When I founded Pipeline Equity in 2017, one of my first priorities was finding the right people for the right positions. Geography wasn’t going to limit my search, so I decided we would become a remote-friendly company. Today, we are 100% remote with employees spanning six time zones. They live in urban centers, small cities, and suburbs. You can find them on the East Coast, West Coast, and everywhere in between. And regardless of their geography, they earn equal pay for equal work. At Pipeline Equity, we believe pay is a function of value. As such, people should receive wages based on the value they provide to the organization, not based on their physical location or time spent in the office. Here’s why.
Knowledge workers deserve equal pay for equal work, regardless of location
Let’s start with the basics. What does it mean to pay someone fair and equitable wages? Many organizations struggle to answer this question, and we know that because we see it in the data.
Recently, on August 3, we recognized Black Women’s Equal Pay Day. It represents the extra seven months and three days into the 2021 calendar year that Black women had to work to earn what non-Hispanic white men earned in 2020. They make 63 cents on the dollar. Latinas experience even greater pay inequity. This year their Equal Pay Day, which falls on October 21, meaning they earn just 55 cents on the non-Hispanic white man’s dollar.
Breadwinner moms (who support 40% of U.S. households with children under the age of 18) face some of the deepest intersectional pay gaps. In fact, my research found that Black breadwinner moms have the largest gender pay gap of any women in the U.S. They earn 44 cents for every dollar earned by white breadwinner dads.
If we keep digging, we find evidence of pay equity across all education levels. Despite making up 50.2% of the college-educated workforce, women receive an average of 26% less pay than their male counterparts in comparable jobs. As educational attainment levels rise, so too does the severity of intersectional pay inequity. Women with bachelor’s degrees earn 71.4% of what men with bachelor’s degrees earn, whereas women with graduate degrees earn 69.1% of what men with graduate degrees earn.
If you think you’re not affected by pay inequity, think again. Pay inequity is more than an individual issue of fairness. When companies don’t pay equitable wages, they stifle economic growth and business performance.
Pay equity stifles economic growth for all
Intersectional pay inequity costs the U.S. economy $512 billion. And that’s not all because wages have both supply-side and demand-side effects.
Wages determine everything from the level of healthcare you receive to the quality of food, education, and housing you have access to. It impacts your ability to save for retirement, pay down student loans, open a business, and run for political office.
These household issues flow back into the larger economy. Our economy takes a hit when people don’t receive the income they deserve. In addition to strengthening the U.S. economy by $512 billion, closing the intersectional gender pay gap would:
- Lift 50% more working women out of poverty.
- Cut the Social Security shortfall by 35%, or $4.7 trillion. Higher wages earned during working years put more money in women’s retirement accounts.
- Reduce dependence on social welfare programs. Women head 72.9% of households enrolled in Medicaid because their lower wages inhibit their ability to afford healthcare.
- Reduce student loan debt. Women make up 57% of undergraduates yet hold 67% of all student debt.
- Strengthen the middle class. The share of breadwinner mom households has increased by 166% since 1970. Middle-class families depend on the wages of breadwinner moms.
Business performance suffers from pay inequity
And let’s not forget that consumer spending drives 70% of the U.S. economy. Businesses rely on healthy wallets to hit performance targets. Plus, from a labor supply perspective, it’s advantageous for businesses to pay employees equitable wages.
After all, women are the most educated cohort in the labor force, and 72% of them said they would not apply to work at a company where a gender pay gap exists. Moreover, “slow salary growth” was the third most common reason women gave for leaving a career in STEM. (In first place was “lack of career growth.”) Companies risk alienating at least half the talent base by failing to pay equitable wages.
Which brings us full circle. What does it mean to pay people equitable wages? It means paying people based on the value they bring to the organization. Not their gender. Not their race, ethnicity, or age. Not their proximity to leadership. And certainly not their zip code.
Location-based compensation opens a Pandora’s box
By paying workers regardless of their location, companies can reduce the amount of surface area for bias to creep into compensation decisions. They can also reduce the amount of complexity that goes into making these compensation decisions.
For instance, how do you measure the cost of living? We need a standard, equitable system for calculating the cost of living—not one based on the whims of exclusionary indexes. Besides, people don’t allocate their budgets identically.
Some people enjoy dining at high-end restaurants. Others appreciate home-cooked meals. Some people spend money on luxury cars. Others are content with public transportation or ride-sharing. And what about the number of dependents someone has? An employee with four children will spend more money on education than an employee with no children. How does that factor into the cost of living?
What if someone moves from a high cost-of-living location to a low cost-of-living location? Must they take a pay cut? And what if some employees want to work remotely while others don’t? Will those who decide to stay remote see their income drop as a result of choosing what’s best for them? Already it appears Google employees who choose to work from home permanently could face a 15% to 25% salary reduction.
Paying people based on the value they deliver to the company—not geography—is the equitable and easier way to go.
Pay equity for remote workers is win-win, not a zero-sum
As more companies adopt remote and hybrid work arrangements, it’s important to underscore the financial upside of giving employees the autonomy to work from anywhere. In one of the most comprehensive studies conducted on the topic, Global Workplace Analytics found that the average U.S. company can save $11,000 per year for every remote-hybrid employee.
For a company with 1,000 employees working remotely, that’s over $1 million in savings per year. These massive savings stem from a combination of increased productivity, increased business continuity, reduced office costs, reduced absenteeism, and reduced turnover.
Employees can save upwards of $6,400 per year by not having to allocate budget on transportation, work clothes, or meals. Plus, 73% of employees say they are very successful working from home and report greater well-being under these arrangements.
Allowing knowledge workers to work remotely—and paying them equitably for doing so—makes sense. It’s time we reimagine what work and compensation look like in the digital economy. Geographic location shouldn’t determine an employee’s worth.
Katica Roy is the CEO and founder of Pipeline Equity.