Zillow Is Abandoning The Antiquated Location-Based Pay System
Dan Spaulding, the chief people officer of Zillow, the large online real estate site, made a bold, progressive, forward-looking statement championing the case for losing the antiquated location-based salary system. Spaulding said, “When you work for Zillow, your long-term earning potential is determined by how you perform, and will not be limited by where you live.”
Traditionally, businesses have paid their employees partly based upon where they lived and worked. Pre-pandemic, when only a fraction of the workforce was remote, the majority of workers found jobs within a reasonable commuting distance. If you took mass transit from the suburbs of Long Island into New York City, you’d most likely earn a significantly higher compensation compared to someone doing the same job in the Midwest.
The virus outbreak radically changed the way we think about and conduct business. We’ve collectively been in an almost two-year remote-work experiment. Surprising senior executives, working from home worked out well. Stock prices soared to record high-levels, indicating that companies thrived during this tumultuous time with folks in an out-of-office setting. Remote work spawned derivatives, such as digital nomads who roamed the U.S. and world to find interesting places to work. Many people who worked remotely decided to move. Since they no longer had to commute to an office, they figured they might as well live in a place that they love. Some relocated to locations that offer low taxes, affordable housing, good public schools for their children, pleasant weather and an attractive lifestyle that suits them.
The frustration faced by those who relocated was that they found that their compensation may be cut if they resided in a city that was less expensive compared to where their office was based. Spaulding and Zillow, seeing this dilemma, took action. The company felt it only appropriate for its staff to be paid what they are worth—and not according to where they reside. It sounds logical, but this is a game-changing moment.
In a LinkedIn post, Spaulding said, “As we evaluated our compensation philosophy to align with our new flexible work policy over the past year, we knew it needed to reflect our values and account for competitive realities. With this evolved approach, our nationally competitive compensation packages are primarily tied to an employee’s role, responsibilities and performance, with less emphasis on geography.”
The online real-estate-marketplace platform recognized that the mood of workers has changed. They want to work remotely. Hybrid work of a couple of days in the office is okay, but not 9 a.m. to 5 p.m., five days a week. Afraid of Covid-19, the Delta variant and potential future viruses, Americans left overcrowded, densely populated cities for more suburban or rural places.
As a human resources professional, Spaulding recognized that offering both remote and the appropriate compensation would be a great way to attract, hire and retain top talent. This decision is a brilliant recruiting strategy. He said about the firm, “Nearly half of our new hires—Zillow is on a hiring spree this year—have told us they chose Zillow because of the freedom and flexibility we offer.”
Spaulding added, “Taken together, our policies are designed to enable long-term flexibility, attract and retain top talent from across the country, and create a work environment where our employees have the opportunity to do the best work of their careers” and highlighted the new agenda saying that the company will:
- Enable most employees to work from anywhere within the U.S. and Canada, and to voluntarily relocate without having their pay reduced
- Prioritize performance and scope ahead of location when setting salaries and not limiting pay growth for any employee based on where they live
- Provide performance-differentiated equity awards to continue Zillow’s long-standing philosophy of providing stock-ownership opportunities, through our Equity Choice program
- Continually assess market benchmarks, looking at national, local and sector-wide metrics, to stay competitive in retaining and attracting top talent, including more women and BIPOC candidates, whom the data shows are among the most interested in location-flexible work
“Location-flexible work and compensation is a competitive advantage for Zillow in the short term, but we believe it will be an industry norm in the long term,” Spaulding wrote. Location-based salaries and compensation are now being questioned and reevaluated, in light of the success of the massive work-from-home or anywhere-remotely trend. If this trend takes hold, it will be a boon for workers.
The prospect of not needing to live within commuting distance of a job or applying for a role anywhere in the U.S. could be a career game changer. A person who’s stuck in a region that doesn’t offer appropriate jobs would have to settle for what’s available. When companies are open to recruiting talent away from the major business hubs, it opens up new vistas for a large number of Americans.
To be fair, we need to take into consideration that Zillow has a vested interest in people selling their houses, leaving apartments, moving to a new location and purchasing or renting a new home.
Reddit, a freewheeling network of communities based on people’s interests, previously shared a non-location based pay plan, similar to what Zillow is doing. In a companywide memo, Reddit said, “Looking ahead, we want to meet the needs of our employees so they can do their best work, especially in a time of uncertainty. And as we deliver on our mission of creating belonging for everyone in the world, we want Reddit to be positioned as a workforce that’s as diverse as its ecosystem of communities and users.” To this end, the company will empower its employees by offering them the “flexibility to explore where they work: in the office, remotely or a combination of the two.”
Reddit acknowledges that a percentage of people may elect to relocate. If they so choose, the company “will be supportive of the move—and won’t adjust their compensation down.” The company said in the memo, “We’ve reimagined our approach to compensation in the U.S.” To show support for its employees, the company is “eliminating geographic compensation zones in the U.S.” Contrary to what other companies are doing, this policy suggests that “compensation will be tied to pay ranges of high-cost areas, such as San Francisco and New York, regardless of where employees live.”
Not everyone is on board with this compensation model. In May 2020, Facebook CEO Mark Zuckerberg said, “We’re going to be the most forward-leaning company on remote work at our scale.” He then ominously added, employees will have to tell their bosses if they move to a different location. According to Zuckerberg, those who relocate to lower-cost cities “may have their compensation adjusted based on their new locations.” He added, “We’ll adjust salary to your location at that point. There’ll be severe ramifications for people who are not honest about this.”
It looks like Google employees who want to continue working remotely may have their compensation cut, depending on where they reside. The search-engine giant rolled out a new calculator to show what workers will be paid if they work in different locations. The gist is that employees who move out of the big cities to the suburbs will be subjected to decreased pay. For instance, Googlers who reside in New York City and work remotely won’t see any reductions in pay. However, Reuters found that an employee living in Stamford, Connecticut, a town that has many people who commute into the Big Apple, would be paid 15% less, if they work from home. Google employees who decide to relocate far from their office will possibly face sharp slashes to their pay package. Reuters pointed to a worker who left San Francisco for Lake Tahoe, an expensive area of California, would have their pay cut significantly by 25%.
Fast-growing FinTech payments company Stripe announced a different spin, with respect to compensation. In an effort to save on expensive real estate costs, Stripe said it will pay its workers $20,000 to leave New York City and San Francisco. As an incentive, employees would be paid $20,000 to relocate from high-priced cities to lower-cost locations. Sounds good, right? Here’s the catch: the workers who take up the offer will have to take a 10% cut to their compensation.
There is a downside. If more companies roll out similar programs, job seekers face greater competition. Candidates had to be concerned about the other people in their immediate vicinity applying for the same jobs. Now, they’ll need to compete with the volume of applicants applying from all over the U.S.