FT Montage. Close up of Facebook social network website
It is 'treacherous ground if you pay people less because they live somewhere that costs less', says Thomas Kochan,from MIT’s Sloane School of Management © FT Montage / Dreamstime.com

Facebook announced in May that up to half its workforce is likely to be working from home within the next five to 10 years. There is one caveat: staff salaries could be adjusted to align with the cost of living in their chosen location, meaning potential pay cuts for those considering moving away from its expensive Palo Alto base and other global hubs.

Chief executive Mark Zuckerberg told staff via video that the change will come into effect from January. “We’ll adjust salary to your location at that point . . . There’ll be severe ramifications for people who are not honest about this,” he added.

Workplace messaging company Slack has announced a similar move, while fellow California-based Twitter and mobile payments company Square are yet to confirm whether they will follow Facebook’s lead — but has the social media platform set a wider precedent for the sector as companies look to cut costs?

It is “treacherous ground if you pay people less because they live somewhere that costs less”, says Thomas Kochan, professor of work and organisation studies at MIT’s Sloane School of Management and co-director of the Sloan Institute for Work and Employment Research.

Laura Baldwin, president of O’Reilly, a US technology textbook publisher, agrees. “If you expect similar results and outcomes from everyone on your engineering team, for example, how can you pay one engineer less than the other for the same value of work?,” she says. “Does it matter if your team lives in California or Utah if they are expected to deliver similar results?”

50%of 7,000 UK survey respondents think Facebook’s plan for locally adjusted pay is fair
33%believe it is unfair and could discourage employees from opting to work remotelySource: Piplsay

Salaries can vary significantly across the US. According to census data, the median household income in California in 2018 was an estimated $75,000, compared with $58,700 in neighbouring Nevada and $54,500 in the Midwest state of Missouri. Within California, San Francisco’s median was $107,900 compared with $72,600 in Los Angeles.

Facebook — which employs nearly 50,000 full-time employees worldwide — suggests the move is simply an extension of current practice. “We have always used a market-based approach to compensation, meaning that we pay in line with the common market practice in each location where we operate. This is our current practice, and has been for years. It applies to all workers, including remote workers,” a Facebook spokesperson says.

A giant digital sign is seen at Facebook's corporate headquarters campus in Menlo Park, California, on October 23, 2019. (Photo by Josh Edelson / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)
Chief executive Mark Zuckerberg said of the change, which comes into effect in January: 'We’ll adjust salary to your location at that point . . . There’ll be severe ramifications for people who are not honest about this' © Josh Edelson/AFP via Getty Images

Yet it is difficult to predict how much money such a move will save for the likes of Facebook, which is facing an advertising boycott from some of the world’s biggest companies, accused of failing to take meaningful action over misinformation published on its site.

More people working from home across various regions will create a bigger talent pool, says Sameer Hasija, associate professor of technology and operations management at Insead, the French business school. But similarly, he argues, “employees will have access to more employers, so it depends how the supply and demand market plays out”.

Businesses also cannot foresee factors such as possible regulatory changes in response to more people working from home in the long term, says Ian Woodward, professor of management practice at Insead’s Asia campus. Anyone considered to be top talent will have increased salary bargaining power, he adds, making it “very hard” to ascertain what savings companies could make.

Employers could reach out to those who would otherwise struggle to afford to live near a company’s headquarters, such as junior candidates or those who cannot relocate due to family commitments, says Charles Cotton, senior policy adviser for performance and reward at the UK-based Chartered Institute of Personnel and Development. “It also depends on how the government rolls out [broadband] infrastructure. Otherwise there will be groups of people deprived from accessing the labour market,” he adds.

But Jonquil Hackenberg, global head of sustainable business at Infosys Consulting, counters that while remote working “gives businesses the ability to hire top talent from anywhere . . . basing pay on location undermines this entirely — and could undermine wider efforts to reach pay equality”.

In a June survey of more than 7,000 Britons by Piplsay, a research company, half of respondents said they thought Facebook’s decision to adjust salary by location was fair and that the employer could also benefit; one-third believed it was unfair and that it would discourage people from opting for it.

There is also the question of what effect a mass working from home policy could have on large, multicultural and often expensive cities such as London or New York and tech hubs like Silicon Valley. Would the lure of home working, even if it does mean a pay cut, lead to a mass exodus?

That is not yet clear, says Lynda Gratton, professor of management practice at London Business School. She believes it is most likely that many people will work from home some of the time, rather than most of the time. Offices will be “places for socialising, creating serendipitous encounters and general flânerie”, she says, while home will be a place for more intensive, focused work.

Such a shift will raise important questions about what offices — and indeed cities — are for, she adds.

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