Dan Walter
Futuresense.com


Justin Hampton:

All right. So, hey, thanks again, Dan. We’re going to spend about an hour today talking about compensating remote workers, and it is something you have spent quite a bit of time on. For everyone joining us, this is Dan Walter, managing consultant with FutureSense. And Dan, if you want to just kind of take a couple minutes and tell us a little bit about your background, then we can hop into the Q&A and try some discussion.

Dan Walter:

Sure. I’m Dan Walter. I do compensation stuff. Probably more than that. So, I work for a company called FutureSense. FutureSense is a human capital consulting firm. We’re a boutique firm. About 25 employees. We do HR, change management, OD, leadership coaching, but the vast majority of what we do is around compensation. I’ve been doing this for about 25 years.

Dan Walter:

A lot of my deep expertise is in stuff that a lot of people in the comp world don’t do much about. Equity compensation programs, sales incentives, incentive compensation programs, and working a lot with high growth, emerging startups. Companies that are unusual in their marketplace or in an unusual industry.

Dan Walter:

So, I work with a lot of companies with 2,000 and less employees. Oftentimes, companies with less than 200 employees. So, companies that oftentimes don’t have all the processes and their world fully documented and verified, they’re often working in a liquid state. And that’s an area where I spent a lot of my time helping companies through this. I also tend to be a bit of a contrarian when it comes to compensation issues.

Dan Walter:

I think, Justin and I have known each other for a long time, but I think the remote issue came up when I wrote an article called Mark Zuckerberg is wrong. Which is always a good way to make friends, is to call the fourth richest man on the planet wrong, but that’s okay too.

Justin Hampton:

Well, yeah. I guess with the 2020 kind of threw everybody for a loop. I think a lot of companies were moving the direction just through… Technically, it’s much more possible to have a remote workforce, especially as you start to see the cost of labor increasing in these really high tech markets.

Justin Hampton:

So, I think we’re already kind of on our way for a lot of companies, but 2020 really just thrust that into warp speed. I guess, as we’ve seen a lot of those companies moving into a remote workforce, maybe those that were reluctant, or those that weren’t quite ready, what are some of the biggest struggles you’ve seen companies face and some of the missteps that you’ve seen companies face?

Dan Walter:

They are broad and deep. Some of them are only tangentially related to compensation, but at a very high level. So, FutureSense has been a remote, a virtual, whatever you want to call it company for 30 years. I’ve worked from wherever I am for 20 years.

Dan Walter:

And the first thing is that companies don’t necessarily know what people are doing other than when they see people doing it. And so, the remote workforce concept, when somebody works remotely, it is often been viewed as a favor to them. “Well, okay, Charlie, I get it. You broke both your legs in a skiing accident, and it’s three flights of stairs into the building. So, you’re allowed to work from home for the next three months while you’re in rehab. But then, I want you to limp up them stairs and come back into work so we know what you’re doing.”

Dan Walter:

But that’s really more of a sign of companies that are not particularly great at managing people or at training people to manage people. They tend to be companies who don’t allow their employees to have much, if any, autonomy. Again, some roles you can’t allow very much autonomy, but for most professional positions, you can.

Dan Walter:

That was the very first hurdle that companies had to face is the concept of, “I can’t imagine people doing what they do here if they’re not here.” Which, again, for some people, that is a fact. But for most people, given the right tool set, the right instructions, and the right management, they can be equally, if not more productive from wherever they happen to be sitting.

Dan Walter:

That would be my starting point. Were people truly ready in understanding of what remote work means? And this is both their staff and the leadership at companies.

Justin Hampton:

It’s interesting as you mentioned not being able to understand what people are doing, because you can’t see what they’re doing. Have you seen companies take any innovative approaches to making sure that they can now see what their employees are doing even when they are not within eyeshot?

Dan Walter:

Yeah. I mean, one of the things that has been a challenge for a lot of companies is they have, especially small to mid sized companies, they have very little in the way of control over documents. And so, people do a lot of work where they’re saving stuff onto their computer. Nowhere else.

Dan Walter:

No one knows what work they’re actually working on, nor where they are in the process. Nobody has access to that work. Which, again, when people leave their computers at work every day, and that’s the only place they work, you can get away with it.

Dan Walter:

But if you’ve ever worked at a very large company that’s in a very secure industry, finance is a good example of this, all of your data is constantly backed up. All of your data is constantly saved to a network, because everyone needs to know that if you stupidly take your computer home and it gets stolen, or you take your computer home and you decide not to come back, that they have all of your work product. They’re not left in a lurch.

Dan Walter:

So, it was hard to do that 10 years ago. It’s not particularly hard to do that in a world of Google Drives and OneDrives, Boxes. You can actually have people working on the same documents from multiple locations simultaneously. So, that was one component, is people just didn’t know.

Dan Walter:

The other piece is the concept of checking in with people. There was this idea that if I walk by your desk and you are typing, you are working. I once worked with a guy who was narcoleptic, and we did not know for two months, because he had taught himself he would face away. So, his back was to you in his office, which is always a weird way to sit in an office. And he could fall asleep with his hands on his keyboard, and it just looked like he was deep in thought. And he would sleep for 45 minutes and then wake up. And somebody went, “Wait, were you sleeping?” And so, he admitted, but he had gotten away with it for years at other companies.

