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VMware CEO Pat Gelsigner speaking at VMworld 2014 in San Francisco. VMware

VMware Cuts Pay for Remote Workers Fleeing Silicon Valley

Employees who worked at its Palo Alto headquarters and go to Denver, for example, must accept an 18% salary reduction.

Nico Grant, Sophie Alexander and Kurt Wagner (Bloomberg) -- VMware Inc. employees who take up the company’s offer to become permanent remote workers will get a pay cut if they move from Silicon Valley, one of the nation’s most costly areas to live, to a less-expensive city.

The software maker has joined technology companies such as Facebook Inc. and Twitter Inc. in letting some of its office staff choose to permanently work from home in the wake of the coronavirus pandemic. But employees who worked at VMware’s Palo Alto, California, headquarters and go to Denver, for example, must accept an 18% salary reduction, people familiar with the matter said. Leaving Silicon Valley for Los Angeles or San Diego means relinquishing 8% of their annual pay, said the people, who asked not to be identified discussing internal policies.

Facebook and Twitter are among the other technology companies that have put in place or are considering similar pay policies. A Twitter spokesman said the company has a “competitive” approach to localizing compensation while Facebook has publicly said it may cut employees’ salaries depending on where they choose to move.

VMware’s senior vice president of human resources, Rich Lang, said the company adjusts salary based on the “cost of labor” in different regional zones and benchmarks salary variations among firms competing for its workers. While some employees will see pay cuts, Lang said others could get a raise if they chose to move to a larger or more expensive city.

The coronavirus pandemic has shuffled U.S. life, forcing millions of people to work from home. Some Americans have moved closer to their families and loved ones or to more affordable areas than the expensive metropolitan hubs along the coasts. In the midst of a recession with high unemployment, many technology workers have greater flexibility than ever before in deciding where and how they want to work post-pandemic. But some companies’ efforts to claw back some compensation when workers depart Silicon Valley, one of America’s most expensive places to live, shows that leaving may have its costs.

Cloud-software maker ServiceNow Inc. is considering changing the pay of Bay Area workers who move away, starting in 2021, according to Chief Executive Officer Bill McDermott.

“I don’t believe we should have an environment where management is not involved with those determinations, because what you could get into here is a situation where employees then become the decision-maker in working literally from anywhere, and you would have a hard time organizing and holding together a culture if that was the case,” McDermott said Friday in an interview.

McDermott said a final decision hasn’t been made, and the Santa Clara, California-based company will try to create an official policy. He said ServiceNow probably will have a hybrid workforce in the future, with employees in offices, on the road and at home.

“Are we going to adjust their pay when they’re in the mountains of Colorado for a couple of months where they feel safer? Probably not,” he added.

The San Francisco Bay Area had the highest prices for goods and services, including rent, among large metropolitan areas in the country as of 2018, according to data from the U.S. Bureau of Economic Analysis. The New York City urban hub was in second place. Among areas of all sizes, the California cities of San Jose, Sunnyvale and Santa Clara, at the heart of Silicon Valley, had the highest rents in the U.S.

As corporate campuses in the Bay Area remain closed because of local coronavirus rules, tech companies long used to treating their office workers well to boost retention have pitched remote work as yet another perk, but employees will have to decide if leaving Northern California is worth the lost wages. For payroll and tax reasons, these companies must know where employees reside, but the decision to fluctuate pay is at their discretion. VMware’s Lang said the company has tried to be transparent with employees about how moving would affect their compensation, so they can make an informed decision.

“We are asking employees to be upfront and honest, because that’s the expectation at VMware, but also the governments require you pay your taxes based on where you work,” Lang said, acknowledging there will be some workers who continue to claim a California address even if they move elsewhere. If workers temporarily move to be with family or another short-term reason, their pay will not be affected.

Separate from the pay policies, Twitter has provided all employees a one-time $1,000 work-from-home allowance regardless of their locations and additional days of rest. VMware has also given all employees two weeks off at their discretion so they can recharge.

Facebook told employees in May that the company would soon transition more permanently to remote work, even after Covid-19 subsides. Employees who leave expensive areas like San Francisco or New York will have to take a pay cut, however, depending on where they live as of Jan. 1, 2021. Chief Executive Officer Mark Zuckerberg said he expects as much 50% of Facebook’s global workforce to be remote in the next five to 10 years.

Dell Technologies Inc., the personal computer maker that owns 81% of VMware, has asked for volunteers to work from home as much as they would like, from one to five days a week post-pandemic, as long as they have manager approval. The Round Rock, Texas-based company said in a statement that it isn’t making any adjustments to compensation “at this point in time,” and will give remote workers a one-time stipend of $400 for home-office equipment.

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