As companies like Twitter, Facebook, and Stripe announced plans to allow large segments of their employees to work remotely, people imagined how far their San Francisco salaries would go in more affordable locales.
Then reality set in.
Facebook CEO Mark Zuckerberg announced that employees’ salaries would be adjusted based on their new locations. This is important for tax and accounting purposes, but cost-of-living is almost always considered in employee compensation packages.
If you’re a company that is allowing employees to work remotely full-time, how should you approach salary adjustments?
Calculating Salary Adjustments For Remote Workers
You may believe in paying employees based purely on the value that they deliver, but there are a few issues with this approach.
- Outside of sales roles, it may be difficult to create a perfect equation to measure the value of each job role.
- Ignoring external factors like cost-of-living and market rates for job roles could create a competitive disadvantage for your company.
You could write a Ph.D. thesis on all of the components of a compensation plan for a distributed workforce. For the purposes of this post, we’ll focus on some general rules of thumb.
The first step is to determine the market rates for each job role based on the city where your company is located. From there, you can apply a multiplier to the salary based on where an employee lives and that respective city’s cost of living compared to where your company HQ is based.
Market rates for job roles can vary. One way to approach this is by taking the range and using the middle of the range as the 50th percentile. Salary.com has some useful tools to use as benchmarks. Then you can create upper- and lower-tier salary bands to allow for flexibility based on an employee’s unique skill set, experience, etc.
Two companies that are transparent about how they handle compensation for remote employees are Buffer and Gitlab.
Buffer, a social media software used by individuals and businesses, publishes the salary of every employee and has a tool that anyone can use to figure out their approximate salary for a specific role. For instance, a VP of Marketing at Buffer earns $142,500 per year if they live in a city with a low cost of living.
Another all-remote company, Gitlab is a DevOps platform with a complex compensation calculator that takes into account stock options, location, bonuses, and more.
We’re not suggesting that you publish the details of your compensation plan, but the important thing is to be transparent with your employees. How you arrive at their salary adjustments should not be a black box.
Also, give your employees prior notice that you’re working on a compensation plan that takes into account their location. This will ensure that they aren’t blindsided, and it will instill some trust that you are being thoughtful about your approach.
If you have questions about market rates and employee compensation, please feel free to reach out to us at firstname.lastname@example.org.