Dan Walter:

It turns out, just because somebody is at their desk, doesn’t mean they’re working. And just because somebody isn’t at their desk, doesn’t necessarily mean they’re not working. But that’s a hard thing to teach, especially newer managers.

Justin Hampton:

Yeah. So, are you seeing a lot of more movement into kind of agile performance management or those kind of more frequent check-ins now?

Dan Walter:

Agile performance management, we’re seeing much more in the way of managers dedicating less of their time to work and more of their time to managing. Making sure that people have actually done what they need to do. But more importantly, it’s less about making sure that they’re doing what they’re supposed to do, and more about making sure they have the information and tools to do what they need to do.

Dan Walter:

So, checking in and going, “All right. Do you have any questions? Is there anything where I can provide you with a level of expertise or somebody else to cross check your work?” Or, “Wow, dude, your webcam is from 1970. You’re pixelated like an 8-bit video game. Can we get you a better video camera?”

Dan Walter:

I had somebody on my team, I’m like, “What do you mean you can’t see what I’m showing you?” “Well, it’s really hard, because the monitor …” I went, “What kind of monitor are you using?” “I don’t know. I’ve had it for years. It’s like 15 inches.” I went, “We’re sending you a monitor. We’re going to send you a 32 inch, curved monitor. When you’re on Zoom, when we share an Excel spreadsheet, I need to know you can actually see what we’re talking about.”

Dan Walter:

Again, it’s like a couple $100 investment, but it wasn’t really a big expense to make somebody significantly more productive with no effort. But it’s those kinds of things if you’re not talking to your people, if you’re not discussing things with them, you might not know.

Dan Walter:

I had somebody who goes, “Yeah, I was talking to somebody, and I realized their computer was always moving when they were on the phone, whenever they’re on a Zoom call. The camera would be doing this.” And it turns out, the only place they had to work was their couch, and their laptop was always just on their lap. And they went, “So we got him a desk.”

Dan Walter:

It seems like a basic thing, but that’s part of this being agile, part of this being proactive is understanding that when somebody is in a workplace, you have control over the space that they’re in. And when they’ve now gone out into the world, you still can help control what that space is. Most companies is just not willing to do it. And we’ll talk a little bit about what companies have done, I’m sure, to make this happen in a more proactive way, but it’s a big piece of being successful.

Justin Hampton:

No, absolutely. I definitely want to touch on some of those kind of unexpected or non-directly related to an employee’s compensation points as we kind of go through it. I do want to shift gears a little bit and kind of move into really how do we compensate employees.

Justin Hampton:

Because one of the things I hear from a lot of other compensation practitioners is, “We’ve got employees moving from this location to this location, because it’s closer to their family, or it’s because they’ve always wanted to live near this mountain range so they can go skiing on the weekends or these different things.”

Justin Hampton:

And a lot of these companies are moving out of the Bay, or a lot of employers or employees are moving out of the Bay or high cost living areas. And so, one of the questions that comes up is, what should companies consider when they are having employees move to different locations? What should we take into consideration when we are adjusting an employee’s pay just based on where they’re living?

Dan Walter:

Well, let’s start with maybe flipping that a little bit upside down. Should we pay less for the products of companies who have moved from the Bay Area to Texas? Cost them less to be there, so they shouldn’t charge as much of their products anymore, right? Because, hey, you just say 15% between cost of living and your staff, and taxes. So, I’m assuming Oracle is going to be a less expensive database going forward.

Dan Walter:

And again, the smile on your face says everything. It’s ludicrous to assume that because a company can save money that it has to then share that with the rest of us. They’re doing what’s good for them. And honestly, what’s good for them is good for their shareholders, and theoretically, good for everybody else. That’s the theory.

Dan Walter:

And in the end, will Texas tax them down the road, that will adjust at some point down the road. But the same is true when your employee moves. So, instead of worrying or thinking about it as how do we pay our people, let’s start with the more basic question. Why do we pay our people? We pay our people so that they can do their jobs. We pay our people so they can live their lives. And we pay our people for delivering the work product we need them to deliver with a value that theoretically is less than … Or the work value that’s more than what we pay them.

Dan Walter:

I used to joke, and sometimes I still bring it up that there’s only two compensation philosophies. Philosophy one, we pay people as little as humanly possible without them quitting. Philosophy number two, we pay people as much as we can without going bankrupt.

Dan Walter:

And for many companies, they’re actually the same policy, but the intent is the starting point. So, if your goal is to pay people as many people’s stated compensation philosophy, to pay people to attract world class talent to be competitive in the marketplace, well, then pay them to be world class talent. So, that’s the first piece.

Dan Walter:

So now, you say, “If I have somebody that’s working in my office in Seattle, Washington, and they are producing X amount of work at X quality.” So, it’s a large amount of work compared to their peers, and they’re producing it at a quality better than their peers. And they move to Antarctica, and they provide the same amount of work at the same quality level, and there’s no tax extradition. There’s no weird legal issues. Let’s just assume they have the exact same employment issues.

