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PHIL SIMON

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Zillow, Location, and the Beginning of the End of Compensating Wage Differentials?

I dust off my old HR hat in today's post and drop a reference from The Wire.
Sep | 20 | 2021

 

Sep | 20 | 2021
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Eggs in Hawaii

At grad school a million years ago at Cornell University’s ILR School (go Big Red), I took a course on labor economics. In it, my classmates and I learned about compensating wage differentials.

Its premise isn’t difficult to comprehend. Because of them, a coal miner earns more than a janitor in the same city or state. The former faces a much more dangerous environment. Ditto for administrative assistants who live in Hawaii compared to their Wyoming and Alabama counterparts.1 Ask Mercer and they’ll tell you: It’s far more expensive for people to live in idyllic environs—and wages need to reflect that reality. Even eggs cost more. Supply and demand, baby.

Put differently, where you work has always affected employee paychecks.

Adam Sandler Is Worth Beaucoup Bucks

Against this backdrop, Zillow’s recent announcement about its location-independent(ish) pay practices is an important one. In the words of chief people officer Dan Spaulding, “When you work for Zillow, your long-term earning potential is determined by how you perform, and will not be limited by where you live.”

To quote the immortal Wendell Pierce, “Sheeeeit.”

Rock stars have always been able to command a premium for their services.

To be sure, rock stars have always been able to command a premium for their services. Anita Elberse’s excellent book Blockbusters: Hit-Making, Risk-Taking, and the Big Business of Entertainment examines this subject with aplomb. Case in point: Adam Sandler is worth $275 million to Netflix. (You read right.)

Still, the idea that location shouldn’t play an outsize role in compensation decisions is a biggie. It undermines centuries of economic orthodoxy. A decade from now, we may marvel at the import of Zillow’s decision.

Simon Says

I for one will be curious to see if more dominoes start to fall here—especially as organizations delay their returns to the office. (Hello, Microsoft.)

Play this out. Say that more companies follow Zillow’s lead. Senior leadership at mature organizations will have to consider doing the same. If I put on my dusty HR hat for a moment, the widespread introduction of location-independent compensation will be a difficult bell to unring.

Footnotes

  1. I thought that I was losing my marbles when looking at salary surveys way back in, er, 1996.

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