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HomeTechGoogle's regional pay cuts for home-based employees may backfire

Google’s regional pay cuts for home-based employees may backfire

Google recently bet $ 2 billion that your New York workforce will return to the office. But to encourage its employees to really make use of its massive real estate investments, some say the tech giant is using sticks, not carrots: Google employees moving to less expensive parts of the country could see their salary cut. In June, the company launched a tool for employees that showed how much less they would be paid: between 5 and 25 percent, according to Reuters – if they move from somewhere like the Bay Area or New York City to a lower-cost location.

Many companies that employ the estimated 13 percent of American workers who are still working from home due to the pandemic expect reopen their offices in January. Google is one of several notable tech companies, including Facebook and Twitter, that has enacted controversial plans to cut the wages of remote workers who have moved from the expensive areas where their headquarters are located. But there are signs that these policies may backfire.

While the potential repercussions of cutting workers’ wages may not be immediate, human beings are highly susceptible to loss aversion (losses are more painful than gains) and wage cuts could cause workers to leave. or they resent the company. Alienating your existing workforce is always a bad idea, but it’s especially bad when Tech companies are already struggling to find the workers they need.

Although Google is a highly desirable employer, 53 percent of Google’s 230 verified workers said, in a survey for Recode that was conducted by Blind workplace community app, that they would think about leaving the company if they moved and had their salary cut. That’s a little less than 68 percent of all Blind pros who said it, but it’s still high. Google employees are also more likely (30 percent) to have moved out of their metropolitan area since the pandemic began than professionals in general (22 percent), and some Google employees have already shown willingness to leave. company by what some of them have called hypocritical remote work policies.

Of course, there are other reasons to keep people at tech companies like Google – prestige, innovation, paychecks so big they don’t matter – but they may not be enough.

So why are these tech companies raising this idea in the first place?

Google, like many companies, says it has always based people’s pay on where they live. But it could be argued that down-adjusting the salary of existing employees was a rarer case before the pandemic, and that with an increasingly dispersed workforce doing the same work, location-based pay is becoming in a thing of the past. Thanks to remote work technology like Zoom and Slack, employees have been working successfully remotely for more than a year and a half. During that time, Google has registered record earnings. In turn, employees have enjoyed a better work-life balance, shorter commutes, and the potential to live in places where their wages can go much further. Remote work has gone from being a benefit they would be willing to pay for to an expected benefit.

And most other companies have received the memo: 95 percent said they would not cut pay for fully remote workers regardless of where they live, according to a survey of 753 organizations by compensation data company Salary.com. This is because pay cuts are widely understood to be detrimental to worker morale, performance and retention. That makes tech companies like Google exceptional.

Beyond what these companies say, experts have some theories as to why they are holding their own so far.

Most importantly, companies know that office work works. Although they have seen that their workforce can be just as productive working from anywhere in the short term, they are still unsure of the long-term effects of remote working on innovation.

“If all you care about is day-to-day productivity, then remote working is great,” Columbia Business School professor of leadership and ethics Adam Galinsky told Recode. “But if you are concerned about long-term commitment to an organization and collaboration between people, remote working is problematic.”

Pay cuts, or even the threat of pay cuts, could help maintain the status quo by discouraging people from moving to places where they cannot go to the office. But it’s also likely to have some unintended negative consequences for engagement and collaboration, which is precisely what these companies are trying to retain by getting people into the office.

“It’s particularly ironic because the only reason we want people to come back to the office is to be more engaged, engaged, functional, and collaborative members of the organization,” Galinsky said. “But if we force them into office because of pay cuts, they will become hostile, resentful and potentially angry.”

There is another reason to continue with location-based payment policies: compensation equity. For example, not reducing the pay of a worker who moves from San Francisco to Boise, Idaho, may seem unfair to the person in Idaho who already earns less.

“What am I supposed to do, pay the person from Boise more or pay you less?” Paul Rubenstein, chief of staff at Visier, which helps companies make data-driven HR decisions, said.

Then there’s the economic rationale: Location-based payment models not only ensure a consistent foundation for paying tech workers in certain areas less than others, but they also save the company money. Not paying workers based in Idaho or India less could end up being very costly for a global technology company.

“Once you start doing that, it’s like pulling the thread of a sweater: Why do we pay people less than in other markets? Why do we pay less to people anywhere? Should there be a global salary for everyone? “Rubenstein said.

In fact, the pandemic is causing location-based pay to become obsolete, according to salary comparison company Payscale, which also found that most companies do not plan to reduce remote employee pay.

“What we hope to see more broadly is a shift from payment strategies based on employer location to payment strategies that can be better suited to a remote or distributed workforce,” Payscale CEO Scott Torrey told Recode. .

That means that instead of basing pay on a company headquarters and adjusting down if people live elsewhere, more companies are adopting a national median salary for each position.

Nowhere is that happening faster than in technology, according to Gabriel Luna-Ostaseski, co-founder of Braintrust, a user-owned talent platform that connects companies with technologists, exclusively remotely.

“Now there is a global market for your skills,” he said. “Businesses will pay a lot of money regardless of where those people are.”

Additionally, smaller tech companies could launch with more generous remote policies as a way to overcome their weight.

That’s all to say that employees, especially those in tech companies, have other options besides having their pay cut. And employee turnover is very expensive, costing a company about a third of an employee’s salary, according to Salary.com CEO Kent Plunkett. Add that to the fact that you said that 50 percent of workers, compared to the typical 25 percent, are thinking about quitting their jobs, and it seems like a bad decision for companies to cut workers’ pay.

Given the situation, it seems that Google feels it has the power and motivation to keep as many people as possible close to its offices. However, several of the experts we spoke to are also not convinced that companies like Google are continuing with these changes in the long term, or that they only enforce the policy selectively to remove people they don’t want.

“I don’t think that’s what they’re really going to do when it comes to retaining the top who wants to relocate,” Plunkett told Recode. “You’re not going to let your best talent walk out the door with a salary differential of $ 15,000 a year.”

Although Google told Recode that it has always adjusted employee salaries based on location, the current damage to employee morale may already be done. “Just because you work in technology doesn’t mean you are magically enlightened in management styles,” Rubenstein said.

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