In 2018, the proportion of homeworkers varied between 2% in the countries of Southeastern Europe (Greece, Croatia and Bulgaria) and 15% in the countries of Northern Europe (Denmark, Sweden and Finland). According to a Eurostat study conducted in 2018, homeworking in Europe increased from 5.8% in 2008 to 8.3% in 2018, while it reached 85% at the peak of the COVID-19 pandemic last April.
According to an internal Facebook study communicated by Le Monde, over 50% of those employed by the famous social networking site think they are more productive when working from home, and 20% to 40% say they are interested in the possibility of working remotely permanently. Some of the advantages of remote work highlighted by Mark Zuckerberg include more equal opportunities in the workplace and more diversified recruitment worldwide, but above all savings on infrastructure, particularly on salaries which will now be adjusted to each person’s place of residence.
Should we follow Facebook’s lead and adjust salaries in line with the costs of remote workers’ place of residence? What are the risks of such a system falling by the wayside during recruitment, but also talent retention? In this article, we reflect on the concept of salary indexation according to the location of remote workers and how it impacts competition between talented employees and companies.
FACEBOOK’S DECISION TO INDEX SALARIES TO THE COST OF EMPLOYEES’ PLACE OF RESIDENCE
The health crisis has had a major impact on the way we work, and today millions of employees are working from home around the world.
Digital giants are no exception to the rule. Mark Zuckerberg, the famous CEO of Facebook, announced to his employees earlier this year plans for remote work, but under surprising conditions to say the least. Staff members who had been hoping to work remotely from their country homes and increase their purchasing power by relocating far from Silicon Valley, the region with the highest house prices in the world, can forget about it. Why exactly? Facebook has decided to revise wages downwards in line with its employees’ new workplace. “We’re going to be the most forward-leaning company on remote work at our scale”, he said in a recent video conference with his employees.
While Zuckerberg says nearly 50% of Facebook employees could become remote workers in the next five to ten years, he makes it clears for anyone counting their chickens: remote work will allow him to “aggressively recruit across the country”. Since good news never comes alone, in addition to recruiting employees throughout the country, or even the world at a later stage, Zuckerberg informed his employees that those who decide to move to places cheaper than Silicon Valley in the hope of increasing their purchasing power would automatically have to accept a pay cut, which would then be contractually indexed to the cost of their new place of residence from 1 January 2021. To check where his employees are working remotely, he hopes to track down their living places and added that there would be “severe ramifications for people who are not honest about this”.
IS THE PRIVILEGED POSITION OF GAFA’S EMPLOYEES IN JEOPARDY AS RECRUITMENT IS OPENED TO ALL REMOTE WORKERS?
GAFA pays well
Facebook, Google and Microsoft etc. have a reputation for paying their employees (including trainees) very well so that they can live in the San Francisco area, which is home to the famous Silicon Valley, the global driving force behind IT developments and ranked as the world’s most expensive metropolis for house prices, far ahead of the City in London or Paris.
For example, in East Palo Alto, a city near San Francisco where Facebook chose to establish its headquarters in 2011, house prices have doubled and even tripled in recent years. To attract talented new workers and to allow them to live near their workplace, Facebook and the other digital giants have chosen to pay some of the highest salaries in the world. As a result, the average salary at Facebook is over $240,000, complemented by a host of major benefits that employees around the world dream of: free meals, shuttle buses to and from work, the use of sports and games facilities, and free access to a wellness area among other things. The average salary for a beginner developer can be around $12,000 a month. Trainees are also not to be outdone; with an average of $8,000 in benefits, young graduates who land a work placement at Facebook in Silicon Valley can pay off their tuition fees – which amount to several tens of thousands of dollars a year – as well as the cost of renting accommodation in this exorbitant region.
Wage disparities still very considerably
In comparison, according to Glassdoor, a company rating site that compiles reviews and salary levels in companies, the average monthly salary of the American working population is $3,260, or around €2,887. These figures published by the Bureau of Labor Statistics, the American equivalent of the UK’s Office for National Statistics, show a significant disparity between the average American employee and the average employee working in Silicon Valley in the world of technology.
Glassdoor also claims that while Facebook is the employer that pays its trainees the best, it is closely followed by GAFA in Silicon Valley, with Amazon paying them $7,725 a month, closely followed by Google and Salesforce. To continue appealing to young tech talent, Microsoft had no choice but to match the huge salaries of its competitors: the software giant is now ranked fifth among the highest-paying companies, and pays over $7,250 a month to trainees, who, unlike their counterparts in Silicon Valley, have joined a headquarters based in Redmond, Washington. The talent war is already forcing companies to match each other’s salaries. In this context, how do we look at Facebook’s decision to index salaries to its remote workers’ place of residence and real cost of living?
THE CONSEQUENCES OF REMOTE WORK ON RECRUITMENT AND SALARIES
Will the other Silicon Valley giants follow Facebook’s lead and pay employees according to their place of residence?
Facebook might be the exception for the moment, but there is no doubt that remote work could have serious consequences on companies’ future recruiting in the country, and not just on salaries. Indeed, by indexing salaries to employees’ place of residence, you can imagine that each person’s knowledge, skills and abilities will no longer have the same value depending on where they are located.
