Two out of three people would rather take a pay cut than give up the ability to work remotely.

But there’s a big difference between talking the walk and walking the talk (or, in this case, between answering a survey question and actually having less money in your pocket every month).

And it’s for this reason that the announcements by several large companies  - including Facebook, Twitter, PWC and Google - that employees moving to a cheaper area will have their pay cut has caused a massive furore.

It’s an issue that is increasingly important in a world where remote working is becoming an everyday perk, rather than the preserve of a few.

Location agnostic pay

One obvious solution would be to make pay totally unrelated to location.

One notable champion of this is Basecamp, which pays its employees based on San Francisco rates, meaning that everyone is paid in the top 10% of San Francisco market rates.

This is advantageous for Basecamp, allowing them to attract some of the top talent in the country. The downside though, is that it’s incredibly expensive. As a result, it's something that only the wealthiest companies can afford to do.

Location dependent pay

As purchasers of property and Big Macs know, you get more bang for your buck in some places than in others.

Since where you live will determine how much you have to spend on living costs, it seems reasonable to take that into consideration when determining salary.

Many companies do actually calculate salary based on cost of living in different locations, notably Buffer and Gitlab (and, full disclosure, it’s how we do things at Desana too!)

It seems like a good compromise to make sure that people are getting fairly remunerated according to their costs of living.

Of course, it’s by no means perfect. The cost of living will vary even within cities between neighbourhoods. In addition, living costs vary hugely from person to person based on life circumstances and attitudes: one person’s “just scraping by” could be always keeping a bottle of Moët and Chandon Brut on ice, while another person’s “lap of luxury” involves scraping the mold off bread.

Even with location-dependent pay, things can get a little bit fudgy around the edges. As Job van der Voort, CEO of Remote.com, points out, in reality, many companies probably don’t dock their employee’s wages if they choose to relocate to somewhere cheaper, saying: “Forcing someone to take a pay cut to move home could sour the relationship between the worker and the company.”

The beginning of something new

The world of work has been tipped upside down in the last few years. And in a post-pandemic climate it’s likely that we’ll see even more flexibility. Distributed teams are the future, digital nomadism is already on the rise and hybrid working has become a go-to term.

Discussions about compensation are only beginning to scratch the surface. It will be interesting to see how things develop. For example, will companies consider different levels of taxation as part of their calculations? It’s not widespread at the moment but Dee Coakley, co-founder of HR startup Boundless, thinks it’s only a matter of time.

But even as sorting out compensation and location becomes more complex, there’s one abiding principle to keep in mind: be fair. Not only is it the right thing to do, but it’s also necessary in order to compete with other employers.

As Coakley says, “You will just lose people otherwise; members of your team will have a chat at some point, and you will have to be able to defend why this person earns this and that person earns that.”

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