These tech companies pay employees the same rates all over the US

Some big tech companies, including Facebook Inc.

it was clear early on in the pandemic that people moving away from the Bay Area to cheaper cities would see a pay cut. Payment platform Stripe Inc. offered one-time bonuses for employees who relocated 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 employee morale, said Jake Rosenfeld, a sociology professor at Washington University in St. Louis who studies pay determination. “Employers really have to do a dance to justify it to employees,” he said.

Employees considering more flexible work scenarios are divided themselves. A November survey of 600 technical workers by the job search platform Indeed found that 60% of respondents would be willing to take a pay cut to permanently work remotely, while 40% said they wouldn’t.

Zillow, the Seattle-based real estate search agency, told its 5,600 employees in October that if they chose 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, Zillow chief people officer. “We are making this change to retain our employees.”

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

“If people think the world is going back to where it was 18 months after the pandemic started, I don’t think that’s realistic,” said Mr. Spaulding. “Your best talent will be given several options from this.”

Social media platform Reddit, which employs about 700 people, made a similar move in late October to get rid of geo-based salaries in the US after productivity remained high while people were completely remote.

The company wanted to “make the trade-off that employees would have to make if we reduced their compensation if they moved to a cheaper region,” said Nellie Peshkov, Reddit’s chief people and culture officer.

Reddit previously had three pay zones in the US, with the vast majority of its employees – those located in New York and San Francisco – earning the most. Some Reddit employees in other cities are getting pay rises as part of the service, Ms. Peshkov said.

In addition to retaining current talent, Ms. Peshkov said the company expects the move to contribute to the development of a more diverse workforce.

Employers tend to combine the cost of living with the market rate for labor in a particular area, said Peter Cappelli, a professor of management at the University of Pennsylvania Wharton School. “The reason they make a lot of money is because that’s where the competition is,” he said. “If you haven’t paid them that much on Facebook, someone further down at LinkedIn is going to hire them.”

While keeping salaries the same can help keep employees, Mr. Cappelli said, you can’t let the people who moved sit next to colleagues do the exact same job while earning less. Alternatively, the people who stay in a high-cost area may dislike those who have moved while keeping their pay.

“Employees might say, ‘Hey, you pay me just like someone who lives in a cheaper place,’” he said. “Their salary goes further than mine.”

Reddit’s Ms. Peshkov said she has not yet heard of complaints from San Francisco workers calling the move unfair, due to the high cost of living in the Bay Area.

“There was actually no negative response,” she said. “They appreciate this overarching philosophy of paying people for impact and not where they live.”

Employee sentiment aside, paying employees without regard to where they live can come with significant costs, said Tauseef Rahman, a workforce strategy and analysis partner at Mercer.

“Because you pay national rates, you are arguably paying more than what the local labor market would require,” he said. Businesses will have to determine whether it has a financial advantage to be nationally competitive on wages, he added. He thinks one of the results is that companies only pay for certain functions and not for others.

“The degree to which geography affects pay is not the same for all types of jobs,” he said. “When you think about really in-demand types of roles where just not a lot of people can do anything, you’re paying that going rate.”

So far, those coming off geographic wage scales seem to be in the minority. Some are doing the opposite: in June, Slack Technologies Inc.

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

“We created these bands to provide transparency and fairness to our employees,” said Nadia Rawlinson, Slack’s Chief People Officer. The company decided that adjusting wages based on employees’ local cost of living would help it avoid inequalities.

Sahil Lavingia, founder of 24-member e-commerce startup Gumroad, heard from hundreds of job seekers after tweeting that he would no longer take geography into account when determining the wage.

But even within his relatively small team – which has been working completely remotely since 2016 – the move was not without complications. He said he has removed the highest wage level for future hires, claimed one employee and put limits on the weekly hours worked to offset the salary increases of some employees.

Mr Lavingia said many of the tech workers he has heard of are based outside the US – in India, Nigeria, Singapore and Eastern Europe. He expects that as more people compete for completely remote jobs, the going rate for technical work will eventually fall.

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

—For more analysis, reviews, advice, and headlines from WSJ Technology, sign up for our weekly newsletter.