Ever since the coronavirus pandemic hit the US in March, tech companies based in San Francisco Bay Area have largely shut down their sprawling campuses and asked employees to work from home — in some cases, permanently.
Many employees living in major cities like San Francisco have uprooted their lives in favor of less densely populated areas with a lower cost of living and more space. While some workers intend to return to the Bay Area once offices reopen, others plan to work remotely indefinitely.
In response, major tech firms have begun scrutinizing the pay of employees who have permanently left the Bay Area. According to a recent report from Bloomberg’s Nico Grant, Sophie Alexander, and Kurt Wagner, software company VMware has decided to reduce the salaries of those who have moved to less expensive cities. While employees can permanently work from anywhere, their salaries may now be lower if they leave the Bay Area — an employee who moves to Denver, for example, will see an 18% reduction in their salary, according to Bloomberg.
Over the past several months, Covid-19 has completely transformed the quintessential idea of where employees can work. In Silicon Valley, which has a relatively high cost of living and an employee base with access to state-of-the-art remote-work tools, companies are devising plans for a future with decentralized staffs. In some cases, changes can include cutting salaries by 15% or more depending on where someone moves.
The aborning pay-cut movement is bound to create tension between the world’s most profitable and skilled employees who enjoy high salaries.
Companies point out that changing pay based on the local cost of living is standard practice for many organizations, including the federal government.
However, Silicon Valley risks alienating employees as a result of these policies.
“If anyone should be standing up for high pay, equal pay and great talent, it should be these companies—I find it to be pretty hypocritical,” said Jason Fried, chief executive of Basecamp LLC, a Chicago-based maker of workplace software that has a remote workforce. Tech companies are so profitable they can easily afford to do what is right, he said. “You’re hiring a person and the skills they bring.”
The move to cut pay also can backfire on employers. Kevin Akeroyd, CEO of the contingent-workforce-management company PRO Unlimited and a former executive at several large tech companies, said cutting pay for workers who want to move to cheaper areas can lead to unhappy workers who quit in high numbers.
“The cost of living usually falls more than the paycheck,” said Brian Kropp, research chief of the human-resources practice at Gartner Inc. Even with a 10% or 20% pay cut, software engineers can still live a far more lavish life in Austin, Texas, or Nashville, Tenn., than in San Francisco.
Mr. Kropp said when employees have a negative response to the practice, it is often “more emotional than rational.”
The tech industry has long embraced remote work, but few operated with fully-remote workforces. There’s also uncertainty about how long the pandemic will drag on, and whether employees will ever populate corporate campuses and office towers like in pre-Covid times, said Adrienne Altman, a managing director at human resources consulting firm Willis Towers Watson Plc.
“The way we’ve always thought about pay is where the job is located — the job, not the person,” Altman said. “But if the labor market is national, what’s the value of that job nationally?”