Dan Walter:

Should that guy get paid less? I’m assuming it’s a guy because I would just assume that most women wouldn’t be stupid enough to go live in Antarctica, but no. You think, “That person should get paid the exact same amount of money, and arguably more, because now you don’t have to have an office for them. You’re not providing them coffee, maybe. You’re certainly not providing them a desk chair in the same way, but you’re not paying for the real estate, the 100 square feet, or 50 square feet of real estate they take up in your office.” In a place like Seattle, you’re paying $2 a square foot for real estate. So, you just saved yourself real money when that guy left.

Justin Hampton:

Right. So, let me ask this then. I think what I have seen with companies historically is when you have employees that move from one location, one work office to another work office that are in different pay structures, different cost of living or cost of labor areas, I typically have seen where they will make some kind of adjustment either up or down to accommodate for both internal equity and for cost of labor within a particular market. And so, you’re suggesting that maybe that’s an older approach that’s maybe not as relevant now with the prevalence of remote work now.

Dan Walter:

Well, the real question is, is who is making the decision that the person lives in Lexington, Kentucky? Is the company making the decision that, that’s where the job is because they need somebody in Lexington, Kentucky? When you clean rain gutters on houses in Lexington, Kentucky, you’re going to have to live somewhere near Lexington, Kentucky. The people that are going to compete for that job are also going to live in or want to live in Lexington, Kentucky. So, you have to pay reasonable rates for Lexington, Kentucky.

Dan Walter:

But let’s say instead it’s a software engineer or a big data analyst. And right now, they’re working in a super high cost area, and they leave and they go to Lexington, Kentucky, far less expenses. Companies go, “Well, we’re going to pay them the local rate. We have a geo diff that says it’s 26% on the negative side. So, you were paid $175,000 a year. Now, we’re going to pay you 140.”

Dan Walter:

So, let’s just say that made sense, which, in my opinion, it doesn’t. Let’s say that guy quits. So, you go out into the market. You go on to Indeed and you hire a recruiter and go, “I need to hire somebody.” “What are you willing to pay?” “$140,000 a year.” And they go, “Are you freaking crazy? You can’t hire somebody for less than $185,000 a year to do this job.” “Well, the last guy that left is one of the best people in the world and I only paid him 140.” “Why?” “Well, he moved to Lexington, Kentucky.” No one else wants to live in that Lexington, Kentucky and do that job. So, no, you’re going to have to now pay more for that job.

Dan Walter:

Well, the next step to that is let’s say he didn’t move to Lexington, Kentucky. Let’s say he started there, but he always wanted to live in New York. So, you’re paying him Lexington, Kentucky rates and you say, “We’re going to provide a geo diff depending on where you choose to live remotely.” “Okay, I’m going to live in Manhattan. So, that job that paid me 140 in Lexington, Kentucky, I’d really like to get 240 now.” “What? We’re not going to pay you 240 to do that.”

Dan Walter:

“You lowered my pay to go work in a place that’s cheap, I’m assuming you’re going to raise my pay for a place that’s expensive, right? I mean, that’s logical.” “Well, no, we’re only going to lower your pay. We’re never going to raise your pay. You only can choose places that are cheaper.”

Dan Walter:

Which was the concept when companies first started thinking about this is the companies that first announced it were tech-oriented companies in very high value places, because they were the companies that had the most tech-oriented people who are already paying an enormous amount of money. And a lot of those people were moving someplace cheaper, because it’s hard to move someplace more expensive than the San Francisco Bay Area.

Dan Walter:

For all the other companies that aren’t in the San Francisco Bay Area, that was an insane request. Because if you’re going to have a geo diff, you have to have a geo diff. And if you’re going to say, “I’m going to pay you relative to the local area,” you’re going to give everybody in the company a raise, because your entire software team said, “Look, let’s all get together, and we’ll get a cool 6,000 square foot house in Hawaii.” “What?” “Yeah, they’re going to pay us. They’re going to give us an extra 30% to go live in Hawaii.” “That doesn’t work. You can’t go to Hawaii.” Again, immediately breaks the system.

Justin Hampton:

It’s tied back to what the workers are choosing to do. If a company is requiring employees to come into a certain location, then a geo diff may make sense. But if it’s the employee’s decision, it sounds like maybe that, that’s less impactful on how companies should be paying employees.

Dan Walter:

Right. It may still be a discount from the highest paid places, but it may be a premium from your lowest paid places. So, one of the things we’ve sort of counseled our clients to consider is creating an actual remote geo differential.

Dan Walter:

So, if you’re going to work remotely, we are going to pay you 110% of the national average. I don’t give a crap where you started. I don’t give a crap where you go. If you want to work for 110% of the national average, and you want to go live in Manhattan, you’re going to be making less than other people who have to work in Manhattan. You’re going to be making way more than people who live in Indianapolis. You can choose.

