Monday, April 23, 2012

Pricing Virtual Jobs

Do you have virtual workers? A growing number of companies do. An estimated 2.8 million people in the US consider home their primary place of work (not including the self-employed), and 44.4 million work at home at least once a year.

If you have virtual workers, how do you determine their compensation? Determining compensation for non-virtual jobs is hard enough, but things can get pretty tricky when it comes to virtual jobs.

There's a long debate in the history of compensation on whether market pricing or job evaluation is the best method for pay-setting. Job evaluation allows an organization to translate all of the various jobs to some common denominator. Through job evaluations, you can assign relative internal value to each position. The Hay Guide Chart is the most common job evaluation methodology used.

The other technique - market pricing - is pretty much what it sounds like. It's using external market information to assign value to your company's jobs. Market pricing has grown in popularity - more technology has meant more surveys are available, and those surveys are accessible by more people.

What's the bottom-line difference between the two approaches? Christine Tande has a rule of thumb: for 80% to 90% of the jobs in a company, the internal value and the external value will be the same.

It's likely that your virtual workers will be the 80% to 90% of jobs that have the same internal and external values. So let's take the methodological debate off the table, and focus on some of the practical challenges of pricing virtual jobs. Most of these challenges center around locality adjustments.

  1. Relocation -  in most cases, if an employee is relocating and working virtually, his compensation won't be reduced. But it may not be increased, either. Payscale recommends keeping salaries of relocating employees in alignment with the ranges of your corporate or regional office.
  2. Ratio of Base Pay to Total Compensation - jobs with higher ratios of base pay to total compensation require more attention to geographic differentials. According to Payscale, as soon as the incentive portion exceeds 40 percent of the overall target for local cash compensation, you can worry less about pricing the job locally.
  3. Total Compensation Amount - higher paying jobs are typically less sensitive to geographic differentials. For virtual workers with six-figure salaries, aligning compensation to national levels or to your corporate office is most likely appropriate.
  4. Employee Choice and Employer Control - if a virtual employee is working from a location with a  higher cost of living, it's important to look at how that location was chosen. If the employer required a home office in that specific location, local wage rates are likely to play a more important role in compensation. On the other hand, if the employee chose the higher cost of living area, geographic differentials in pay are likely to play a smaller role, or no role at all.
  5. Organizational Importance of the Job - working remotely expands the employer's ability to retain the best and brightest talent. You may have a project that's extremely important to the organization, and your "perfect" candidate is 2,000 miles away. Virtual employment may make it easier to get that candidate on board, but it may come at a price. This particular position has a higher internal value, and it's likely that this will translate into compensation higher than the local rate of pay.

Job pricing is never a simple task, and the locality issues raised by virtual jobs don't make it any easier. But if you think about these five points, you'll be better able to price your virtual jobs more accurately and confidently.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

Thanks to Stephanie R. Thomas / Compensation Café


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