peloton bike for massage, for whatever, just to help with their overall wellness as they're working at home or even if they are in the office. And then we've also made sure that they have office equipment. Apparently the folks in New York City, even our partners, did not have desks or did not have offices in their, you know, in New York City. So everybody got office equipment. You know, the desks, the monitors, the. They already had laptops, but printers, because we have to print out all of our work and review it so all of that, we kind of call all of that perks that we've given. So and you know, I think a lot of other companies have done the same thing.

[B]

We've also heard about things called personalized perks for workers. What are those? And how could those even things out a bit between office and remote workers?

[D]

So the way that I interpret the personalized perks, and I think everybody would interpret it differently if it's personalized, but the way that we have approached it is to do kind of a lump sum payment. And we considered this 250amonth. But and I've seen some of my clients do the same thing where they have a set dollar amount and then people can use it as they like. Some people use it for financial planning or to do the a trust. That's been a big thing now with the pandemic is everybody wants to have a trust and, you know, you know, different legal, get their legal affairs in order, that kind of thing. So I, I've seen it very broadly that way.

[B]

All right, that's Susan Schroeder, partner with Compensation Advisory Partners, joining us. Susan, thanks for coming on the show.

[D]

Oh, thanks.

[B]

J.R. and Peter Capelli, professor of management at the University of Pennsylvania's Wharton School. Peter, thank you for being with us.

[C]

Thank you.

[B]

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

[A]

This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T dot com.