Dan Walter:

You can live in Atlanta, Georgia, which happens to be almost identically on the national average. All those work. That’s what we’re going to pay you to work remotely. I don’t care where you work remotely, other than we will include a differential or a cost in the first year for setting up a medical plan for you in that state, if we’re not a company that already has medical plans. For dealing with all of the legal stuff that needs to be done.

Dan Walter:

So, if you have somebody who wants to move to New York, and they’ve never been in New York, and you don’t have any employees in New York, it will cost you somewhere between $10,000 and $50,000 to get an employee setup. Figure out the payroll systems. To get your medical process working in a state that’s never been in before. Figure out how your taxes work. Get all the employment laws taken care of. It’s expensive.

Dan Walter:

You tell people, “Yes, this is going to be your rate, but there is a differential we have to account for. And that will be taken off of whatever. That’s how we’re going to pay for this is we’re going to actually lower your pay from X to Y, or we’re going to have you at the national average, because you don’t get the premium until we’ve paid off the cost of moving you there. It’s essentially an implementation cost.”

Dan Walter:

Is it the simplest? In the end, it’s the simplest, because you know, anybody that’s working remotely gets paid X to do this job. That’s their range. But upfront, it’s not the simplest. And so, if you want to follow the path of least resistance today, go into one of the payrolls and of the survey systems, grab a geo diff, say, “Yep, it’s going to be 11% less.”

Dan Walter:

And then some point, you’re going to have to deal with when that person leaves. And then you’re going to have that for maybe 50 or 300 people on an annual basis. And every one of those becomes a one off, which most people in compensation world would prefer not to have one, one off. But to have literally 15 a month is death. And for a really big company, you might have 1,000 or 10,000 people working. At some point, the system just doesn’t make any sense, you’re insane. And insane is, again, something most of us in the comp world are, but not something we want to experience on a regular basis.

Justin Hampton:

I would agree to that. And so, you had mentioned using 110% of the national average as kind of that remote working pay structure. Why that’s plus 10% over the national average? Because what I have heard from a lot of companies is they are creating a single structure for those remote workers, and a lot of times it’s based on the national average, but I’m curious why you’re recommending 10% of the national.

Dan Walter:

Well, again, that is a per company recommendation, and it depends on the kinds of people you’re trying to attract and why. So, in the tech world, if you said, “I’m going to pay you the national average,” when the incredible weight of individuals are in five cities in the United States. You’re not going to end up with a lot of people who want to continue working with you.

Dan Walter:

In some spaces, though, providing the national average is an upgrade from what the rates normally are. And in those cases, I would not only argue, pay your remote people the national average. But if you’re going to pay your remote people the national average, unless you can show that remote is a cost savings or production increase, pay your people locally the national average as well.

Dan Walter:

So, yeah, you’ve been paying in Florida 5% below the national average. But if you’re going to have a bunch of remote people, pay them all the national average. You want to see easy attraction, motivation and retention. Your Florida staff is going to go, “Wait. So, I don’t have to do anything, but I get a 5% raise?” “Yep.” “Awesome. Well, you know what, I’m not going to move. I think I’ll just stay here then.” “Well, good, that’s even easier for us.”

Justin Hampton:

And have you seen too many companies that are limiting the locations employees can move? I presume that there are several considerations that are beyond compensation. But on the finance side, the tax side, benefit side, it really kind of impact where the employee can live.

Dan Walter:

Well, I think, legitimately, you have to. You have to limit the locations they can work. There’s this whole, “Hey, you can work from Barbados.” “Okay. So, tell me what the tax rules are. Is there tax treaties between the two countries? Are there employment rules you need to follow? Are there works councils?” Which there aren’t in Barbados.

Dan Walter:

But let’s say somebody decided to work in Spain. And now, 14 of your employees started working in Spain. At some point, there’s enough volume there that now you have issues that you’ve never considered. You might not even know about until you fire somebody and they go, “Now, you have to pay me my incentive pay for the next five years or forever.” “What?” “Yeah.” Or, “You can never ever take my incentive plan and adjust it downwards.”

Justin Hampton:

Right.

Dan Walter:

“What?” “Yeah, you can’t. Sorry. That’s a rule in the country I’m in. Now, I’ve convinced enough people to come live here with me. Now, you can never change our incentive plans downward.”

Justin Hampton:

So, who would you recommend be involved with kind of these decisions? I mean, it sounds like the finance team, HR team, legal team. Is there anyone else that I’m missing?

Dan Walter:

Well, at the very least, you need those. But if you’re going to do this right, this is a leadership team across the board. So, you need to, first of all, define which jobs can legitimately be performed remotely. I mean, if you make stuff …

Dan Walter:

I have companies that are in the biotech field that I work with. They have incredibly expensive test equipment in laboratories. You can’t take one of those and put it in your garage. And even if you could, what are you going to give? One to every science team, you have 50 of them set up? Oftentimes, it’s $10 million to set up one lab. Impossible.

Dan Walter:

So, the first thing you need to do is let’s define what jobs can be done remotely, then you define of the jobs that can be done remotely, which of those jobs do we feel could be equally or more productive, versus which ones are probably a loss.

