Should pay be tied to where work gets done?

COVID has challenged every aspect of the way we work – and with hybrid and remote working on the rise, some organisations are re-thinking compensation policies. But tying pay to location is less likely to become an APAC practice, according to a recent Korn Ferry study.

It’s clear not all employees are coming back to the office after an extended period of working from home. Globally, 71% of organisations say at least half their employees will be allowed to work remotely, where their role allows for this.[1]

But if they then choose to relocate to a region with a more affordable cost of living, should they get a pay cut? It’s an idea that has already been floated by several major tech players in the US[2] – despite looming talent shortages as a result of what has been dubbed ‘the Great Resignation’.

There’s a new tension here in the changing dynamic between employer and employee. Yes, staff working from home may have lower commuting costs, as well as the opportunity to reduce their cost of living if they choose to move. However, those employees may also now be paying more for utilities – you need electricity and high-speed WiFi for all those Zoom meetings. And employers may have a longer-term opportunity to reduce their office occupancy costs – 44% of organisations globally say they expect to reduce or close office space as a result of the pandemic, while 10% also expect to reduce or remove travel allowances.[3]

Korn Ferry recently surveyed over 3,700 organisations globally to understand how they are adapting their reward and benefits programs in response to the pandemic. The results suggest there are different factors at play in the Asia-Pacific region.

Equal pay for equal work?

In North America, 38% of organisations say they have different compensation structures for employees, based on different geographic work locations within a single country. However, in APAC that figure is less than half at just 16%. And almost three-quarters (71%) say they expect to pay a similar rate for new remote employees compared with onsite staff in the future.[4]

It’s important to note that remote working (defined for this study as ‘not working in the office’) was already a more established flexible work practice in APAC before the pandemic. In Australia, for example, 64% of organisations had the option to work remotely as least part of the time, and in Hong Kong, it was common practice for 62% of organisations.[5] These nations are also more likely to see higher proportions of employees work remotely in the future.

Within the region, countries with larger geographies – such as China, India and Indonesia – are more likely to have different compensation structures according to geographic location. In China, 38% say they already vary pay by location, yet 72% still expect to pay the same for new remote hires as onsite employees in the future (the other 28% say it varies). In India, 15% say they expect to pay new remote employees less, and in Indonesia, that number is 12%. But in almost every other country in APAC, this figure is negligible.

In smaller city-state nations like Singapore, remote employees may work in a lower-wage location in the region (such as Malaysia or Indonesia). 27% of Singapore companies say they would offer a lower base pay in that scenario, most of the time. In comparison, 77% of Australian organisations say they rarely do this.

A focus on wellbeing

If APAC organisations are less likely to adjust pay based on location, what are they doing differently as a result of the pandemic?

Globally, talent acquisition and retention bonuses are being used more commonly – including sign-on, referral, and special recognition bonuses.

In the Asia-Pacific region, there is a greater emphasis on retention incentives, with 21% saying they expect to pay more retention bonuses than before the pandemic, and 18% planning special incentive bonuses. Those number is higher in Australia and New Zealand, where sustained international border closures have restricted the talent pool and create more significant shortages.

The most popular non-pay benefits in the region continue to be wellness benefits, such as mental wellbeing and Employee Assistance Programs (EAP). 29% of APAC businesses plan to offer additional wellness benefits, including 46% of companies in India and 39% in Australia. Across the region, 24% of APAC companies plan to offer a home office set-up allowance, although as that is typically paid as a one-off set-up cost, a lot of that work has already been done.

Indian companies are focusing more attention on these additional benefits, with 60% providing an allowance for monthly WiFi and utility bills and 40% planning to offer more medical benefit improvements. Organisations in Malaysia are also more likely to pay internet and energy costs and home office set-up costs.

Prioritising value over visibility

Although organisations told us transforming total rewards packages was a priority on the agenda before COVID, the truth is very few have had the capacity to make change happen. Just getting through the past 18 months has been operationally challenging.

But now, as we start to embed new work practices and behaviours in a more permanent way, it seems the ideal time to challenge the status quo on entrenched compensation policies.

Benchmark data like this survey is only half the story. It’s a historic view based on traditional models; it cannot predict what may be on the horizon.

To stay ahead of the employee expectations and differentiate in a competitive market for talent, you will need to think more creatively about what’s possible. This might mean adopting multiple compensation strategies – varying according to the skill and complexity of the role, and what is required to support performance.

And ultimately, the value any individual employee brings to a business should be the ultimate gauge for pay and performance incentives. That value is likely to be the same, no matter where their work gets done.

[1] The impact of COVID-19: Remote Workplace Compensation Practices - Global, Korn Ferry 5th spot survey September 2021
[2] Should remote workers be paid less? Financial Times[1] The impact of COVID-19: Remote Workplace Compensation Practices - Global, Korn Ferry 5th spot survey September 2021
[3] The impact of COVID-19: Remote Workplace Compensation Practices - Global, Korn Ferry 5th spot survey September 2021
[4] The impact of COVID-19: Remote Workplace Compensation Practices - Global, Korn Ferry 5th spot survey September 2021; APAC data analysis
[5] The impact of COVID-19: Remote Workplace Compensation Practices - Global, Korn Ferry 5th spot survey September 2021; APAC data analysis