These tech companies are paying workers the same rates in the U.S.

Some big tech companies, including Facebook Inc.

It was clear at the beginning of the pandemic that people who moved from the Bay Area to less expensive cities would have a cut in pay. The payment platform Stripe Inc. offered unique bonuses to workers who moved from San Francisco, Seattle or New York – and agreed to a pay cut of up to 10%.

But a pay cut for any reason can be bad for worker morale, said Jake Rosenfeld, a professor of sociology at the University of Washington in St. Louis who researches salary determination. “Employers really need to dance a little to justify this to workers,” he said.

The workers themselves who consider more flexible work scenarios are divided. A November poll of 600 tech workers using the job search platform in November found that 60% of respondents would be willing to accept a reduction in pay to work remotely on a permanent basis, while 40% said no.

Seattle-based real estate search firm Zillow told its 5,600 employees in October that if they decided to move out of their current city, their salary would not be adjusted. “We are not making this change to save money,” said Dan Spaulding, director of personnel at Zillow. “We are making this change to retain our employees.”

Since the announcement, about 50 employees have decided to move to another state. The company decided to try this payment model at least until the end of 2021. With new hires, Zillow plans to work towards a nationalized payment scale over time.

“If people think the world is going to go back to where it was 18 months after the pandemic started, I don’t think that’s realistic,” said Spaulding. “Your best talent will have options coming out of this.”

The social media platform Reddit, which employs about 700 people, made a similar move to get rid of geographically based wages in the United States in late October, after seeing productivity remain high while people were totally remote.

The company wanted to “eliminate the compensation that employees would have to make if we reduced their pay if they moved to a lower-cost area,” said Nellie Peshkov, head of personnel and culture at Reddit.

Reddit previously had three payment zones in the United States, with the vast majority of its employees – those based in New York and San Francisco – taking full advantage. Some of Reddit’s employees in other cities are receiving salary increases as part of the move, Peshkov said.

In addition to retaining current talent, Ms. Peshkov said the company predicts that the move will help develop a more diverse workforce.

Employers tend to confuse the cost of living with the market rate for labor in a certain area, said Peter Cappelli, professor of management at the University of Pennsylvania’s Wharton School. “The reason they are making a lot of money is because that is where the competition is,” he said. “If you didn’t pay that much on Facebook, someone on the same street as LinkedIn will hire you.”

While keeping wages the same can help retain employees, Cappelli said, you can’t have people who have moved around sitting next to colleagues doing exactly the same job and earning less. Alternatively, people who remain in a high-cost area may resent those who moved while maintaining their payment.

“Employees can say, ‘Hey, you’re paying me similarly to someone who lives in a cheaper place,'” he said. “Their salary goes further than it does for me.”

Reddit’s Peshkov said he has not yet heard of complaints from San Francisco workers who regard the move as unfair due to the high cost of living in the Bay Area.

“In fact, there was no negative reaction,” she said. “They appreciate this comprehensive philosophy of paying people for the impact, not where they live.”

Employee sentiment aside, paying employees regardless of where they live can add significant costs, according to Tauseef Rahman, Mercer’s partner in strategy and workforce analysis.

“Since you are paying national taxes, you are probably paying more than the local labor market would have demanded,” he said. Companies will have to determine whether there is a financial advantage to being competitive nationally in terms of pay, he added. He believes that one of the results is that local companies pay only for some functions, and not for others.

“The impact of geography on wages is not the same across all types of jobs,” he said. “If you think about the types of functions really in demand, where there just aren’t that many people who can do something, you’re going to pay that fee.”

So far, those who get rid of geographical pay scales appear to be in the minority. Some are doing the opposite: in June, Slack Technologies Inc.

it went from two levels of pay across the country to five, as the company expects more of its employees to work outside San Francisco and New York, a company spokesman said.

“We created these bands to provide transparency and fairness to our employees,” said Slack’s personnel director, Nadia Rawlinson. The company decided that adjusting wages based on workers’ local cost of living would help prevent inequality.

Sahil Lavingia, founder of the 24-person e-commerce startup Gumroad, listened to hundreds of job seekers after tweeting that he would no longer take geography into account when determining wages.

However, even within his relatively small team – which has been totally remote since 2016 – the change has not gone smoothly. He said he removed the highest level of pay for future hires, staying with an employee, and imposed limits on weekly hours worked to offset some employee salary increases.

Mr. Lavingia said that many of the technicians he heard from are based outside the United States – in India, Nigeria, Singapore and Eastern Europe. He predicts that as more people compete for totally remote jobs, the rate of work in technology will eventually drop.

“In the long run, this really leads to better rates for almost everyone in the world, except for a select few,” he said.

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