Will remote working change employee pay?

‘Employers plan to realign their reward strategy in 2021 to match changing company purpose and values’
Debi O’Donovan, Director, Reward & Employee, Benefits Association
By Debi O’Donovan, Director, Reward & Employee, Benefits Association

If 2020 was the year employers radically shifted their thinking about the feasibility of working from home and the importance of employee mental health to the sustainability of a business, then 2021 will be the year when the focus moves to how remote working and the rise of environmental, social and governance (ESG) metrics will change pay packets.

These pay shifts are unlikely to be as fast-tracked as the 2020 upheavals were, but the underlying pressures to change are coming from diverse directions and align to predict long-term workforce changes.

Employers are questioning why they should continue to pay a premium to staff who used to come into expensive office hubs such as London, but who now work remotely from elsewhere.

The idea that how much an employee is paid is partly based on their location is often forgotten by employees, but it is certainly front of mind for employers scrutinising ways to reduce expenditure on workplace leases and office-based perks or the cost of redundancies and recruitment during this tumultuous time.

Reviewing employee pay high on HR leaders’ agenda

The ongoing effects of the COVID-19 crisis on pay and benefits, released on December 1 by the Reward & Employee Benefits Association (REBA), shows that as many as one in seven (15 per cent) medium-to-large employers have regionally weighted salaries under review by their human resources reward team.

Employers in several sectors, particularly among technology and professional services firms where many staff worked remotely for most of 2020, are considering whether employees should have their salaries adjusted according to the going rate of the region in which they will be working for the foreseeable future.

HR and reward directors say reviewing pay policies for remote workers is very much on their agenda, although few have the appetite to be the first-in-sector mover to make the change. The risk of losing their top talent to a competitor employer needs to be delicately weighed, while ensuring staff feel engaged and cared for after such a tough year is vital.

But on the flip side, HR are aware that not putting in place a clear, upfront policy for a post-pandemic pay structure will lead to employees making decisions about where to work remotely without being aware of potential future pay adjustments or tax hits should they choose to work from abroad.

However, what that policy could look like, and its implications for employer costs and workforce planning, needs a crystal ball. Expectations are that there will be a greater emphasis on outputs and performance than ever before.

How ESG is influencing pay decisions

This is not the only reason that well over a quarter (28 per cent) of the employers responding to our REBA research plan to review their pay strategies in 2021 and nearly two-thirds (58 per cent) have either agreed, or will review changes to, bonus performance metrics for the coming 12 months.

In most cases, the changes are linked to changing financial metrics, but quietly creeping up are broader objectives that employers want their workforces to focus on. The acronym ESG has filtered across from the world of investment into executive remuneration targets and is starting to be mentioned in connection with broader employee pay and bonus targets.

I don’t want to give the impression of a sea-change with regards to pay and ESG, as the going is very slow. However, green, environmental and social initiatives right across the employee reward package are noticeably on the up, from choosing electric company cars to caring for the welfare of staff. To me, these are symptoms of investor pressure on corporates to review their long-term sustainability using ESG targets. These will filter down into all employee bonuses, incentives and performance objectives in the coming years.

It comes as no surprise the REBA research identified that a quarter (25 per cent) of employers plan to realign their reward strategy in 2021 to match changing company purpose and values.

Written by Debi O’Donovan, Director, Reward & Employee, Benefits Association