Back in February, Spotify announced that its 6,550 employees can choose where they want to work in the future. Whether that’s in an office, a coworking space, or a beach in Bali. It doesn’t matter! In 2020, Dropbox also announced they were going to have a ‘virtual first’ workplace. While employees will primarily work from home (or wherever they choose), they can also visit Dropbox’s previous offices which have now been rebranded as Dropbox Studios. Other tech companies such as Meta (that’s Facebook to you and me), Salesforce, and Twitter have followed suit. This mass migration of employees has raised plenty of questions. One of the most pressing concerns at the moment is geo-differentiated vs geo-neutral pay.
What is Geo-differentiated pay?
As tech giants start to leave the urban hubs where they were founded, the question of salary starts to become a pressing issue. If you’re no longer living near expensive tech hotspots such as Silicon Valley or Shoreditch, should your salary reflect that? Take Meta for example, employees have to notify the company if they change locations so that the company can adjust their pay accordingly. In fact, Mark Zuckerberg said, Twitter has followed a similar vein. Employees that leave the Bay Area will receive substantial pay cuts. For example, if someone relocated to Denver, they can expect to lose 18% of their pay according to Bloomberg. Google even developed a Work Location Tool to, “help employees make informed decisions about which city or state they work from and any impact on compensation if they choose to relocate or work remotely,” according to a spokesperson.
Are all companies doing this?
The short answer is no. It seems like every company is trying to figure this out individually. Spotify for example will be following a geo-neutral pay format. The streaming giant has said that it will continue to pay San Francisco or New York salary rates depending on the type of job you have. Marketing startup Iterable, also announced that the company would be moving to a similar pay structure. The salaries of employees living in the US will be anchored to the most competitive market, the Bay Area, and those in the UK will be anchored to London. So how are companies deciding what approach to take going forward?
The pros of geo-neutral salary
While the benefits of geo-neutral salary for employees is pretty obvious (workers can move to cheaper residential areas while getting the same amount of money), the pros for employers is also worth considering. One reason that tech companies may be moving away from geo-differentiated pay, is that it’s easier from an admin perspective. When companies have different pay structures, figuring out compensation can get complicated quickly. Having a national rate makes payroll much easier to manage.There are just two variables for HR professionals to figure out, the national market rate for the position and the employee’s level of experience. In today’s competitive talent market, a geo-neutral approach also makes tech companies more appealing to talent. Employees can live in Manchester, but get paid a London rate. That is a hugely appealing prospect for Millennials and Generation Z who are actively leaving expensive cities in their droves. Instead of taking applicants from a limited talent pool, employers can now hire across different nations and indeed around the world.
What about the future?
While geo-neutral salaries are definitely not the norm, they are becoming more popular. In 20 or 30 years, it’s highly likely that a national pay scale will be implemented. In the meantime, companies may overspend in certain locations but in this highly competitive hiring market, can they really afford not to consider it?