For example, if a firm manages to find the skills it is looking for in India or China, where labour costs are relatively low compared to in Europe, it is highly likely that wages will be brought down significantly.
The question of the usefulness of a headquarters is also central to the questions raised by remote work.
Does a company really need a physical headquarters to bring together its workers, most of whom work from home? In addition to the risk of dehumanisation brought about by a full-time remote workforce, merely linking skills to employees’ place of residence to the detriment of associated work is a danger. This is especially true of candidates looking for a permanent contract, who will face competition not only locally, but also internationally. This can already occur for instance with the outsourcing of IT tasks; employees’ responsibilities could be “outsourced”. All employees could be impacted by remote recruitment across the world, with no more barriers for the pool of available candidates. The most strategic positions, or those of senior executives, would be relatively spared by the outsourcing their functions to other, less obvious, countries.
French law does not allow salary indexation based on place of residence.
In France, it would be technically impossible to recruit candidates and pay them according to their place of residence. Why exactly? Employment law prohibits this “discrimination” based on place of residence and does not provide for this principle. Nevertheless, a reduction in or adjustment to pay conditions can be discussed and modified under one condition: staff unions and management must be assembled and all parties must consent. In the case of an employment protection plan, for example, employees will be able to accept a 5% pay cut provided that they have discussed it beforehand and, above all, have given their approval in negotiations with management.
INCENTIVE COMPENSATION IS THE BEST WAY TO ACHIEVE RESULTS, AND EVEN MORE SO IN AN ECONOMIC CRISIS.
Fear of dismissal inhibits employee motivation
The fear of losing your job is not the best motivation; on the contrary, this fear can paralyse some employees, who are rightly very worried about their professional future. In normal times, and even more so in an economic downturn, employees must be given the means to achieve results. In a more uncertain world, if companies are to weather the storm, they naturally need results even more, and incentive compensation can play a key role in establishing this virtuous circle. The expectation of high earnings will drive employees and cause them to surpass themselves while investing more in their assignments. An effective way to achieve results is therefore to propose a realincentive compensation strategy to employees, who will be all the more motivated to reach their targets, or even exceed them.
Furthermore, it is important to remember that French law does not allow unilateral salary cuts. That said, if a company encounters major economic difficulties, which the do in health crises especially, it is more logical to freeze fixed salaries. This is a precautionary measure which people understand. Employees do not receive a pay rise, and the effect of inflation is lost, which amounts to a decrease in their purchasing power. Conversely, to motivate employees,incentive compensation is the best possible investment, provided it is well defined.
Some major bosses have adopted symbolic austerity measures and have spoken of a fairly major cut in their salaries, such as Ben Smith, CEO of Air France-KLM, who receives a fixed annual salary of €900,000 a year, and who nevertheless announced in a press release on 23 April that he would “reduce (his) remuneration by 25% during the COVID-19 crisis”.
HOW ABOUT REINJECTING SAVINGS ON OFFICE EXPENSES INTO THE COMPANY?
In remote work, infrastructures are becoming less useful.
With full-time remote working, it is conceivable that some companies will no longer necessarily benefit from a physical headquarters. Companies could also choose to reinject, fully or partially, the budget initially allocated to renting offices and establishing their head office. With half of its workforce working remotely, their budget for office rental costs would also fall significantly.
A new question arises for employees: when working remotely, is it possible to deduct a percentage of their rent or credit repayment? This may be relevant, especially if it is expressly stated in the employment contract that the employee is working remotely. Invoicing a quarter or a fifth of the cost of housing seems possible with a tax deduction. Furthermore, it should be noted that if remote work were to become widespread in the future, there is a good chance that employees will seek to expand, for example by choosing accommodation with an office ensuring good working conditions. For households where two or more people are working remotely, even more space and volume will be needed to set up workplaces on a permanent basis.
Le full remote rend possible la “délocalisation” des emplois à travers le monde et soulève une question éthique
Recruiters’ hunting ground no longer has any geographical limits.
As Mark Zuckerberg explained, the full-time remote work will allow him to open up recruiting to the entire United States, but also to other countries around the world. New international competition will thus emerge between employees, posing a moral question: should positions initially be outsourced on permanent contracts to countries with lower labour costs?
If some employers are contemplating doing this, it is important to separate assignments that can genuinely be outsourced from those with a strategic dimension to be kept local. The value of output, creativity of ideas, inventiveness and reflection will therefore be difficult to outsource, as it is rooted in a cultural reality, the history of a country and its socio-cultural practices. Keeping up to date with current events, subscribing to local news or sharing a common cultural heritage is essential in certain key functions; this is easier to imagine of projects for clients whose experience and customs you share.
To a different extent, the so-called “execution” professions, especially in IT development, are already subject to even greater outsourcing and may be in the future, pitting developers from all over the world against each other who can code data from anywhere based on the specifications of the companies placing the orders.
Finally, human involvement of central importance in a company’s performance. Human interaction can remove some hindrances and enable team members to work together more efficiently. Furthermore, it should be remembered that with international outsourcing of jobs, other constraints will appear, particularly of a technical nature. One such constraint is the harmonisation of time zones. Staggered working hours have a direct impact on responsiveness, but also on the well-being of employees, who are forced to adapt to the working hours of other companies – sometimes eight hours ahead or behind – and to answer urgent requests at any time of the day – and night!