Dan Walter:

And again, some loss of productivity with an increase in happiness factor might actually be okay if what you’re looking for is a better retention program. So, it’s a calculus problem. It’s not basic addition and subtraction. I think this is where companies, they look and somebody on the finance team goes, “So, what we’re going to do is just cut all these people’s pay by 10% if they leave.” Kind of, but we’re also going to lose X percent of their productivity if they all leave.

Dan Walter:

So, we want to convince these people to stay here. And we want to maybe create a hybrid situation. These people, I don’t care where they are. And this is, again, something lots of companies have pulled off customer service reps. When you call customer service, where are you calling?

Justin Hampton:

Rarely the place.

Dan Walter:

You’re calling somewhere. It’s any somewhere, because even before this all started, customer service reps were working from their homes. Sometimes from multiple companies. And so, you were calling and maybe you get somebody in Kansas, and maybe you get somebody in Madras, it didn’t make any difference, so long as they can answer your question.

Dan Walter:

But in other areas, you might say, “Look, there is a team component to this that has to work.” And so, from a timing perspective, we can’t have three of you working from Dubai, and the rest of you working from Los Angeles, because you’re literally on opposite hours. And the people in Dubai, Sunday is a work day and Friday is a weekend day.

Dan Walter:

So, literally, you’re only working three of the same workdays a week, and you’re working opposite hours. Who is going to be the person that’s going to manage 24 hours a day? I’ve done that in my life working with teams in New York and India. It’s exhausting to be the manager of those teams, because you work every hour of the day.

Dan Walter:

So, you have to ask yourself, “Do I have to pay my managers more to support the remote workplace?” When you’re saying who needs to be involved, first and foremost, the leaders of departments, but then, finance, legal, HR, comp. And then overall, whatever you’re going to do, your CEO has to buy into it 10,000%, because you’re going to be coming back next year and going, “All right. So, here’s the adjustments we need to make based on X, Y, or Z.”

Dan Walter:

And again, if you’re going with a local differential, as you I’m sure know, in some countries, the annual increases are 12%, 15%, 18%. Whereas here, we’re like, “It’s going to be three, or 3.2, or 2.7.” So, are you willing to do that for anyone?

Dan Walter:

The flip side is we’re now in a world where your marketplace is the world, which means companies that you’ve never competed with before are competing with you for the same talent, because they no longer have to worry about. And comp people go to the compensation tool website, and you see these 75,000 job openings. It’s like a near endless list, but you look at that list, and the number of them that say, “You can work remotely forever or for some extended period of time,” is shocking.

Dan Walter:

We don’t need the compensation person here. Why do we care? I live in Portland, Oregon, and I used to live in San Francisco. I did not change my rates, because I moved. It didn’t even cross my mind. Why would I have done that? And my clients are all over the country, actually all over the world. And none of them care where I am, because all they care about is they get what they need done. I think we need to take a step back and realize, “Oh, my god, we’ve actually been paying this way for a really long time, just not for our employees.”

Justin Hampton:

Right. If you look at it from a business side, if you want to be competitive but not overly competitive, you price your jobs and kind of pay based on local market. But I think on the flip side, the employee has a valid question when they say, “Well, the contribution I’m making is the exact same no matter where I’m sitting, so why would we reduce my pay?”

Justin Hampton:

But it sounds like what you’re suggesting is that, that does create retention problems, because employees typically will think that way. I think it’s not the wrong way to think, because their job hasn’t changed, their contributions haven’t changed. The only thing that’s changed is where they’re sitting at. And to your other point, that’s not costing the same for office space.

Justin Hampton:

I guess this is kind of a good segue into some of the other considerations companies need to make when they are expanding into a remote workforce. I think we can kind of talk through that for about five or 10 more minutes, and we can open up for Q&A.

Justin Hampton:

One of the things I think you and I had a conversation about initially was, “Who pays for the office supplies? Who’s paying for the paper?” I know that Facebook is providing a stipend. A lot of companies are providing stipends for these home offices. But at the same time, you’re asking now people to carve out real estate in their home to use as an office, which has potential tax implications. So, I’m curious what other considerations. I’ve got a handful listed out, but I’d be curious, which others do you have in mind that …

Dan Walter:

Well, let’s start with the basics. They’re the basics because nobody thinks about them in an office, but they are essential, because they’re incredibly expensive if you mess them up. So, what’s the first question you’re asked when you go to a chiropractor, or an osteopath, or any back or joint specialist with pain?

Justin Hampton:

Where does it hurt?

Dan Walter:

How did this happened? Could this be related to your job? Very first question, they always ask. So, for those of you that don’t know me very well, before I did all this for a living, I also worked for many years as a massage therapist. Weird things about Dan Walter. But that’s the first question.

Dan Walter:

And the reason I asked that question is if it’s a worker’s comp claim, first of all, they need to get it started immediately. Second of all, it’s much more likely that they will schedule you for 7,000 employments than for two. They will literally go, “Okay, for this kind of a thing, we have 20 appointment maximum, so let’s schedule you for 20 appointments, because that’s how many it’s going to take.” Yeah, it’s impossible to fix you in one appointment.

