Compensation Conundrum

With many employees expecting and indeed demanding more flexibility to choose their location of work, employers are faced with not only decisions about compliance and duty of care, but also about determining compensation - both initial and ongoing for that employee.

In the Benivo Live Show ‘The View from the Top’ this week, Cherie Curry, Director Global Equity at Hilton together with Joe Pancamo and Matthew Pascual (both from BDO) discussed Remote Working and ‘The Compensation Conundrum’ with Brian Friedman. For those that were unable to attend I have summarised the key points of the discussion below, alternatively a recording can be found HERE.

Discussing employees who are not working in a company location covers a variety of scenarios including, amongst others, those working partially or completely from home and those working remotely from within the country or internationally. In addition to the location, the working environment may have been at the request of the employee or the company. The group agreed that the complexity of the conundrum came in part from the number of variations that could impact the compensation model put into place.

While it is clear that many employees are looking for flexibility of location for personal and financial reasons, Matthew Pascual provided a great 5 word summary of key themes that he has observed leaders to be considering. I have listed these below and then used these to further summarize the wider themes and topics:

1. Cohesiveness: The business culture should be reflected in the approach adopted. It has been well publicised that many prominent investment banks want to promote an in-office culture believing this best supports their internal talent development.
2. Consistency: Any approach should be nationally and globally consistent to support mobility and growth strategies.
3. Fairness: Where there is an employee vs company requested arrangement, any compensation level agreed should equitably reflect this to support incentivisation of movement for business strategic purposes.
4. Transparency: Where a working location or pattern creates additional costs e.g. state and city taxes or increased commuting costs, the responsibility for these costs or additional administrative tasks should be clearly communicated to the employees and consistently applied.
5. Attractiveness: In a world where there is a scarcity of skilled talent, any compensation structure should attract the right global talent whilst remaining flexible enough to retain existing talent.

When considering compensation there are four main approaches that could be used:

National pay structure: Use the role in the company and the country or region to set base pay levels.
Pros: This approach may already have precedent in many companies as it has historically been applied to senior executives.
Cons: Expanding this approach to all grades could lead to a significant cost to calibrate existing employees to a national pay level.

Location based: Traditional approach using a ‘market rate’ for the local physical location of the employee.
Pros: Existing expectation of many employees for location to determine compensation
Cons: Multiple variables and new (non office) locations may result in significant complexity to design compensation structures and banding and be costly to a company to manage on an ongoing basis

COLA adjustment: Tie compensation to an existing office location where role is ‘based’ and then apply COLA for physical employee location
Pros: Existing expectation of many employees for ‘role’ location to determine compensation and existing pay structure already in place for company office locations
Cons: Employees who have physically moved to lower cost locations may object to any ‘negative COLA’ adjustment. In addition, significant, regularly updated COLA data would be required to implement this approach. Incentivising talent and reflecting individual circumstances may also make this complex and unpopular as a standard approach.

Remote geography differentiator: Using compensation adjustment to incentivise all employees for the behaviour that best suits the company e.g. cash or non cash incentives to work from office or conversely cash or non cash incentives to work remotely.
Pros: No impact on base compensation. Flexibility to change incentives to promote company preferred behavior.
Cons: Optional and applicable to all employees. Could be costly or lack the flexibility to be impactful enough to incentivise all appropriate talent.

It is clear from the discussion that there is no ‘One Size Fits All’ solution and companies will have to decide how they balance attracting and retaining the right people with investing in and attracting future talent. As it is likely that competitors for talent will choose different approaches, ensuring there is room for flexibility built in will be essential.

With the ability to support all approaches and market leading data analytics, Benivo is able to both deliver an enhanced employee experience and also to combine mobility with other HR data to evaluate if the chosen approach is supporting the business goals. Please contact our team for a session to explore how Benivo solutions can work for you.