In the past few years we have seen many international employers come out with clear direction on how to manage pay for remote workers, while in the UK there seems to be a nervousness around changing the status quo. In some ways this comparison is easy to explain but there are factors at play which arguably make the UK situation more complex for employers.

Geography plays a big part

Geography dictates that the UK’s relatively skilled, mobile workforce can easily commute or relocate between regions and cities. This dynamic creates opportunity, but it also muddies the waters when it comes to regional pay strategy.

It is fair to say that pay policy for remote working has been applied in some foreign countries in a more straightforward way, and with greater success, and geography is usually the main driver. In the US, for example, the federal model creates natural regional boundaries for pay to be drawn and enforced more easily. We have also seen an American client of ours use ‘anchor points’ in metropolitan areas to pay differently depending on whether employees live in the city centre or on the fringes of the metropolitan area. Some of these states are the size of the UK, while metropolitan areas can house 19 million people.

Australia, meanwhile, is a massive country where the working population is divided between a few small pockets, typically separated by great distance. Not surprisingly, they have also benefited from greater clarity around remote working and relocation because geography dictates that someone cannot live in Perth for three days a week and in Sydney for two and claim the higher salary grade. Both countries’ geography also make relocation more demanding. Whereas a truck driver is unlikely to relocate the 1,547 miles from Dallas to New York for better pay, the temptation is far greater to relocate the 195 miles from Leeds to the M4 corridor, which again creates changes in cost of living. It is undeniable that the UK’s relatively small geography and densely populated demography creates complexity.

The weight of history

The pandemic made working from home far more common, which has led to comparisons being drawn with sectors such as health care and education where the UK has been applying regional pay successfully for some time. It is also fair to point out, however, that these sectors have been affected historically by the role and prevalence of trade unions. Their collective bargaining power has meant that big pay decisions affecting many people have been made on a national or industry-wide level, not a regional level, which is also making it more difficult to pivot to a regional pay mindset now.

Equity and Fairness

Regional pay can be equitable if done correctly but, without clear rationale and policy, it can also create disparity between employees in different regions who are doing the same thing. For example, if a national charity has the same managerial role in two different regions, but one store has a much higher target or is overseeing a larger share of sales and revenue, the two roles are arguably fundamentally different in terms of responsibility and value to the business, and so could carry different pay grades. Customised regional pay like this is possible in the UK. When done well, invariably it relies on a company having a strong grasp of its regional markets and analysing its data well enough to build a strong understanding of relative regional value.

Communicating and qualifying criteria

Most of the pay problems that have arisen in the UK during or since the pandemic have been down to a lack of clarity in policy or communication. Typically, during Covid we saw people move out of London and keep their London allowances. It was a fluid period where HR teams were under a lot of pressure, and it wasn’t always easy to maintain transparency and communication. As a result, difficulties have arisen where companies have looked to correct salaries by taking London allowances away from employees who were not made aware of this possibility at the time.

Communicating these ‘qualifying criteria’ for regional pay was often impossible because the criteria or policy simply did not exist. When a conversation is around an employee being based in one location for three days and another for two – made possible by the UK’s relatively small geography - things can quickly get complicated. Again, this is more likely to be clear in America, where a more litigious culture has arguably paved the way for better policy making, heightened communication and a greater emphasis on employment law and regulatory compliance around pay.

UK’s Regional Pay Paradox

Both ‘flexible working’ and ‘hybrid working’ have been offered by many UK companies over the past couple of years, but only now are they really starting to nail down what each means to them, and how they can tackle the UK’s Regional Pay Paradox: in the UK it is relatively easy for workers to relocate and work remotely, but as a result it is complex for employers to settle collectively on the best way to make this work. There are two probable and contrasting answers: government intervention and legislation on the one hand, or a continued effort by business leaders and HR to apply ad hoc discretion while attempting to broker cross-sector consensus and bridge multiple divides. It is not an easy nut to crack.  
 

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