Organizations appear to be simplifying pay philosophy and policies surrounding geographic pay, according to a new study published by WorldatWork. The survey, “Geographic Pay Policies,” reveals that organizations are increasingly considering single pay structures, as well as consolidating or eliminating pay differentials.
“Geographic pay policies have existed for many years but in the past were more about an organization’s multiple physical work locations rather than where the work was being performed, including employees’ homes like with remote work,” said Alicia Scott-Wears, WorldatWork Director Total Rewards Content. “With the increase in remote work over the past two years, these philosophies and policies have required more attention and communication.”
Flexibility to work remotely, at least on a hybrid or part-time basis, is of importance to employees. Survey respondents indicated they would seek new employment opportunities if working in-person full-time were to be required again.
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Sample Findings:
- 28% of organizations plan to modify their policies through consolidation of pay differentials, while 13% are considering eliminating differentials by geographic area. There was a six-percentage point increase from 2021 for organizations using a single pay structure where pay is not differentiated by geographic areas.
- 45% of organizations apply pay differentials as a premium or discount to either a baseline/single pay structure or individual pay, and 24% create separate base pay structures for each/different geographic location
- For in-office or hybrid employees the geographic pay locations are most often determined by their nearest work location (45%) or reporting location (31%), while over half of full-time remote workers are tied to location of residence
- 56% of organizations use city/metro area to base geographic pay differentials, and labor cost is overwhelmingly a greater influence than cost of living for determining pay policy approach
- Only 7% of organizations report geographic pay policies as ineffective for reducing turnover.
- Of the 57% of organizations with existing U.S. geographic pay policies in place, 55% of those are considering modifying or recently modified their policies with the increase of full-time remote work. Those that have modified in the past 12 months have nearly doubled since 2021.
- Just as many organizations are expanding as are consolidating the pay differential application in relation to their geographic pay philosophy and 29% of those changes would impact employee pay immediately upon policy rollout.
- These changes and/or considerations are pertinent as 73% of employees expect their pay to differ based on a geographic location
- While employers often feel their communication of the geographic pay policies and procedures to employees is primarily transparent, employees appear to be receiving the transparency they need with 85% reporting their organization is moderately to extremely transparent
- A continued increase in remote work options is likely driving employees to initiate relocation.
- Of the 56% of organizations with moderate to extreme flexibility for allowing full-time remote workers to voluntarily relocate, 70% of the requests, on average, are prompted by the employee while only 30% are on behalf of the business
- As employers are increasing their knowledge and/or adding resources to their team to assist with workforce relocations, more organizations are beginning to allow full-time remote employees to relocate where a geographic or legal entity is not already established
- Almost seven in 10 employees say that a pay adjustment would be very or extremely influential in their decision to voluntarily relocate, a 19-percentage point increase from 2021
- Remote work flexibility is valuable enough for 38% of employees to consider looking for new work if discontinued. This has increased 17-percentage points since the COVID-19 Employer Plans and Employee Perceptions Study conducted in 2021.
- As organizations increase the ability for remote work, employees are expressing the value they place on this benefit by exercising their use of it, with 49% doing so full-time and 44% on a hybrid basis
- Of those organizations with a geographic pay policy and increased remote work capability, 71% of employees say that they have been impacted by the policy
- 91% of employees find the geographic pay policy influential on their desire to relocate
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