To say the cost of living in London is more expensive than the cost of living in rural Sussex is so obvious, it hardly bears repeating. By every price index, rent, transport, coffee, pints or food, London tops the charts.
Companies have always forked out more money for employees who live in expensive metropolitan cities. But the traditional system of deciding pay has been thrown into disarray by workers who are now scattered across the country – or the world.
Chief executive of Morgan Stanley James Gorman, frustrated with employees still working remotely, recently said: “If you want to get paid New York rates, you work in New York. None of this: ‘I’m in Colorado… and getting paid like I’m sitting in New York City’. Sorry, that doesn’t work.” Google is now toying around with an internal company pay tool to calculate how much their employees should earn depending on where they live and work and even the Civil Service has been caught up in a row over a minister threatening to cut pay for remote workers.
The change to the way we work will inevitably have corollary effects for pay packages in the future. But a hastily cobbled together policy which cuts pay for people who work from home has the potential to entrench divides between workers as well as make the businesses instituting them look out of touch.
Young people naturally gravitate towards cities, not just for work, but for the myriad opportunities and freedoms metropolitan capitals offer. In order to afford their London rents and lifestyles, they will inevitably head into the office to take up the offer of higher salaries, meanwhile older workers, already established in their careers, will be more willing to take a slice off their salary in order to hole up in a cabin in Cornwall.
Flexibility cannot only be the providence of those who can afford to take the financial hit. Parents will be vulnerable to particular disadvantages if they are forced to make a decision between pay and childcare.
In contrast to threats from Google, British online grocery giant Ocado has taken a different tack: come back to the office, but for a month every year, work from wherever you choose. A carrot rather than a stick.
Goldman Sachs has taken a hardline approach with plans to bring all of its staff back to the office. Even if they do achieve short-term success, it exposes a lack of willingness to adapt. While Goldman Sachs may well be protected by its stalwart status in cities, less institutional companies will lack the bargaining power to make the same demands.
Working in the office is incredibly valuable and offices are places which need to be nurtured into places people want to come. Many have tried and failed to recreate the sense of collaboration online that we took for granted in the workplace. But remote work will not disappear into the history books with the pandemic and the way pay packages are calculated of course needs to change in order to reflect new working conditions. If companies are using them as a means of blackmail to coax reluctant employees back to the office, they face more fundamental problems than whether or not staff are sitting at their desks or kitchen tables.
Salaries will be more varied as more people work in different locations, offices downsize and more and more digital-only brands start up. Some people will come into the office full-time, others a few days a week and for others still, none at all. The concept of the 9-5 has been upended by pandemic. Companies would do well to hold their breath and let the dust settle, rather than tying pay to traditional rules of work such as presenteeism at the office.
One of the father’s of the modern corporation, Peter Drucker, wrote in 1993 that “every organisation of today has to build into its very structure the management of change”. The world over is tired of hearing the phrases “unprecedented” and “new normal”. Disruption we had never contemplated is now the norm. The temptation to rush back to old ways of working and remuneration is understandable, but a folly. Those companies of the future will be those who draw in talent with pay policies of the future, not the past.