We are seeing a second-order result of the COVID pandemic. Companies were forced to shut their doors and have their employees work from home. There were stumbles along the way, but most have weathered the first-order challenge. What they are being hit with now is an employee revolt. This is part of the “Great Resignation” (coined by Anthony Klotz, a professor of management at Mays Business School of Texas A&M University), part new flexible work model, and part of a shift in power from businesses to employees having the upper hand.
Companies have not done a good job of responding to this second-order challenge. We do not yet have a new normal, but two things are clear, it will be different from the old model, and companies thus far have failed in their response.
This article provides some valuable background, digs into the situation as it exists today, proposes a solution to the largest problem, and provides valuable information for managers who need to act now.
Caveat – As always, my experience is with tech companies. This article is written from that perspective, and while it applies to a much larger number of companies, it is not universally true.
Quick History of Flexible Work
For as long as I can remember, we have been gradually moving to a more and more distributed staffing model. This started with one of two approaches: Outsourcing or Remote Teams.
Most companies looked to outsource some aspects of their business. Oftentimes this was work they viewed as low-skilled – such as customer support. Companies also explored the creation of remote teams. The goal was very much the same as with outsourcing – to save money. The kind of work that they gave these teams was typically non-core or resource augmentation for local teams.
Most companies struggled with both of these. They saved money but had a myriad of problems such as quality, communication, and high attrition.
Companies gradually learned how to be effective with outsourcing and remote teams. They spent time building relationships with outsource partners, clearly defined charters and established higher levels of autonomy for remote teams, provided new kinds of training, and improved methods of communication.
As this was happening, companies also began providing flexibility in both work hours and locations. They experimented with models such as hoteling, where employees did not have their own office or cubicle, but rather “reserved” one when they were in the office. And they allowed some employees to work remotely.
With these models of remote and flexible work came changes to the compensation model. Employees were paid relative to their level and work location.
This is where companies were prior to the COVID pandemic.
COVID Accelerating Reinvention of Work
Once COVID hit – every company had to figure out how to operate with its employees working remotely as they were required to shut down in order to control the spread. For some companies, this was reasonably easy. They had a model for remote work that they were able to extend to all employees. For other companies, they had never allowed for remote work. They figured it out – they really had no choice.
The experience companies had during these early days was mixed. But gradually, they figured out how to operate. After having talked to a good number of executives – a few common themes emerged.
- They were able to continue to run the business, although not as efficiently.
- While the overall productivity was not at the same level, some roles were able to do better working remotely
Employees also had mixed experience working remotely. Some were incredibly happy. They found a better work-life balance. There were lots of reasons for this, including the elimination of commute, and flexibility in caring for their children. Others lost the connection with the company, missed the personal interaction they had at work, and struggled to stay focused and motivated.
A poll of workers conducted by the Royal Society for Public Health’s (RSPH) found that two-thirds (67 percent) of workers who shifted from the office to home during the pandemic felt less connected to their colleagues.Jessica Brown from People Management
Working remotely also created another interesting situation. Employees had the time and space to rethink numerous aspects of their life. They realized possibly for the first time that they could do their job from anywhere. With this understanding, a huge number decided to make a life choice and relocate. They thought about their job, whether it is what they want to spend their time doing, and whether it is providing the right growth opportunity. And they considered whether the company that they work for is right for them.
All of this, together with a large number of open jobs, has led to what is being called the great resignation. A significant number of employees leave their jobs, often without having the next job lined up.
New Model Not Yet Settled
We are not yet at a new normal. The model for hybrid and remote work is continuing to evolve. Companies are beginning to reopen and most are being careful in how they message the future. There is data that shows some roles are as productive, or even more so when completed remotely. Others clearly benefit from employees being in the same place. There is also data that some individuals enjoy remote work and others do not.
When we see all of the data, the reality is close to 70% of the people say they want flexibility. At the same time, 70% also want that human connection so that they can collaborate. So therein lies that hybrid paradox.
Interestingly enough, if you look at the other sort of confounding piece of data: 50-odd percent of the people say they want to come into work so that they can have focus time. Fifty-odd percent also want to stay at home so that they can have focus time.Satya Nadella, in an interview with Adi Ignatius in the HBR video series “The New World of Work”, hits the nail on the head.