Dan Walter:

The reason they ask that question, and the reason this is a basic issue nobody thinks about anymore is when you’re sitting in a desk chair at your job, seldom is the desk chair a three-legged stool with no back on it. Unless that’s something you’ve asked for, because for some reason, that’s the only thing that’s comfortable for you.

Dan Walter:

Usually, it’s a desk chair from a reasonable, reputable manufacturer that has been designed to fit OSHA and other rules, so people don’t hurt themselves in it. I remember working in a company because I’m old that had four-legged rolling chairs. And one day, we came in, and there were no four-legged rolling chairs. I loved that chair, but four-legged chairs tip over and fall over backwards. OSHA requires them to have five legs if they have wheels on them, which has been for like 25 years, maybe longer.

Dan Walter:

So, you can’t have a four-legged chair at work. Go wander around your office today and see if anybody at your company has a four-legged wheeled chair, the pedestal style chair. No one does. But what is the person sitting on at their house? They can be literally sitting in an aluminum folding lawn chair for all you know. No one has any idea.

Dan Walter:

So, what’s the worker’s comp claim when somebody tips over in their junky chair that they shouldn’t have been sitting to begin with and then they fell over and they whack their head on a window sill, which was also from their 1920s house and should have never been anywhere near their junky chair? I don’t know what the answer to that question is, but I know it’s not zero.

Dan Walter:

So, the basic stuff is, are you setting these people up to succeed? But more importantly, are you setting yourselves up not to fail? Because these are the kinds of things where one claim can cost you five times what the person makes in a year. So, yeah, you saved 5% on reducing their pay because of a geo differential, and you saved $400 by not providing them with a desk or $300 by not providing them with a chair, but you also spent $75,000 on chiropractic expenses. And there was that weird lawsuit that you settled out of court for a quarter of a million dollars.

Dan Walter:

So, let’s start there. That’s the basics. If you’re not thinking about those things, it’s different when you’re going, “Hey, look, this is a temporary thing. We’re just trying to get to the pandemic, blah-blah-blah.” That’s a different world than, “Hey, we’re going to let you work from anywhere you want to work.” “Okay, what happens if I get sand in my laptop?” “Okay, sand and laptop, you have to pay for. What the hell are you doing working on the beach? Oh, we told you, you could work from anywhere. Okay. Shoot.”

Dan Walter:

All right. So, those are some of the things people don’t even think about, because they’re so built in to our framework that we don’t consider them. Security is another issue. It’s like, “Wait, what do you mean you’re working on an unsecured Wi-Fi at the local, let’s just say, work-sharing environment or Starbucks, and you’re transferring our client’s critical files via email? So, you’re saying anybody could get that information?” “Yeah.” “What about our secret IP that we’re the only people in the world that have?” “Oh, yeah, he can totally steal that too.”

Dan Walter:

Okay, so that’s the basics. That’s a cost. Then you have to look at, “Can people actually work productively?” The number of people that are working from a dining room table or bouncing around their house trying to find space because their kids are also working from home. Their wife or husband is also working from home. They have a three bedroom house, and the third bedroom was designed as the craft room. That’s where my husband’s knitting supplies are, my kids’ art supplies are, and my wives’ model building stuff is.

Dan Walter:

Okay. So, that’s my office now. I don’t have a craft room anymore. That was part of my work-life balance. So now, either you need to pay me for that room so I can get a new room like that. You need to pay me to transform that room, so it doesn’t look like I live in a freaking swap meet when I’m on a Zoom call. Or I need to get a new house that has a room to work in. Most people did not plan for a room in their house to be dedicated eight to 12 hours a day for work, especially not on a video call.

Dan Walter:

It’s a beautiful background you have there. I’m assuming it’s real. Mine, not necessarily real, because I do live in that house that was made in the 1920s in their shuttered closets behind me. I also have a green screen that I had set up because I can use that if I need to, but that was my choice, and I’ve figured out a way to work around it.

Dan Walter:

For your employees to say, “I need you on video and don’t look unprofessional.” I don’t care how fancy you dress and how nicely you’ve done your hair if you’re literally doing the meeting from your cold garage, because it’s the only place you can work without being interrupted by your eight year old. It doesn’t look particularly professional.

Dan Walter:

The number of people that look like Bernie Sanders with his mittens on, on calls. I mean, we’re just in winter right now, but I’m like, “Turn the camera off. I don’t need to see you’re freezing to death. Turn your camera off, get a better jacket. We need to get you a better jacket, is that the problem?”

Dan Walter:

Those are legitimate things we don’t think about. Then it’s a chair, and the printer, and a computer monitor that works. I have a laptop down here, down there with a webcam on it, but I’m fairly tall. So, when you use my laptop webcam, what you really do is you get a beautiful nasal inspection. “Great. Hey, look, Dan doesn’t have a cold today. Or worse, he does.”

Dan Walter:

“Hey, I have a camera up here, because I don’t necessarily …” People like this. Like, “What are you doing?” “Oh, I can’t get the computer any farther away from me than that.” So, it’s like this. I’m like, “What?” All of those things are legitimate concerns, especially if you’re dealing with professionals. So, can you help people set that up?

