"Right-sizing" compensation to geography may be a mistake

As our pandemic winter approaches spring, one thing is becoming very clear: many of us will be Zooming in our sweatpants indefinitely. Work-from-home nation is ... well ... it's working, according to our fascinating cover story this week. Almost one quarter of all workers remain exclusively homebound. Sure, we are more addled, but we are arguably more productive. The vast time suck from commuting, marathon conference-room meetings and corporate travel is gone -- no longer sucking, if you will. Collaboration tends to be less effective now, but there's so much more of it that some contend it balances out as a net positive.  On the flip side, corporations are saving scads of money on office space and AmEx accounts, to say nothing of snacks. Like a generation of Hallmark Christmas flick protagonists, a crush of professionals have left the city for small towns and have decided to stay (and are being permitted to by their employers). Some executives, having blessed remote work indefinitely, are now tackling the grim job of "right-sizing" pay. This has been, and will no doubt continue to be, an absolute imbroglio. In the U.S. alone, there are nearly 400 metropolitan areas. Savvy managers would do well to tread lightly here and I suspect, when the Great White Collar Migration settles, there may be fewer pay cuts than we fear. For one, cost-of-living data is far from fixed. As a wave of professionals set up shop in the suburbs -- as Austin and Charleston and Bend, Ore. become HQ diaspora -- the cost of real estate, childcare and other imperatives in those places will rise in step. Savvy employees will be tracking those increases and airing them in salary negotiations.  More importantly, however, setting pay by geography is based on some clunky logic: that the labor market in the hinterlands is illiquid. An app developer or apparel designer, traditionally, makes less in Maine than Manhattan because there aren't dozens of companies around offering the same work. But now, we are living in what economist Matt Clancy calls one "gigantic digital city." Post-COVID, there's only one talent pool and it's nothing but liquid. The same company letting its employees relocate to the exurbs, is also, for the first time, hiring from the sticks. For the moment, that's an arbitrage opportunity, but probably not for long. Economist Robin Hanson expects remote work will lead to a wave of specialization with workers able to drill down on expertise simply because the opportunities are near limitless. Time zones, he notes, are one of the only barriers left in the remote labor market.  Localized pay seems to scan at the moment, but the equation will get far more complicated as recruiting and retention are priced in. Any cagey CEO knows that price has little to do with cost. Something is worth what people are willing to pay, whether that something is a share of stock or human capital. Remember that come annual-review time.   Businessweek and beyond No sports or concerts is crushing Coca-Cola How GM doubled its pace on EVs The case for a rational IPO price pop BP goes to the trees, offers carbon offsets The Tidy Math of a 20% Shutdown Follow Us Get the newsletter   Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. Learn more.   You received this message because you are subscribed to Bloomberg's Sunday Strategist newsletter. Unsubscribe | Bloomberg.com | Contact Us Bloomberg L.P. 731 Lexington, New York, NY, 10022