It is also clear that, for the first time, employees have the upper hand. In technology, there are far more jobs open than qualified candidates.
There’s an air of desperation among tech employers this summer. Software talent, it seems, is in such high demand that companies are morphing how they hire. And workers are the ones with the power. – Brittany Meiling from the San Diego Union-Tribune
The number of openings for tech-related jobs grew to 307,000 nationally, according to new report. But the number of such openings in San Francisco and San Jose shrank.Allison Levitsky from the Silicon Valley Business Journal
To win a bid on a quality engineer, companies are offering things such as flexible hours, sign-on bonuses, and permanent remote work, the last of which has become a requirement for much of the workforce.Brittany Meiling from the San Diego Union-Tribune
The situation is not unique to the US. Other countries are seeing the same situation.
Hiring in the tech sector has reached its highest level in five years, with more than 100,000 job vacancies opening per week since February 2021, industry figures reveal.
Almost one in four tech jobs (22%) are now also categorized as remote, meaning they can be done from any location in the UK.Sebastian Klovig Skelton , ComputerWeekly.com
As the move to remote work settles in, companies have begun to implement location-based pay. In most cases, this is not new. Companies have always paid employees based on location, both within the US and internationally. When I was at Sun Microsystems, we had different salary structures for our offices in Silicon Valley, Colorado, and Massachusetts. And we of course had different structures in the UK, India, China, and so on.
In May 2020, Facebook CEO Mark Zuckerberg announced that the company would be actively hiring remote workers. He even said that he expected 50% of Facebook’s workforce to be remote in the next 5 to 10 years.
As a part of this initiative, starting in 2021, Facebook will adjust salaries for remote employees based on their location for tax and accounting purposes.
Many remote organizations follow this pay model to keep their salaries both competitive and cost-effective.ChartHop
VMware Inc. employees who take up the company’s offer to become permanent remote workers will get a pay cut if they move from Silicon Valley, one of the nation’s most costly areas to live, to a less-expensive city.Nico Grant, Sophie Alexander and Kurt Wagner from Bloomberg
Most companies are treading lightly when communicating the future. They are stating that they expect a future that is mixed, leveraging tools to provide a great experience regardless of location.
I can’t tell you the number of CEOs I talked to who are thinking, ‘I have to solve the diversity challenge in my business, and remote work is one of the key tools… We have to let go of this very office-centric culture and incorporate people who are in a lot of geographies.Hayden Brown, CEO of Upwork
Others are taking a more definitive approach to the future of work at their companies.
Google and Alphabet CEO Sundar Pichai previously shared his vision of the search giant’s new hybrid return-to-work plans via an internal message from the chief executive to his employees. The program calls for around 60% of Googlers coming together in the office for a few days a week, while another 20% will work in new office locations and 20% are anticipated to work remotely. He also raised a point, which might not be well-received by the Googlers, “Whether you choose to transfer to a different office or opt for completely remote work, your compensation will be adjusted according to your new location.”Jack Kelly, Forbes
Zillow (who just recently announced significant layoffs), has said they will allow their employees to work remotely and will not adjust their salaries. I think that this is a temporary situation that is in place to appease their employees and that over time, they will also move to location-based pay.
The key challenge in defining the new normal within a company is retaining and hiring employees. As COVID begins to wind down, companies are having to offer a remote, or at a minimum hybrid work situation. I have talked to a number of recruiters who told me that they are having a very difficult time identifying candidates for positions that do not offer some form of hybrid work. At the same time, most companies see employees working in the office frequently as the best way to improve lost productivity.
Companies have acknowledged that some of their workers relocated during COVID. It is reasonable that people who left family and friends in suburban and rural towns across the country that were not geographically conducive to working at a premiere tech company in Silicon Valley or on Wall Street have decided to return home. Others have decided to relocate to a place that they love. Housing prices, school districts, safety, weather, outdoor activities, and taxes have weighed into their decision process as well.
Many employees see this new work flexibility as life-changing. They are doing the same job while having the time and flexibility to be more engaged in family activities – creating a better work-life balance. They do not understand why their compensation would be cut.
