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If you’re an employee of some of the largest tech companies, you may have recently faced a tough choice.
According to a Reuters report, Google recently informed employees that if they choose to work remotely, their pay could be cut significantly – some employees report cuts as high as 25%!
Other large tech players such as Facebook and Twitter also cut pay for remote employees who move to lower-cost areas.
Why Accepting Pay Cuts May Be the Right Choice for Employees with No Better Options
Making of a Millionaire creator and editor Ben Le Fort just published a piece, “If You’re Asked to Take a Pay Cut to Keep Working from Home, Do it,” where he advises such employees to take the cut rather than continue long commutes to avoid them.
He cites several costs of long commutes:
- Physical and mental toll
- Direct financial costs
- Opportunity cost of having to own a (second) car
He also cites opportunities you forgo by choosing to commute:
- Tax breaks of a home office
- Having the time available to develop a lucrative side hustle
All of these are valid reasons for accepting a pay cut rather than commuting long distance.
However, in my opinion, that’s not the right question to address.
Why Cutting Remote Workers’ Pay Is Unconscionable – Part I – Value
Let’s start with the most basic question – why do employers pay their employees?
Obviously, if all you did as an employee was drive to the office, sit in a cubicle, and warm your seat, your employer would shortly fire you.
They don’t pay for your presence or your time.
They pay for your creating significantly higher value than the cost of employing you.
If creating that value requires your physical presence (think massage therapists, acupuncturists, chiropractors, or any other hands-on service provider), remote work is simply not tenable. If you can and do create the same value remotely as you do in person, employers have no ethical leg to stand on in cutting your pay for not driving to the office.
Not convinced? Think the employer has a plausible argument that if your costs to be able to work go down, they’re justified in cutting pay to capture some or all of that saving?
Consider the following scenario.
Your landlord informs you that at lease renewal, next month, your monthly rent will increase by $1,000 (plausible given the recent spike in real estate prices). You explain to your supervisor that you need a $20,000 raise (to account for increased taxes).
If he doesn’t laugh in your face (or fire you on the spot), his most likely response will be that your pay is based on your work, not your personal costs.
If increased personal costs don’t justify increased pay, then decreased personal costs don’t justify pay cuts.
Why Cutting Remote Workers’ Pay Is Unconscionable – Part II – Efficiency
Remember what we started with? About how employees are paid for creating value in excess of the cost of employing them?
Value Created >> Cost of Employment
Part I addressed the “creating value” side of that formula.
In Part II, we’ll look at the cost of employment side.
As of the end of 2020, Google had over 135,000 full-time employees. To house them, Google spends billions of dollars on their campuses. I have no idea how much the company pays ongoingly for those locations, but let’s assume the total cost of their campuses was $5 billion, and that if they didn’t have to buy them, Google would make 12.76% (that’s Google’s “return on assets”) by having that money available for other assets.
Dividing by 135,000 employees, that would be about $4,725/year per employee.
Next, according to BizJournals, Google has a 20 million sqft footprint. According to an engineering consultancy, the high-end cost of office maintenance and repairs in the US is about $2.8/sqft. This means the average cost of building maintenance and repair per Google employee is another $415/year.
Finally, there’s the cost of electricity, water, sewage, taxes, etc. which I won’t even try to guesstimate.
This back-of-the-envelope calculation shows that having a significant portion of their employees work remotely would allow Google to cut their costs by at least $5,000/year per employee. Thus, having workers work remotely can actually save Google thousands of dollars per employee per year!
What’s the ethical math that justifies Google’s cutting their pay for helping the mammoth company cut its costs?
Why Cutting Remote Workers’ Pay Is Unconscionable – Part III – Results
Finally, as Le Fort points out, Google’s stock price increase dramatically during the pandemic. As of this writing, it’s up 135%.
During that time, its market cap (the value of the company) increased from ~$800 million to over $1.9 trillion!
Cutting the pay for employees who, working remotely while enduring a pandemic, powered such incredible financial results is nothing short of flabbergasting!
High-tech companies do at times offer employees additional pay toward their rent or mortgage if they live very close to the office.
This makes sense in that it results in employees being fresher when they get to the office, and being able to arrive quickly in case of urgent work requirements.
Employers taking away such additional compensation for remote employees makes perfect sense.
The Bottom Line
We’ve seen in the above that cutting pay for remote work cannot be justified on the basis of value created, efficiency, or financial results.
Then why would employers do something like this?
Back in 1997, Scott Adams revealed (in a Dilbert cartoon) employers’ real justification for cutting employee salaries.
If you’d rather not follow that link and see for yourself, I’ll reveal it here… “Because I can.”
If you’re a remote employee affected by such cuts, you might want to continue commuting for a short time while looking for a more ethical employer who will pay you based on the value you create rather than what they can get away with.
Alternatively, you can follow Le Fort’s advice, and use the commute time you save to build a side hustle that will much more than makeup for your reduced pay. Ultimately, you can build it up to the point that you can make the leap and quit being an employee. As a business owner, you’ll capture the full value you create, without an employer cutting a large fraction off the top.
Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the Author
My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.
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