Google’s regional pay cuts for employees who work from home may backfire

Google recently bet $2 billion that its New York workforce will return to the office. But to encourage its employees to actually make use of its massive real estate investments, some say the tech behemoth is using sticks, not carrots: Google employees who move to less expensive parts of the country could see their pay cut. In June, the company launched a tool for employees that showed how much less they’d be paid — anywhere from 5 to 25 percent, according to Reuters — if they move from somewhere like the Bay Area or New York City to a lower-cost location.

Many companies that employ the estimated 13 percent of US workers who are still working from home due to the pandemic expect to open their offices back up in January. Google is one of several notable tech companies, including Facebook and Twitter, that has enacted controversial plans to lower pay for remote workers who’ve moved away from the expensive areas where their headquarters are located. But there are signs these policies may backfire.

While potential repercussions for cutting workers’ pay may not be immediate, humans are highly susceptible to loss aversion — losses are more painful than gains are pleasurable — and pay cuts could cause workers to either leave or resent the company. Alienating your existing workforce is always a bad idea, but it’s especially bad when tech companies are already struggling to find the workers they need.

Even though Google is a highly desirable employer, 53 percent of 230 verified Google workers said, in a survey for Recode that was conducted by workplace community app Blind, that they would think about leaving the company if they moved and had their pay cut. That’s a bit less than the 68 percent of all professionals on Blind who said so, but it’s still high. Googlers are also more likely (30 percent) to have moved outside their metropolitan area since the pandemic began than professionals at large (22 percent), and some Googlers have already shown a willingness to leave the company over what some of them have called hypocritical remote work policies.

Of course, there are other reasons keeping people at tech companies like Google — prestige, innovation, paychecks so big pay cuts don’t matter — but they might not be enough.

So why are these tech companies floating this idea in the first place?

Google, like many companies, says it has always based people’s pay on where they live. But one could argue that adjusting existing employees’ pay downward was a rarer instance before the pandemic, and that with an increasingly dispersed workforce doing the same labor, location-based pay is becoming a thing of the past. Thanks to remote work technology like Zoom and Slack, employees have been successfully working remotely for over a year and a half. During that time, Google has logged record profits. In turn, employees have enjoyed better work-life balance, shorter commutes, and the potential to live in places where their salaries can go much further. Remote work has moved from a perk that they’d willingly pay for to an expected benefit.

And most other companies have gotten the memo: Some 95 percent said they would not lower pay for fully remote workers, regardless of where they live, according to a survey of 753 organizations by compensation data company Salary.com. That’s because it’s widely understood that pay cuts are bad for worker morale, performance, and retention. That makes tech companies like Google notable outliers.

Beyond what these companies are saying, experts have a few theories for why they’re so far standing firm.

Foremost is that companies know office work works. Although they have seen that their workforce can be just as productive working from anywhere in the short term, they’re still unsure about remote work’s long-term effects on innovation.

“If all you care about is day-to-day productivity, then remote work is great,” Columbia Business School leadership and ethics professor Adam Galinsky told Recode. “But if you care about long-term commitment to an organization and collaboration among people, remote work is problematic.”

Pay cuts — or even the threat of pay cuts — might help maintain the status quo by disincentivizing people from moving to places where they couldn’t go into the office. But it will also likely have some unintended negative consequences for commitment and collaboration, which is precisely what these companies are trying to retain by having people come into the office.

“It’s particularly ironic because the entire reason why we want people to come back to the office is so they’re more committed, engaged, functional, collaborative members of the organization,” Galinsky said. “But if we force them into the office because of pay cuts, they’re going to come in hostile, resentful, and potentially rageful.”

There’s another reason for continuing location-based pay policies: equity in compensation. For example, not docking pay for a worker who moves from San Francisco to Boise, Idaho, might seem unfair to the person in Idaho already making less.

“What am I supposed to do, pay the Boise person more or pay you less?” Paul Rubenstein, chief people officer at Visier, which helps companies make HR decisions based on data, said.

Then there’s the economic rationale: Location-based pay models not only ensure a consistent rationale for paying tech workers in certain areas less than in others but also stand to save the company money. Not paying workers based in Idaho or India less could end up being very expensive for a global tech company.

“Once you start to do that, it’s like tugging at the thread on a sweater: Why do we pay people less than other markets? Why do we pay people less anywhere? Should there be one global salary for all?” Rubenstein said.

Indeed, the pandemic is causing location-based pay to become outdated, according to the salary comparison company Payscale, which also found that most companies don’t plan to lower pay for remote employees.

“What we do expect to see more broadly is a shift from employer-location-based pay strategies to pay strategies that can better accommodate a remote or distributed workforce,” Payscale CEO Scott Torrey told Recode.

That means instead of basing pay on where a company is headquartered and adjusting downward if people live elsewhere, more companies are adopting a national pay median for each position.

Nowhere is that happening faster than in tech, according to Gabriel Luna-Ostaseski, co-founder of Braintrust, a user-owned talent platform that connects companies with technologists, exclusively remotely.

“There is now a global market for their skills,” he said. “Enterprises will pay top dollar regardless of where those individuals are located.”

Additionally, smaller tech companies could swoop in with more generous remote policies as a way to punch above their weight.

That’s all to say that employees, especially ones at tech companies, have options other than having their pay cut. And employee turnover is very expensive, costing a company about a third of an employee’s salary, according to Salary.com CEO Kent Plunkett. Add that to the fact that he said 50 percent of workers — compared to the typical 25 percent — are thinking of leaving their jobs, and it seems like a very bad move for companies to reduce worker pay.

Given the situation, it seems Google feels it has the power and motivation to keep as many people as possible near its offices. However, several of the experts we spoke to also aren’t convinced that companies like Google will continue with these changes in the long run, or might only apply the policy selectively to weed out people it doesn’t want.

“I don’t believe that’s what they’re actually going to do when it comes down to retaining their top that wants to relocate,” Plunkett told Recode. “You’re not going to let your best talent go out the door over a $15,000-a-year pay differential.”

Although Google told Recode it has always adjusted employee salaries based on location, the current damage to employee morale might already be done. “Just because you work in tech doesn’t mean you’re magically enlightened in management styles,” Rubenstein said.



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