understand evolving trends in compensation and the flexibility our "new normal" requires.
A little more than two years have passed since the COVID-19 pandemic began altering nearly every aspect of our lives. The workplace has experienced seismic changes during that time, including the introduction and implementation of remote and hybrid work models that have allowed people to leave their homes or apartments in expensive cities in favor of moving out to more spacious suburbs or remote communities. There’s also the ongoing Great Resignation—a sweeping economic trend that saw more than 40 million people leave their jobs in 2021 alone.
Employees now expect more from their employers than ever before. They want the option to work away from the office, often at home, and they yearn to be compensated quickly and fairly. In fact, the 2022 Checkr and Everee State of the Worker Report found that 68 percent of all workers live paycheck to paycheck and 64 percent are stressed about their finances. The same report discovered that 79 percent of workers said they want to be paid within a week, a revealing figure that emphasizes how much employees value equitable and efficient compensation practices.
As employees continue to increase the expectations they have for their employers in our post-pandemic “new normal,” it is important for employers to familiarize themselves with evolving compensation trends centered around geo-based or location-based pay, as well as value-based pay and daily pay for gig or contract workers. These trends are going to not only help employers attract top talent, but also retain talent that might be thinking of joining the masses that are fleeing their jobs.
Location-based pay or value-based pay? Both have factors to consider
In May 2020, Facebook CEO Mark Zuckerberg announced the company would be making a push to hire remote workers as a part of a greater shift toward building a workforce that is approximately 50 percent remote. In turn, Facebook curtailed employee salaries for its remote workers to ensure they were being paid a fair value based on where they live.
Offering location-based pay that is unique to each employee’s geographic location is one method companies are using to try to make compensation more equitable. The model allows companies to be competitive in what they pay while allowing employees to live in communities of their choice. However, there are a number of factors that companies must consider in location-based compensation models. Employers must have a firm understanding of the market rate for a position’s corresponding salary in addition to having a cost-of-living index that highlights the housing, transportation, meals, and utility expenses the employee would incur in the community they are choosing to live.
Considering location-based compensation models are often complicated and complex because they are uniquely designed to meet one employee’s specific circumstances. Companies that choose to offer location-based pay must take a consistent approach to ensure the same policies are used for each employee.
Many companies choose to pay remote workers value-based salaries that are based solely on the value of the work that is completed. Value-based pay models provide remote employees with more autonomy to move freely while also offering employers a more simplistic compensation method. One major downfall for employers, however, is value-based pay may make it challenging to recruit top talent in competitive job markets, especially in expensive regions, such as New York City or the Bay Area.
Companies that choose to offer value-based salaries must consider the national market rate for the position as well as the employee’s experience. Understanding the national market rate is imperative for companies because offering less than the national average salary is going to make it harder to attract and retain talent. Once the national average is determined, the salary can be adjusted to match the employee’s experience. Ultimately, experience is the biggest differentiator between employee salaries under the value-based model; those employees with more experience are rewarded with higher wages.
Gig work provides employees flexibility and quick compensation
One effect of the Great Resignation is millions of people are turning to the gig economy to earn money as consultants, freelancers, independent contractors, temporary contract workers, or moonlighters. Some workers are switching to the gig economy because they are burnt out and want more flexibility, though others view the gig economy as a more stable professional option than traditional employment.
What once was seen as a side hustle is now, in many cases, the primary—and most secure—form of work for millions of people around the world. A recent PYMNTS study found that 75.7 percent of gig workers would not quit their gigs for full-time jobs. Flexibility and stability are among the many reasons workers are choosing gig professions, but workers also cite quicker payouts as another major factor that leads them to the gig economy. As inflation continues to rise, companies that are able to attract gig workers with flexible scheduling and quick, convenient payment methods, will become more appealing options for both unemployed and employed workers seeking new career paths.
Predicting the future of compensation
Companies should expect to continue to face issues related to labor shortages and retention issues going forward as we continue to work our way to a more solidified new normal. Companies should not only be thinking about salary when considering ways to retain talent, however—non-cash rewards are a proven method that can be implemented to reward top performers. Introducing annual or long-term incentives, bonuses, and spot awards are some strategies companies can use to reward employees for strong work.
It's likely that some industry leaders might choose to replicate Airbnb’s approach of abandoning the geo-based pay structure in favor of paying employees competitive and equitable salaries regardless of their location. While there are other companies that could offer similar compensation structures, a future without location-based pay could have wide-reaching economic implications, particularly for companies that are unable to pay high wages across the board.
Ultimately, workers will continue to search for ideal professional situations that suit their specific needs. For some, an emphasis will be placed on the flexibility that comes with hybrid or remote work schedules. The gig industry isn’t going to slow down post-pandemic—in fact, studies show that more than 50 percent of the U.S. workforce is estimated to participate in the gig economy by 2027.
Although there is no perfect compensation method that works for every employer, there are different options that coincide with remote or hybrid work models. Companies must weigh the factors of geo-based pay and value-based pay and decide the right compensation method for them. Once companies decide on the compensation model they are going to use, they must remain consistent and transparent.
Employees are much more likely to accept salary changes if they feel companies are being upfront, fair and honest with them throughout the process. As much as companies want to attract and retain top talent, they must structure their compensation in a fashion that works for both the employer and the employees in order to ensure long-term success.