Will employers change your salary if you move to a cheaper area?
Some companies adjust pay depending on where employees live, raising the question of whether they’ll change employees’ salaries now that working remotely is becoming more common.
In a new survey about work-from-home policies, 4.3% of companies who responded said they would reduce employee’s cash compensation if they moved to a lower-cost geographic area, while 56.5% said they wouldn’t, according to the executive compensation consultancy Pearl Meyer. About a quarter of respondents said that it would depend on the individual situation and about 14% said they’re unsure.
The survey consisted of 349 companies across industries that include finance, insurance, real estate, energy and utilities, technology, and health care.
Bill Dixon, managing director at Pearl Meyer, said he thinks employers are cautious about lowering pay because of the possibility that there may be employee turnover after the pandemic subsides.
“Adopting a stance like that could be very disruptive,” Dixon said.
Our Marketplace-Edison Research Poll found that 22% of Americans moved or permanently relocated during the first six months of the pandemic, or were considering doing so over the next six months.
Software company Civic Science found that 28% of American adults say they have considered relocating because of the pandemic, while a report from the self-storage website Neighbor found that 56% of survey respondents plan to move in 2021 — a nearly 20% increase from 2020. The NPD Group said people are moving for a variety of reasons, which include a lower cost of living.
Cutting an employee’s compensation would be difficult to do without alienating your employees, said Elizabeth Carla Forsythe, an assistant professor at the University of Illinois Urbana-Champaign’s School of Labor and Employment Relations.
“Employers have been asking a lot of their employees,” Forsythe said, adding some also have to take care of kids at home. ”Things have just been really tough.”
Forsythe added that getting paid differently from someone who’s doing the same job as you wouldn’t sit well with a lot of employees. “So I wonder if the cost savings that you might be able to get as an employer might not be worth the morale issues,” she pointed out.
Matt Abbott, general manager of The Sourcery, a Bay-area recruiting firm for tech startups, said he’s starting to hear that some candidates don’t want to budge on their salary, regardless of where they live.
Abbott said one client of theirs offered a candidate from Oklahoma a salary in the $150,000+ range, while the role would pay around $225,000 to $230,000 in San Francisco. The candidate turned it down, telling the prospective employer that “you are hiring for my skill, not for where I live.”
“That’s just one very specific story that kind of shook a client of ours,” Abbott said. “We’re hearing this more and more, where people are getting savvy right now because the unemployment rate for engineering talent is so minuscule. So people are getting more savvy and they may not push for the high end, but what we’re hearing is they’re not taking the low end.”
But Abbott said the number of candidates he’s observed who are moving to or are based in these lower-cost areas is still very small.
And of course, not every worker who works remotely gets that high of a salary or is in a very in-demand field, meaning there may be an even bigger incentive to live in a cheaper area but less leverage to negotiate.
Pearl Meyer’s survey also found that 33% of respondents have workforces that will work remotely after the pandemic, and that 80% say their organization’s shift to remote work has been successful.
The survey also found that in 2021 and 2022, a third of companies are going to either significantly reduce their office footprint, or “moderately and strategically reduce” it.
“The expectation is that the operating costs have been lowered possibly because of real estate costs being less,” Dixon said. “But there are other ways that costs have been lowered — by improving productivity and in the efficiency of decision-making and the speed of decision-making.”
He said it’s still an open question if we’re going to see a shift in resources from real estate or operating costs to higher employee pay.
“But I will say this: many companies either lowered their salary increases last year or froze salaries. So I would expect that to change,” Dixon said. “I think we’ll be back to old norms, and some companies will have to increase their merit increase pools to remain competitive.”
As operations in the U.S. begin to return back to normal, Dixon said he thinks employees will do a combination of both remote and in-person work.
“A lot of people are going to use a hybrid-office approach, where you don’t have your own official office, but a workspace is available if you come into the office,” Dixon said. “That was a trend, though, underway that I think has been accelerated by the pandemic.”
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