Remote compensation divide: Location-indexed salaries vs equal pay for equal roles
Thanks to technological advancements, and the wake of the pandemic, remote work is becoming an increasingly popular option for employees. Telecommuting, or working from home, can save employees time and money on transportation, childcare, and other work-related costs. Remote work is also proven to improve worker productivity by providing a flexible work schedule and a distraction-free environment.
One of the most interesting topics around remote work is its compensation possibilities. Unlike working in an office, there's a major division in how remote employees are compensated.
CTOs are divided about remote salary strategies. Companies use either of the two approaches; location-indexed salaries and equal salaries for similar roles.
There's a huge debate going on around the different compensation strategies in remote work. But we'll keep the debates for another day and briefly look at what these two compensation options offer and what differentiates them.
This remote salary strategy is based on the remote worker's location. This means that remote employees in expensive cities like New York or San Francisco would receive a higher salary than those in cheaper locations. The logic behind this is that remote workers in more expensive areas have a higher cost of living and, therefore, need a higher salary to maintain their standard of living.
On the other hand, remote employees in cheaper locations would receive a lower salary because their cost of living is lower. This system ensures that remote workers are compensated fairly based on their location and cost of living.
Some companies utilize this approach to make the most out of their compensation budget. With this strategy, companies can recruit top talents from around the world (primarily from cheaper countries), making Location-indexed salaries a great approach for reaping the most benefits at a low compensation cost.
Likewise, remote workers can earn and save more by utilizing salary arbitrage, a way of strategically working remotely for companies around the world while you live in an inexpensive country.
Pros of location-indexed salaries are:
- Maximizing compensation costs
- Offering market-rate compensation
Cons of location-indexed salaries are:
- Losing talents to the competition
- Breeding a toxic working environment
Read the in-depth article on location-indexed salaries here.
Equal salary for similar job roles
This remote salary strategy is based on the remote worker's role, skills, and experience. This means that remote employees in different locations would receive the same salary if they have the same job title, skill set, and experience.
The logic behind this is that remote employees with the same skills and experience should be compensated equally, regardless of their location. This strategy ultimately aims to be fairer.
Some companies use this approach to attract top talents from around the world, including highly skilled individuals from the most expensive cities. Location-indexed salaries, on the other hand, function the exact opposite.
Pros of Equal Salary to Equal Roles:
- Equality and Fairness
- Helps to hire/retain the best talent from developing countries
Cons of Equal Salary to Equal Roles:
- Expensive compensation budget, otherwise leading to less competitiveness in expensive cities
- Taxes and contractual setup lead to equality claims
Read the in-depth article on Equal salary to equal job roles here.
Remote companies favor one of these remote salary strategies depending on a number of factors. This includes their compensation budget for remote employees, their need for specific talents, company goals, etc.
The answer to which strategy is the best is highly debatable and depends on each company's needs and preferences. However, paying equal salaries to equal job roles does somehow favor the remote workers by giving them a fairer work environment.
It also comes down to the company and how they wish to spend their compensation budget.
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