Reference no: EM133036152

Topics: Summary: Classroom Application: Questions: What are pay localization policies? 

Compensation, Recruitment, Pay Equity 

As companies in Silicon Valley become increasingly open to the idea of remote-only workers, some Silicon Valley companies are considering pay cuts when employees move to lower-cost locations. A strategy of pay localization would mean that a portion of employees' salaries would be dependent on where they chose to live. If they move from the expensive Bay Area to a low-cost location, they might have to accept a 10-20% pay cut as part of the move. Supporters of pay localization contend that it is only rational to pay workers more when they are based in more-expensive locations, and allowing employees to keep their Bay Area-based salaries while working in a low-cost location would be unfair to other remote workers in the same location who receive a lower wage. Critics of the pay cuts contend that reducing salaries would lead to unhappy workers who quit in high numbers and create tension between workers who are used to high salaries and the profitable companies who employ them. 

You can use this article to discuss the factors that determine the worth of a position. For in class-discussion, you can have the students debate the merits of pay localization policies. You can also discuss how perceptions of inequity impact workplace dynamics. 

• Do you support the decision of some Silicon Valley companies to lower the salaries of employees who decide to permanently move to low-cost locations? Explain your point of view. 
• What best practices should companies follow if they use pay localization policies? 
• Assume you as a manager have to tell one of your top-performing employees who has relocated from the Bay Area to a low-cost location that you are going to cut his salary by 20% to reflect his lower costs of living. How should you approach that conversation? 
• Assume you as an employee want to move permanently from the Bay Area to a lower-cost location but you are concerned that your employer will want to reduce your salary by 20% to reflect your lower living expenses. How should you convince your employer not to reduce your salary?