Dan Walter:

Then, yeah, you’re not paying for the real estate in your office anymore. Maybe it’s $2 or $3 a square foot in your local area, but how much is the office space in their office worth? Can you pay them instead of $2 or $3, 35 cents a square foot for the office that they’re in? Help them recoup that.

Dan Walter:

It’s less about the individual figuring out the tax consequences. Which mean like you and I, and you’re working voluntarily from home, that could be a really big benefit. But when you’re told you need to work remotely, even if they’re literally 15 minutes away from the home office, we’re putting people at an incredible disadvantage in their lives. We’re telling them that their houses are no longer their homes. Their houses are an extension of the office.

Dan Walter:

So now, you’re talking about mental health issues, work-life balance issues. People depend, most people, not crazy people like me, but most people depend on quitting work, and going home where they’re not working. It’s already insane enough that we have people have work iPhones and email, and all the things that go along with working after hours. But now, ask yourself, what’s overtime?

Justin Hampton:

Yeah.

Dan Walter:

What’s overtime in a world where people are working constantly? Is it a measurable number? Should you just assume that everybody is working 20 hours a week overtime on top of wherever there are? Should you give everybody a raise so they’re outside of the overtime limits and just make them exempt non-overtime people by paying them more money? Would that cost you less than having some crazy lawsuit against you three years from now where your employees don’t join together to start a union, they just joined together to get back pay?

Dan Walter:

Do I think that’s going to happen? Yeah, I’m pretty damn sure it’s going to happen. Do I know what the consequences or how it’s going to work out? I don’t, but I don’t want to be at the company where it happens.


Q & A


How would a work from home and geographic differential work if some employees are anchored to an office in one department, but a different department can work remotely in the same geo? So, you’ve got some folks doing, it sounds like, similar work. Some are required to come in, and some may work remotely, but they’re in the same geographic area.

So, first of all, you have to ask yourself, “Did they all start in the same geographic area? So, are they all working in that geographic area because that’s where their job is?” But some of them, because of the pandemic, need to work from home because you’re trying to social distance people.

It’s a different equation than if you said, “Look, we have people that work in Lexington, Kentucky, and this person who didn’t work there now has gone to work there.” And it isn’t an easy answer. You may say, “Look, for roles like this that we have determined, it’s good or fine,” depending on your definition to have somebody working remotely.

You might tell the person in Lexington, Kentucky that’s paid less than your new geo diff for your remote workers. You might say, “Actually, we’re going to give you …” No, I don’t have COVID. I’ve just been talking. “We’re going to give you a premium to work in the office until all this is done, or forever.” Or, we’re going to say, “This is our new rate. Our new rate for this kind of job, whether you’re working in our Lexington, Kentucky office, or you’re working from a home in Lexington, Kentucky by random choice, the new rate is this. And here’s our range. And if people are below the range, you should probably adjust them accordingly.”

One of the things that Mark Zuckerberg brought up that I did agree with, which there weren’t a lot of things I agree with, was some people are not ready to work permanently from a work from home environment. She might say, “Look, you can only work from home full time if you’ve been with us for at least three years, and you’re not on a PIP, so you don’t have any performance issues. Then yes, we’ll pay you this geo diff, we’ll let you work from home.” Actually, that’s great, but until you have X amount of skill set and proven X amount of performance, we can’t do that, because you’re just then flotsam and jetsam floating out in the water, and that’s not good for anybody including you.


Would it be easier for someone to become a 1099 employee if they move to another state where the company doesn’t have employees?

Sometimes. Absolutely. Sometimes, it is significantly easier for the company. Sometimes, it’s easier for the employee. Companies have a difficult time with this, though, because legitimately to be a 1099, you cannot really have control of them. Which means they could be 1099 for you, and 1099 for your competitor.

And as long as they’re delivering work product to both companies that’s satisfactory or above, neither one of them will ask any questions. I’m a consultant. I work for lots of companies at the same time. If I took a job as an employee internally in a comp department, most of the companies I work with would no longer want me to work with them, because I might also be working with their competitor.

All the NDAs in the world don’t solve that problem. The other thing is I work fairly independently. I tell my clients, “Here’s what we’re doing and how we’re doing it.” They seldom layout, “Here’s exactly how we need you to do this thing.” And that’s something companies like to do and can be very useful from a production standpoint.

The other side to all of this, though, is going to an employer and going, “Hey, yeah, you can go be a 1099 person.” The first thing is, “Wait, wait, wait, wait. What does that mean?” “We’re not going to withhold taxes anymore.” “Okay, that’s good, but you have to figure everything else out on your own. You’re going to have to hire a tax person. They’re going to have to figure this out. Every quarter, you should actually look CVO taxes. And if you don’t owe a tax on the quarter, you’re probably going to owe a tax at the end of the year. When you figure out your tax, they’re going to have to go through …” What?

So, are you going to pay for that employee’s tax advisor? Which is another thing some companies have done for independent contractors is, we’re going to give you a stipend of $500 a year to cover tax consequences if you’re going to move out of being an employee. But again, you have to make sure that, that job allows for the independence necessary to work as a 1099 individual and vice versa. If you have 1099 people that are doing jobs that you’re controlling, likely, they should probably be classified as an employee.