If you are great at what you do, why should you be forced to earn less than what you’re worth just because you live outside of a major city? Doesn’t it seem reasonable that a person should be paid what they’re worth regardless of where they live?Jack Kelly from Forbes
Google has tried to explain the situation.
“Our compensation packages have always been determined by location, and we always pay at the top of the local market based on where an employee works from,” a Google spokesperson said, adding that pay will differ from city to city and state to state.Danielle Kaye from Reuters
Location-based salaries and compensation is turning out to be the next big hotly contested issue.
“I’m job hunting,” says “Mike,” a senior software engineer for Google in the northeastern US, who moved to a new home during the pandemic. (Some names have been changed in this article.) He wants to continue working for the company remotely, but the pay cut he’d have to take to do so is equivalent to losing four years of pay increases. “Any pay cut is unacceptable, and it’s been presented as a ‘take it or leave it’ proposition,” he says. “Google is telling us to vote with our feet if we don’t like the situation. I love the work we do, but that’s a lousy bargain.” –Sophia Epstein from Wired
Companies at Fault
There was nothing that companies could have done once the pandemic hit. They were forced to close down. The only way they would continue to operate was to have their employees work from home. They did a great job in this respect, either extending the remote model already in place or implementing one from scratch for all of their employees!
Companies were also incredibly supportive of the situations and conditions that employees were thrown into with the move to remote work. They understood the challenges such as lack of daycare, kids attending school from home, and sharing space for their “office”.
With all that companies have done that was good, there is one thing that they did that has proven to be a disaster. That is, their geography-based compensation model.
The model that every company has in place today is roughly as follows. They first determine how they want to compensate their employees compared to other similar companies. Most companies want to be competitive and therefore base their compensation on a model where they pay above the 50% level (the same or above the competition). Some companies are more aggressive in attracting talent and will pay at the 75th percentile or above (they pay more than their competitors).
Once a company determines where they will pay as compared to the competition, they will do salary surveys in the locations where they have employees. They use this information to create complete salary structures, including all jobs and levels, by location. In the case mentioned earlier at Sun Microsystems, we had salary structures for Silicon Valley, Colorado, India, and so on. Remote employees working in locations where there are no salary structures are often handled as one-offs – using the structure for locations with a similar cost structure.
Note: this cost structure is typically not based on the cost of living but rather a salary survey purchased by the company from one of the human resource management consulting companies.
This all sounds reasonable, and it is. The problem is how companies communicate this (or how they did NOT communicate it). Employees view their progress based on their rating and pay increase and their overall success in terms of their level and salary.
This was an easy problem to have avoided. What they SHOULD have done was create a single base salary structure that includes all levels. And separately, create a location-based adjustment that is applied to the base salary.
This is incredibly easy to explain. Employees are paid based on the value that they provide to the company. In addition to this, they receive a location-based adjustment as required to compensate them appropriately for the local market.
Employees can then make a decision about where they live based on the factors that are important to them. If or when they decide to relocate, they do so with an understanding that the company values their contribution the same regardless of where they live. They also understand that they will receive location-based compensation that is dependent on where they choose to live.
The Develop Great Managers blog and podcast are focused on helping managers to be great. This situation requires the managers to step up their game in two very important ways. The first is in explaining the compensation situation fully to their staff in order to make them comfortable. And the second is to ensure your team feels connected to you, the company, and to each other.
The easiest way to communicate compensation is to leverage the material that the company provides and personalize it for your employees. Given how poorly companies have done, that information likely does not exist. In that case – you have to build the narrative.
Here is how I would explain location-based compensation.
I first start by explaining how compensation is determined.
- The company is competitive in terms of compensation.
- I would leave out any discussion of percentages vs the competition as described above as it tends to create questions that are unrelated to the point of the discussion.
- Compensation is determined by salary surveys in the locations where it operates.
- From these surveys, location-based salary structures are created.
- These salary structures include both level and location data.
I then put my own spin on the information in order to prepare for the location discussion.
I talk about the salary structures in terms of two components.
- There is compensation for the value that each level provides
- And there is compensation based on the cost of labor for the location
Now that you have created a clear separation for the salary structure, which is what the company should have provided, you can have a good conversation with your employee(s) about remote compensation.
