Hybrid pay model
Paying workers using a blend of location-specific and location-agnostic strategies.
The hybrid pay strategy incorporates both location-specific and location-agnostic elements. This model can be a good solution for companies that don’t quite have the budget to provide high salaries in a location-agnostic model, but who don’t want to use a purely location-specific model that could create low morale and/or wide pay disparities among their employees.
Examples of hybrid pay strategiesBecause hybrid pay strategies incorporate elements of both location-specific and location-agnostic models, there can be quite a lot of variation among hybrid models. Below are some examples of hybrid strategies.
Using location-agnostic pay up to a certain salaryChris Dyer, a founding member at Remote-First Institute, ran his own company PeopleG2 (acquired by AccuSource in 2021) for over 20 years and transitioned the company to being fully remote in 2009. He now consults with companies on their remote work strategies. PeopleG2, a background check and employment screening company, had employees and contractors distributed through the United States. Dyer had 45 direct reports. He says, “We also had about 4,500 independent contractors, all 100% remote. So we had people all around the country. We had to manage and deal with all these different complexities…in every state.”Dyer and his team decided on a hybrid pay strategy, in which for roles where people were making less than about $100,000, their pay would be location-agnostic. For people making $100,000 or more, their pay would be more customized and more likely to be location-based. They chose $100,000 as the inflection point because that was the amount at which the need for, Dyer says, “more complex types of packages” usually came into play, such as with employees in leadership roles or sales roles. He says, “If you start to make money over a certain amount, then you’re more likely to be able to afford a New York, an LA, a San Francisco, [or] maybe a Miami [home], a place that does cost more money.” So it made sense to make pay location-specific for these higher-paying roles, to account for higher cost of living areas. Using location-based pay also made sense for PeopleG2 when it came to hiring in more competitive job markets. Dyer states that, when it came to hiring in “big populous cities with lots of competition and high rents and high mortgages,” they “couldn’t get talent or retain talent.” So in more competitive markets, they “had to be a little more creative.” Describing their overall approach, Dyer explains,
“We could never be equal, but could we make it fair for everyone based on where they lived and the different complexities that they had?”Chris Dyer, Founding Member at Remote-First Institute
Benchmarking different departments to specific marketsAnother hybrid strategy is to benchmark pay for different departments to specific markets. This is the strategy that Pilot uses. As co-founder and CRO Staszek Kolarzowski explains, Pilot’s hybrid pay strategy was created with two goals in mind: “First, we really wanted two people doing the same job to earn the same amount of money, regardless of location. Second, we didn’t want a huge gap in salary between people in the company, even though they were doing different things.” To achieve these two goals, Pilot benchmarks different departments to specific local markets. For example, Engineering and Customer Support salaries are benchmarked to Western Europe, while Sales is benchmarked to high-cost US markets.Pilot uses three markets: a US “high” cost market for markets like San Francisco and New York; a US “standard” market for everywhere else in the US; and Western Europe. (Note: In the featured video with Kolarzowski, he mentions a different set of location brackets, including Latin America and Eastern Europe. However, that was a previous iteration of Pilot's location markets.) What market is used for which department depends on the talent pool for that department. Kolarzowski says, “If there’s any new role or any new department, we usually start with the markets with a smaller cost of living and we just see how easy it is to recruit people. If it’s very easy, then we usually stay on this level. If it gets hard, if we cannot attract any talent, then we change the location [benchmark], because if you change the location, you can access more markets and you can also be way more competitive in those smaller cost of living markets.”Initially, Pilot used six different location benchmarks. But as the company earned more money, they began eliminating the lower markets, so that there are now three location benchmarks. Kolarzowski explains, “If you have some people earning San Francisco salaries and at the same time people earning Eastern Europe salaries, you might have a situation where one person is earning [for example] 30 times more than the other person just because they’re in different locations. So we tried to eliminate this and as soon as we can, we just try to always remove that lowest bracket and just push everyone to the market above.”
“First, we really wanted two people doing the same job to earn the same amount of money, regardless of location. Second, we didn’t want a huge gap in salary between people in the company, even though they were doing different things.”Staszek Kolarzowski, Co-founder & CRO at Pilot
The pros and cons of the hybrid pay modelBecause hybrid pay models can vary, their pros and cons can vary, too. Below are some of the common advantages and disadvantages that many models can share.
Pros of a hybrid pay strategyCompanies that draw from both location-based and location-agnostic models like these advantages of the hybrid pay model:
- It is flexible
- You can test out which markets work best with your budget
- You can provide reasonably equitable salaries while staying within budget
We’ll look more closely at these advantages in the sections below.
More flexibilityMany companies like the flexibility that a hybrid pay strategy lends to their remote work compensation policy; they’re able to balance the pros and cons of location-based and location-agnostic pay models. Flexibility is one of the main reasons that the staffing agency Recruiters.co decided to use a hybrid strategy. As their CEO Nate Nead says,
“We chose to go with a hybrid pay strategy for our remote work compensation policy because it allowed us to strike the perfect balance between fairness and flexibility.”Nate Nead, CEO at Recruiters.coHe explains that his company's hybrid approach lets them make sure all of their team members receive fair compensation: "With this approach, we could provide remote employees with salaries in line with their experience and qualifications, while still accounting for differences in cost of living. By taking into account both local and national market rates, we could ensure all of our employees were adequately compensated for their work no matter where they are located.”
Test which markets work best with your budgetIf you’re using a hybrid model like Pilot’s, in which different departments are benchmarked to different locations, you can test which location benchmark gives you the best balance between talent and budget. If using a location benchmark with a lower cost of living, such as Latin America, brings you the talent you need, then you may choose to stay with that location. However, if it doesn’t bring you the talent you’d like, then you can keep moving to more expensive location benchmarks until you find suitable talent.
Provide equitable salaries while staying within budgetAnother advantage to using a hybrid strategy like Pilot’s is that, because you’re benchmarking whole departments to locations, you’re able to pay the same amount to two people doing the same work. This provides the benefits of a location-agnostic approach – at least within each department – without requiring you to benchmark the entire company to a location with a high cost of living. Of course, since some departments will be benchmarked to areas with higher costs of living, there could still be a sense of inequity between departments.
Cons of a hybrid pay strategyThere are some potential disadvantages to using a hybrid pay model:
- It can still feel unfair to some team members
- Because it uses elements from location-agnostic and location-based strategies, it could be more complex to manage
Some team members may feel it’s unfairBecause team members may still be paid based on different markets, using a hybrid strategy can still cause some employees to feel they aren’t being paid enough or fairly. As we discussed in the sections above about location-based and location-agnostic pay strategies, though, this sense of inequity could also be felt by team members in any pay model, since there is no one perfect model that meets all the needs of both companies and employees.
Increased complexitySince a hybrid model uses elements from both location-agnostic and location-based strategies, these models could be more complex for companies to set up and manage. However, as long as the pay strategy meets the needs of the company, then the time spent administering the strategy should be worth it. Also, one could argue that launching and administering any type of pay model is a sensitive, time-consuming process.
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