Working from home, and the long-term impact on Pay and Reward

Right now, 10 weeks on from the start of lockdown, We’ve all read a gizillian blogs about working from home and how to do it well, and we have adapted quickly. So much so that many people will probably never want to go back to working in an office, and as law firm Slater and Gordon announced this past weekend, many organisations will use the opportunity to take up break clauses in rent agreements to shed expensive inner city offices and look for a more flexible model of working.

And whilst the obvious health and safety, GDPR and wellbeing aspects have been considered as part of the transition, what hasn’t yet really been discussed is the longer term impact on Pay and Reward. The traditional model has been that when recruiting and paying for staff to work in a city office location, consideration in setting pay has focused on the talent pool that you are fishing in and locality of employers who you are competing against to recruit and retain the best.

Where pay structures are in place, this might mean that pay ranges reflect the London market for example for office based staff but adifferent model is often used when deciding on the appropriate level to pay staff based in a different location and where home is  their office. Many organisations might align homeworkers to a regional office and adapt pay levels in line with this, or simply differentiate by comparing salaries to a local or national market where there is a differential in cost of living.

This means that typically those who work from home would earn less than those whose work location is city based where pay levels are generally higher. And to some extent, that feels right –if you work from home, you aren’t paying for commuting costs (which can add up to thousands of pounds when you take train / parking / mileage etc into account). You also aren’t paying for your lunch or daily coffee, and are likely to be reimbursed for your home equipment and broadband costs. These cost savings somewhat balance out by being paid at a reduced level compared to those who do bear these costs by working from an office. The benefit of flexible working has a price tag that is loosely quantifiable and for many, worth the cost of earning less than peers. 

However, where as in the past this felt somewhat fair, if the model is to now have the majority of staff working from home, there is a real risk that your organisation will be applying unjustifiable and unfair pay differentials between those who previously worked in town or office but who now work at home. In the past, where employees have made the change from central office location to home based, they may have found their salaries frozen/ red circled or adjusted to ensure that they don’t continue to benefit when they are no longer office based. 

This is exactly the approach that Facebook are proposing – reports this week suggest that Covid19 has prompted them to embrace home working which they will now promote aggressively, enabling significantly more employees to work from home. The consequence however for those employees who choose to live in less expensive areas of the country is that they could end up seeing their pay adjusted, as their CEO Mark Zuckerberg suggested that they will continue to apply their principle of paying location based market rates.

And whilst we have a looming recession that may mean many people will have their salaries frozen in the short term, a strategic review of setting pay levels is required – do you really need to be paying at the same levels previously if the market you compete in is now different? How wide is the differential between office based and those who previously worked from home and can you objectively justify it going forwards? What should your future pay stance be if staff are based in various parts of the country and have different costs of living? How complex do you want to make your pay frameworks?

Many of our clients typically shy away from significant levels of regionalisation in pay as it is not an easy thing to get right and can become a day job in its own right to manage. The data can vary wildly or highlight insignificant differences between locations. Even in one city the cost of living can vary enormously. The right approach will vary by organisation and will also need to take into account the total reward deal on offer. This in itself may now require a fundamental rethink – the reward package you previously had may have included things like subsided canteens, local discounts or gym memberships that may no longer be as valued if employees are no longer likely to commute. You may need to take a step back and review your total reward package from a new lens – one where employees are no longer all in the same place and now value different things. For some, Working from home will feel like a negative option, they may feel lonely and isolated or actually enjoy their commute as ‘me time’, and will feel they are now losing out.

One beneficial consequence of having more opportunity to be based at home is that the talent pool you are fishing in is potentially much larger. Many organisations for example struggle to recruit talent when they are based in regional locations compared to cities or if they haven’t previously been open to flexible working – however if your teams can be based anywhere, you open up a whole new talent pool with wider skills sets and diversity. This especially applies to working parents or those with disabilities that previously wouldn’t have applied or maybe would have left due to lifestyle choices. This does form an important part of the employee deal, and whilst it may no longer be a prized USP (as many other companies will be offering the same), it is an important consideration none the less.

So whilst you may have many plates spinning at the moment, please don’t take your eye of the reward plate, because reframing your deal will be a necessary consequence of new ways of working. If you'd like support with this, or any other aspect of pay and reward, please do email me at justine.woolf@innecto.com, or call +44 (0)20 3457 0894.