When working with distributed teams, I’m often asked how to pay remote workers fairly. There’s no one-size-fits-all answer here. Companies need to consider multiple factors to develop a scalable, equitable pay policy.

Some organizations opt to pay everyone the same, regardless of location, while others align pay with the local cost of living. Which approach is better? Is there even a clear answer? Let’s dive into the details to explore the possibilities.

Location-based vs. location-agnostic pay

Imagine a typical remote worker - yes, the stereotypical one. Picture someone on a beach in Phuket, laptop in hand, enjoying a piña colada and posting about the “remote work dream.” Now imagine a remote worker in New York, San Francisco, or London. Here, the image shifts to someone in a small apartment with Starbucks coffee around the corner and daily city noise. Both workers are equally skilled and knowledgeable but live in vastly different cost-of-living situations.

Here’s the catch - both make the same amount of money. The person in Phuket can afford a more luxurious lifestyle due to lower living costs, while the city-based worker faces a much higher cost of living. But should location really affect pay? Let’s imagine the opposite scenario.

Living in London generally costs 2-3 times more than in Phuket. Paying remote workers based on location, rather than skills, may impose a glass ceiling on professional growth and seems unfair in the long run.

Benchmarking against the right talent pool

As someone passionate about fair opportunities, I believe anyone should be able to work for a great company, regardless of their location. Remote work enables people to access jobs globally, forming a unique remote talent pool that doesn’t fit neatly into any local job category.

Remote job seekers typically fall into two groups: those who can’t find suitable local work and those who prefer remote roles to leverage specialized skills in a global market. Offering location-based pay in this environment may deter top talent, as skilled candidates with global market awareness are likely to decline location-adjusted pay offers.

A win-win solution for global teams

After extensive discussion, I’ve found a sensible approach. Start by answering these questions to determine if this solution is relevant for you:

1. Do you have team members worldwide doing the same work?
2. Do you struggle to set budgets for remote roles?
3. Are you considering company-wide pay transparency?
4. Do you face challenges in setting budgets for new remote hires?

If you answered “yes” to any of these, the Cost of Living Adjustment (COLA) Formula for geographic salary adjustments could be useful.

The COLA formula lets companies fairly compensate employees based on regional cost differences, balancing local standards and internal equity - ideal for remote roles or relocations. Here’s a breakdown:

• Cost of living adjustment (COLA): Reflects living expense differences between locations, ensuring adjusted pay meets cost requirements for the employee’s residence.
• Base location (HQ): Serves as the benchmark for comparison.
• Target location (employee residence): Influences salary adjustment based on local costs.
• Market rates (base salary): Aligns with standard salaries for similar roles, matching specific local market percentiles for competitive pay.
• Formula structure:
  • Adjusted Salary = Base Salary x (Target Location COL Index / Base Location COL Index) x (Target Percentile Factor / Base Percentile Factor)

Remote pay - make sure to get it right

A clear remote pay strategy will help team members feel valued for their work, no matter where they live, building trust and motivation across regions. Without a consistent approach, companies risk unequal pay, leading to dissatisfaction, high turnover, and challenges in attracting top talent.

By addressing remote pay thoughtfully, companies can create a fair and competitive pay structure that supports long-term success. This approach also optimizes budget allocation and helps shape an effective talent strategy to attract the right skills globally. So, it's time to roll up your sleeves and get it done!