If you choose to work remotely, the company will continue to value your contribution the same.
You will have a different cost of labor depending on the location. As a result, your take-home pay will vary depending on where you decide to live.
If you want to understand what impact the location will have, let me know where you are thinking of living and I will provide you with the details.
I make sure that I discuss some very important additional points.
I will do everything that I can to make sure that your working remotely provides the same opportunities to progress in your career – whether that is promotions in your current role or movement to new and different roles.
The compensation model works both ways. If you move to a location where the cost of labor is higher, that component of your compensation will increase.
Keeping Employees Connected
You need to make sure that your employees feel connected to you, the company, and the team. This is not new, but the mix of on-site, hybrid, and remote employees makes this more important than ever!
“Three-fourths of the American workforce feels less connected,” according to the survey of 1,004 U.S. professionals — adults who are currently employed, and who previously worked in an office setting but are now working from home due to COVID-19.
According to the survey, 60% of professionals “feel less informed about what is going on within their company since they started working from home.”Daniel B. Kline from The Motley Fool
Here are my recommendations for how to keep your employees connected.
- The first place to start is with the time that you spend individually with the members of your team. Time is precious, so use it wisely, but make it a priority to have 1:1 time weekly with each member of your team. And find reasons between these meetings to touch base, share some information, check to see if they need help, or just say “hi”.
During your 1:1s, split the time between work and personal topics. Most employees feel good sharing what is happening in their personal lives. Spending this time will increase your empathy – changing how you act and react to different situations.
- Once you have good connections with the individuals on your team, find ways to bring them together – in these three ways.
- Share information. This is typically in the form of a staff meeting.
- Pass down some information. The information that you share is situational but focus on topics that will connect your team to each other and the organization, department, or division of which you are part.
- Discuss progress against goals. Especially focus on the goals that required some or all of your staff to participate.
- Have others share what they are doing. Keep this short or rotate different people at each meeting. Make sure what is discussed has relevance to the others.
- Provide time for questions or comments. Try hard to provide an environment where it is ok to ask the hard question, bring up a controversial topic, or raise personal concerns.
- Work together. Look for opportunities to brainstorm, review a design, red team a plan, discuss different approaches to solve problems or achieve goals, and so on. The goal is to keep your team working together, feeling like a team rather than a group of individuals.
- Have some fun. This one can be difficult with a distributed team, but thanks to technology and creativity, there are some good options.
- Share information. This is typically in the form of a staff meeting.
There are some good articles full of ideas. I like “20 of the best team building activities for remote teams” and “37 Best Virtual Team Building Activities for Remote Teams in 2021”.
Here are a few that I really like.
- Have lunch together
- Play a virtual game
- Create a book of the month club
- Do a virtual pub crawl
- Share a topic of your choice
- The last thing that you need to do to keep your employees connected is to make them feel a part of the company. Most companies have both a mission and a purpose or cause. If yours has this – look for ways to connect your staff to the company from both of these perspectives.
A purpose statement provides the reason or reasons you exist. It is about why you exist, whereas the mission is about what you do and for whom. … Some organisations find that a mission statement alone suits their needs, whereas others prefer to use a purpose statement.Effective Governance
I recommend you do two things in this area.
- When you develop your goals, make sure that your organization as well as each member of your staff have at least one that is connected to the goals of the company. By doing this, each time you review progress against goals you are connecting the success of the team and your staff back to the company.
- Include company-level topics in your pass down during your staff meetings. It is ideal if some aspects of your pass-down connect or tie to your team.
If you focus on these two areas, you will have a happier and more connected team. And you will address the problem that companies have created by failing to communicate effectively how their employees are paid.
Doctors, such as Dr. Erik Tepper, a family medicine physician in Sacramento, are seeing physical health issues due to working from home. “Patients are having problems with sleep, exercise, orthopedics, and eating – along with depression and anxiety.”
Here are tips for better health from “People on ‘auto pilot’ as remote work continues, California doctors say. What is at risk?” by Hanh Truong, Sacramento Bee.
- Structure your days
- Invest in an ergonomic home office
- Pay attention to your body and mind
- Go outside
Share these with your team members!