A New Currency: Work From Home

A New Currency in the Compensation Toolbox: Work From Home

If necessity is the mother of invention, then the COVID pandemic is the mother of a new compensation currency: Work From Home (WFH). 

The Evolving Compensation Toolbox

The total compensation toolbox has evolved rapidly over the last 30 years. For most of the 20th century, employees worked for 1 or 2 companies in their lifetime and their compensation programs reflected that work life: base salary, health benefits, a holiday bonus, and a retirement plan. That model fit the circumstances of that time.

However, since the introduction of bonuses and stock awards in the early 1970s, the toolbox has been in a steady state of change: bonuses, ESOPs and deferred compensation plans of the 1980s, stock options and cafeteria benefits of the 1990s, mega stock option awards of the early 2000s, restricted stock, performance units and work life balance of the 2010s. Now in the 2020s come two more: Work From Home and Work For Cause. This article focuses on WFH. 

WFH: The Value Proposition

Recent employee and company surveys have illustrated the large success and benefits WFH arrangements have produced post-pandemic. The following statistics draw a simple conclusion that companies should consider WFH arrangements as a critical element of their total compensation strategies.

1.    Companies save money. According to research firm Global Analytics, companies save $11,000 per employee per year with WFH flexibility.

2.   Employees save money. Economists estimate employees save approximately 7.3% of their annual earnings with WFH programs.

3.   Employees want WFH. A survey from McKinsey reports that given the opportunity, a whopping 87% of employees welcome WFH flexibility.

4.   Increased productivity. A survey from Stanford reports that employees who have hybrid work environments are 13% more productive than office only workers.

5.   Employees will leave if you don’t offer it. A recent Gallup survey  reports 60% of fully remote and 30% of hybrid employees are extremely likely to look for another job if forced into an office full time.

Given the overwhelming benefits from both employer and employee perspectives, the question becomes: how does WFH, or remote work, fit into the
total compensation strategy?  Every form of compensation has a real and perceived value, and as a result companies have the opportunity to tailor their compensation programs to serve as a competitive differentiator and deliver a better bang for the buck than their competition. High-performing
companies that tap into high perceived value compensation and benefit programs can deliver a total compensation proposition that provides more “value” to employees with fewer actual dollars spent.

To consider how a WFH program fits into the total compensation strategy, the real and perceived value should be evaluated. Survey statistics suggest that flexible WFH programs save companies an average of $11,000 per employee per year. Add to that the real costs savings to the employee such as commute time and expense, wardrobe, eating out, etc. – an aggregate of 7.3% of an employee’s earnings according to recent economist estimates – and companies start to get a pretty clear picture of the overall “value” of WFH.

Then there are the perceived values. Various surveys report these perceived benefits to include: freedom, autonomy, fewer interruptions to get work done more efficiently, flexible hours to manage other obligations, health and well-being benefits, the ability to work from different locations, the ability to move to more desirable locations, etc. The perceived value calculus may change employee to employee, but the value is real

Considerations for Building WFH into Compensation Strategy

Given the complexity of current WFH arrangements coupled with the tight US labor market, here are 5 key ideas to consider when developing a total compensation strategy inclusive of a long-term WFH program.

1.     Best “Bang for the Buck.” The total estimated perceived value of WFH is approximately 10-15% of an employee’s annual earnings. A well-crafted WFH program can position your company to deliver the greatest perceived bang for the buck of all currencies available. Not only does a company save $11,000 per employee, but the employee saves an extra 7.3% of annual earnings. Add the high perceived value by 90% of “remote capable” employees and the result is a currency that is likely going to deliver a total value up to twice the 7.3% savings.

2.    WFH should complement a competitive total compensation strategy. Consider the market competitive nature of the other compensation and benefit programs when adopting a long-term WFH strategy. If base salary and annual incentives are 30% below the market median and you believe a WFH strategy will make up all 25%, it will not. Other companies will provide market median compensation and a competitive WFH strategy.

3.    WFH can reduce wage increase pressures. Inflation and the hyper-competitive labor market have put significant pressure on companies to pay up to keep their employees. Many companies provided higher than budgeted base salary increases, paid higher bonuses, and/or provided one-time retention awards. Additionally, most companies were in no hurry to force employees back to the office because of the highly perceived value of WFH. Going forward, adopting a more formal WFH strategy will likely be one of the leading ways companies combat wage pressures or expense pressures with a no-cost, high-benefit currency. 

4.    WFH can reduce the cost of geographic labor pressures. Most US companies have adopted compensation strategies that pay discounts or premiums for prevailing wages in different geographic parts of the country. These discounts or premiums take into account supply and demand of labor, cost of living, purchasing power, etc. However, if a company can successfully employ a WFH or remote work strategy, they may be able to pay for talent to get the same work done at a lower cost.

5.    The cost of no WFH program could be expensive. According to surveys, the cost of not including a WFH program in your total compensation strategy will ensure you are limiting your potential labor pool by approximately 40%, which inherently either a) raises the cost of other compensation programs or b) lowers the probability of hiring star performers. Either way, if there is no WFH program built into the total compensation strategy, it will come at a cost.

While the pandemic has brought a significant number of short and long-term challenges, one sea change that appears positive is how we get work done.  While there are many complexities to consider when building a WFH program into the total compensation strategy, the supporting data is compelling. A well-executed WFH program will deliver significant value to a rapidly evolving work force. 

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