Hybrid work. Something has to give.

Who thought “location, location, location” would be one of our biggest post-Covid employment challenges? Where people want to work continues to shape the future of employment globally.

A CFO client of mine called me the other week; she is having issues recruiting a Finance Manager for a manufacturing business in a rural town. The main problem she has is not around the salary level of the role, and she is very realistic about this; it is around the fact that she wants/needs someone in the office five days a week. The frustrating thing for her is that she does not believe her Finance Manager must be present daily. Her Managing Director does, and there is the rub…

A shift in power?

When you have a news cycle dominated by news of tech layoffs, this leads to some clients believing the shift in power is returning to the employer. That perceived shift in power, added to comments from CEOs such as JP Morgan’s Jamie Dimon, telling their staff to return to the office full-time, has given some of our clients a false impression.

First off, the tech layoffs have been mainly targeted at sales and talent acquisition professionals, not across the board. Finding a good software developer today is as hard as it was six months ago.

Secondly, we in The Panel and my colleagues in other recruitment firms are busy. We may not be as active with the large technology firms as before, but we are placing the talent they are letting go in other roles. In all honestly, they “bought” this talent at a premium. Now candidates are returning to the market at more realistic salary levels, and smaller companies are recruiting them.

Finally, as my CFO client already knows, the nature of working in the office has changed forever. In The Panel, candidates prioritise where they work as part of any discussion about their next career move. That has not suddenly changed, as some of our clients believe.

The squeezed middle

This CFO is in the “squeezed middle”, having to placate her Managing Director and her finance team, both parties wanting different things. She feels she can get better productivity from a hybrid team than from a fully present one. The difficulties she is having recruiting a Finance Manager are finally registering with her Managing Director, and hybrid working is now available.

Recruiters find a full-time role in an office is now twice as challenging to hire for than pre-Covid. Some 65 per cent of finance professionals we surveyed in The Panel want a hybrid working solution, with a further 19 per cent not caring if they work hybrid or work full-time in the office. Interestingly, only 12 per cent want fully remote working while 4 per cent prefer working only full time in the office.

Remunerating remote workers

The debate on remuneration, particularly for remote or mostly remote workers, is exercising many employers. The US is ahead of the curve, with high-rent cities such as San Francisco seeing an exodus of workers to cheaper-rent locations within the US. A similar pattern is playing out in New York.

Some companies pay their employees the market rate, irrespective of where they work. In my experience, this is how most of our clients remunerate their employees in Ireland. In the States, some large firms like Meta consider where their employees are based and adjust their remuneration accordingly.

Meanwhile, a Stripe employee in San Francisco will get paid more than their colleague who lives in a lower cost-of-living location for the same role. Stripe has gone further than most. It has incentivised employees to move from high-cost areas such as Seattle, New York and San Francisco, offering their employees a $20,000 bonus to move, the trade of being that the employee goes on a lower salary.

Some businesses have pivoted to a “remote first” business model. G-P (formerly Globalization Partners) is one such company where employees are actively discouraged from working no more than two days in the office. In the US, other “remote first” companies are also remunerating by location, some by “geographical zones”.

The downsides to remunerating by location

The downsides to this remuneration model centre on two major areas. If the skills of the remote worker are in great demand, say, an SAP 4 Hanna Project Manager, companies will pay top dollar. So a salary adjusted downwards for location purposes just makes those candidates more susceptible to taking higher salary offers, and they don’t have to move location.

There is also the potential resentment it can cause. Two people doing the same role, one getting paid more than their colleague. One way companies can get around this is to keep the salaries the same but pay a “cost of living adjustment”. It has the same financial outcome for all parties but is framed differently. Notably, a worker may choose to move to a high-rent location to get the allowance, so in effect, the employer can argue that everyone can avail of the same salary package.

Employers like to have consistent salary policies that are easy to follow. With the Pay Transparency Directive passed by the European Parliament, companies will look to have a more uniform salary structure. This legislation allows employees to request information from their employer on average pay levels by gender, for example.

Remote, hybrid, and in-office work can all be remunerated the same way for the same work or with the nuances we discussed earlier. The European legislation on pay equity makes it more critical than ever that employers can back up the reasons for differentials in pay for the same work, another reason employers may decide not to differentiate pay on a location basis.

Who thought “location, location, location” would be one of our biggest post-Covid employment challenges? Where people want to work continues to shape the future of employment globally. We are adapting to this, but finding the optimum solutions is still challenging.

This article was initially published on The Currency website.