How should we manage compensation in transitioning to remote?
Dominic Jacquesson, VP of Insight & Talent at Index Ventures: The pandemic has made managing remote work critical for almost all companies. But we’re all now thinking through what sort of organization we want to have as we come out of Covid-19 constraints. Some are pivoting to be entirely remote-first, whilst others are weighing up different flavors of hybrid-remote. In terms of pay, most remote companies compensate employees in line with local rates, such as GitLab. This means that two people could be doing the same job in different locations, but be paid different rates that are calibrated to their local markets.
However, this creates a problem as we move into more fluid remote working set ups, and gets very complicated very quickly. What happens if someone based in San Francisco moves somewhere cheaper — we cut their pay? Or if someone in a rural location moves to San Francisco — could their salary suddenly double? Do you then have to introduce limits on how much salaries can go up, or how many times employees can move, because of the paperwork and budgeting implications? There are even more complexities in Europe, where there are different regulatory and tax requirements between countries, even though in principle employees can move between European Union (EU) states freely.
There is no perfect answer to this question that will keep everybody happy, but these are important issues for startups.
Think about your policy in terms of your employer brand, and how this will resonate with the talent pools that you are targeting. If you started in Silicon Valley and intend to stay there, you will be directly competing for talent with the wealthiest companies on the planet. Going remote opens up a whole world of talent to tap into, that is likely to be lower-cost and higher-loyalty. If you started in a small town, you might face the opposite challenge, and be looking to bring in some experienced Valley superstars. There is a growing pool of talent, who want the flexibility to work where they want, as global digital nomads. If a startup can offer them this flexibility, it could significantly enhance their talent brand.
These are decisions companies need to make thoughtfully, weighing up their talent needs, employer brands, and overall company culture, set against administrative complexity. There will be no single solution, but there is a big opportunity to differentiate your offering from those of competitors. It is far better to be a highly-appealing employer to 30% of the talent pool, than to offer average-appeal to 100%. So get creative with the approach that you choose to take.
On the plus side, we’re already starting to see the massive opportunity for businesses who can support global workforces and the associated regulatory, tax and payroll administration. Remote (an Index portfolio company) already offers this, creating a global network of companies around the world to act as Employer of Record (EOR), together with the infrastructure for businesses to employ people through. This enables companies to offer more flexibility to their employees.
There are implications for equity too. It’s one thing to say you’ll pay a different salary level because of a relocation and cost of living adjustment, but equity is a very different consideration. If equity is based on pay, then should someone get more equity just because they have a higher cost of living that’s reflected in their salary? We know several companies that have followed this reasoning, and have harmonized option grants (but not cash compensation) between countries.
On the other hand, there are also cultural preferences in some countries where employees strongly prefer salary, because they are unfamiliar with stock options. In this instance, you might choose to consider options just as another component of ‘total rewards’ alongside salary, pension, health cover, etc. So take time to understand the nuances of the markets you’re operating in, and develop compensation policies that reflect those factors, as well as your company values. There’s a lot to consider when developing your compensation philosophy in the world of remote.
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