We have hired employees in Alabama, a lower cost of wage state. And due to the pandemic, a California Bay Area employee has moved to Alabama at their own choice. If the employees are equal in job and skill set, for example, how do we handle the pay differences between the two?

Well, the first question is, is the person in California working in your office in Alabama? Or are they a remote individual? If they’re a remote individual and moving to Alabama, it’s actually a cost savings because you don’t have to set up any of the healthcare issues. You already know how it works, and this person delivers on the value you would expect that they deliver in the Bay Area.

I would first argue they should be paid Bay Area wages, or your remote geo diff wages. Probably in most locations, if you started them in the Bay Area, it’s going to be a discount. But again, if you’re moving them from Fresno, California to Alabama, that differential is a lot different. So, that’s the first.

The second piece is for the people that are in Alabama, that you hired in Alabama, if they’re doing the same job at the same level, with the same kind of work, you should probably give them the remote geo differential.


How do you manage the internal equity across different locations? Since cannot reduce an employee’s pay to take care of internal equity with other lower paid employees.

You can’t. It’s a good way to get punched in the face.

If I’m thinking of where do these employees come from, even if you look at it from a longer term approach, even pay equity, let’s say that you only have men moving into a predominately women location from a high cost living area, and all of a sudden now, you have this pay equity issue, people doing the same work at the same location, but being paid very differently. I think, yeah, going back to your point of everyone should be paid or compensated based on the work they’re doing, really, certainly helped set up and mitigate some of that risk as well.

Absolutely. I mean, in the end, there have been a lot of times where companies have opened up locations, because there are cost savings, or because it provides jobs or works program in an area that might not have it. “Hey, we’re going to open up this thing in the Appalachians, and it’s a right market for people in their 20s that don’t want to work in a coal mine, or some other blue collar job.”

Great. Now, we have somebody that does high end engineering work. You’re going to have to pay them like they’re an engineer, and you’re going to have to pay them not based on the fact that they happen to live in the Appalachians because they chose that, but based on what would it take to replace that person. And this is, I think, a lot of times we forget is …

So, let’s say that person moves to Alabama and they’re paid more. And now, you need to replace them. Well, you have chosen to define your marketplace for talent as Alabama. But it’s not the marketplace of talent for Joe, that guy that moved from California. And arguably, it’s not the marketplace for Sally, and Henrietta, and Joaquin that all do the same job in Alabama, but now realize, “Holy crap, I could be hired by any company in the country. Because it turns out, my job is super easy to do work from home.”

So, your competitors no longer are the eight companies in Alabama. Literally, anybody who knows how to contact people in Alabama that do that for a living, which could be everybody.

When you’re a smaller company, you got to look at beyond total rewards. You have to look at the entire employee proposition. There are people that want to work for a small company, and there are very few small companies that are going to have the recruiting clout to recruit from all over the world.

And so, the companies you’re most likely to be competing with for those Alabama people are going to be local companies, because that’s where they recruit, or it’s going to be gigantic companies, but the value proposition to the employee is varied. Do you want to go work for the man?

I live in Portland. There are, I would guess, 20% of this city works four jobs, so they don’t have to work for the man. I don’t know who the man is. Working four jobs sounds awful to me. But there are people that absolutely will do four jobs to not have a job. You’re like, “Hey, you could just have that same four jobs worth of pay working for our cool little company that’s not the man.” That’s a value proposition that works. “So, wait, I don’t have to sell my soul and go work for the devil? I can work for you guys?” “Yeah.” “And I get paid almost as much?” “Yep.” “And I don’t have to move?” “Nope.” “All right, I’ll do that.” You now created a defense mechanism that’s very difficult to crack.


Wrapping Up


Justin Hampton:

Yeah, definitely. Well, Dan, it looks like we’re about up on time. I know that you’ve got some training material or some other educational material out there for folks that want to dig into the remote work more. Can you remind us where that is, and we’ll send that out in the email to those that can join us?

Dan Walter:

Absolutely. You can go to www.futuresense.com. There’s a resources area, and then there’s a news and blog area. I write for a blog called The Compensation Cafe. So, there’s about 300 articles and a bunch of other materials.

Dan Walter:

Also, honestly, feel free to look me up on LinkedIn. I’m happy to link in even if I don’t know who you are. Just link in to me. I answer questions for people I don’t know on a regular basis. I would prefer to at least know who you are. So, link in with me, and I’ll learn who you are a little bit. And that way, if you have questions, you can always shoot me a note. That’s where I would start. You can always send me an email, dan@futuresense.com. It’s the easiest email address I can come up with.

Justin Hampton:

All right. Well, Dan, thank you so much for your time this afternoon or this morning, I suppose. It was really insightful and I enjoyed the conversation and I think everyone else did too.

Dan Walter:

Well. Thank you. No, this is awesome. I really appreciate it. And everybody, have a fantastic rest of the week, stay healthy, wear a mask. Don’t lick flagpoles or pretty much anything else right now. Probably a good rule in general.


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