Pandemic can lead to city-based compensation for same roles

With the pandemic forcing employees to work from their home cities, organisations may have to consider eliminating the ‘cost of living’ index from the compensation structure

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The pandemic-induced remote working situation has also impacted the hiring process in various organisations. While organisations navigate these massively altered work conditions, the question that arises is, ‘What happens to the cost of living index now?’

While deciding on the compensation structure, many companies factor in the expenses of accommodation, food, fuel, clothing, education, healthcare and entertainment, among others incurred by a person in various regions. However, now that many new hires are logging in from their own locations, will these expenses be taken into consideration in the payment structure?


Sudheesh Venkatesh

“In case of a shift from a low- cost city to a high-cost one, one just has to adjust the compensation for inflation. If it’s the other way round, an employee used to a higher income will obviously protest.”


Kishore GR, senior VP & head-HR, DXC/HP SBU, Mphasis, feels there’s a different way of looking at the remote workforce.

“Different pay ranges exist today as well. The tier of cities leads to differentiation in pay scales. When it comes to remote working, there will continue to be differentiation, just like in the past. However, the question is whether one is able to get the talent required to meet the hiring criteria,” he says.

“Other benefits associated with remote working, such as mobile usage will come into play. The elements neglected are transportation or infrastructure costs. Those will have a direct impact on a person’s earning capability, considering the fact that there was always the element of ‘cost of living index’ in it. It is a little early to say whether remote working is here to stay, or whether normalcy will return, or whether a hybrid model will be adopted. It will lie somewhere between privacy and confidentiality of the client’s approval,” Kishore adds.

Kishore GR also adds here that if a person moves to a high-cost city from a low-cost one for work, and then is allowed to go back and work to the home city, the organisation does not reduce his/her salary.

“As of now, the industry is also unfolding with each passing day. We do not know whether the client will allow for permanency in the remote working setup. Additionally, we have to ensure privacy and data protection. We cannot be sure whether the environment in which the person is working allows privacy in another city. In the coming months all that will be part of conversations,” he points out.

A discussion website, Reddit, has decided to pay salaries to all its employees in New York and San Francisco, irrespective of whether they are in a high-cost city or a low-cost one. This has drawn attention to the fact that since employees can now be hired from anywhere, should their compensation be aligned with the cost of living in their respective locations.

While Azim Premji Foundation has very limited remote-working processes, Sudheesh Venkatesh, chief people officer, Azim Premji Foundation, has observed that organisations will probably do that in future if not immediately. “Why wouldn’t the companies monetise it? From a lower cost city to a higher city is easier because one just has to adjust the compensation for inflation. If it’s the other way round, an employee who is used to a higher income will obviously protest. The employees will give multiple reasons why their present location is as costly as an expensive city. To avoid this challenge, many organisations do away with this cost of living index.”


Kishore GR

 “Different pay ranges exist today as well. The tier of cities leads to differentiation in pay scales. When it comes to remote working, there will continue to be differentiation, just like in the past”


Speaking about the functioning of government institution in terms of compensation structure, “The HRA in the government institutions — which employ several people and also transfer them to various places — is linked to the city. In the metros, the HRA is 30 per cent of the basic, whereas in tier-II cities, it is 25 per cent of the basic. Why house rent? Because we know that the housing costs are different at different places. If we put all that together, the scenario is similar to the current one.”

Some of the other HR experts that HR Katha reached out to feel that it is too early to comment, as the industry is still adjusting itself to the changing work scenarios due to the pandemic. Therefore, it is yet to be seen whether the work-from-home setup gets monetised differently in the near future. A lot depends on the clients of several of these organisations.