By Dr. Jeff Elias, Ph.D.
Due to Covid 19, working remotely is becoming more popular than ever. There are many benefits for both the employer and the employee1. A mutual benefit is lower cost and expenses for both the employer and the employee. How can these cost reductions translate into employee compensation strategies? Let us start with a brief background regarding these benefits. For the employer, benefits include:
- Reduction in real estate expense
- Lower employee absenteeism
- Increased employee retention
- Improved employer brand
- Access to a larger talent pool
- Potential to create a more diverse organization
For the employee, the benefits include:
- Lower level of stress
- Greater work/life balance
- Greater level of freedom
- Experience greater sense of well-being
- Greater productivity
- Less work-related expenses
The Hard Dollar Benefits equals $17,000+ per employee per year. According to the Global Initiative Organization, working remotely saves an employee, on average $6,000/year. These savings are from gas, car maintenance, transportation, parking fees, a professional wardrobe, lunches bought out, and possible day care expenses. The typical employer can save, on average, $11,000/year. These savings come from overhead costs, real estate costs, transit subsidies, and continuity of operations. Together, remote working saves an average of $17,000 per year per employee.
There are other financial benefits such as lower turnover, lower recruiting costs, lower absentee rates, and more satisfied employees. These cost reductions are harder to financially quantify but are of substantial value.
So, how can this $17,000 cost savings translate into a compensation strategy? Can it be leveraged into providing higher salaries, contributing to lower SGA expense, and increasing GM dollars which may affect bonus/commission payouts, or used as a competitive advantage in recruiting key talent? Many of our Staffing clients are choosing to leverage remote work as a recruiting competitive advantage. Firms need to understand how competitive their current salaries for new hire and tenured employees are. Does the staffing firm pay the same as their competitors, do they pay more, or do they pay less than the competition? In compensation speak, if the firm pays better than 50% of the competition, they pay at the 50th percentile. If the firm pay at the 25th percentile, then 75% of the competition pays better. At what level does your company pay?
To be a player in the most competitive markets, the staffing firm should pay at the 75th percentile. This means they would be paying better than 75% of the competition.
Maybe the $17,000 per person per year (remote work cost savings) could be used to pay higher starting salaries or create a more lucrative commission plan. Also, offering remote work, either part time or full time, by itself could offer a significant competitive advantage in recruiting top talent. There are 3 issues the Staffing Firm should tackle:
- A staffing Firm should review their pay scales and determine at what percentile they pay against the competition.
- The firm should decide if remote work is a viable option for their business.
- The firm should decide how to reinvest the $17,000 cost savings. Reinvest in the business, the employees, or the bottom line.
If you’re interested in exploring these cost savings, we can help you. The Visus Group can help you determine how competitive your salaries and commission plans are – are you underpaying or overpaying for the needed talent? Also, we can help determine if remote work is a viable option for your business, and if it is, we can help you design an effective remote work program. Additionally, we can help you decide how to reinvest your $17,000/person/year cost savings.
1 How to Cultivate Effective ‘Remote Work’ Programs, Gartner Research, May 14, 2019