1. The Fundamental Message Is Terrible.
I'm not going to build up here and just go with what I think is the biggest concern. When a company adjusts pay based on a remote employee's location, what they explicitly saying is that "Your compensation is not based solely on the value you bring to the company." Think about that for a second. Two employees who generate the same value for the company, are paid different rates, simple because of where they are.
"But wait Sam! They just want employees to have the same quality of life!" Well...
2. The "Quality of Life" Argument is also BS.
You can't enforce an equal quality of life by scaling pay, because cost of living is a function of quality of life. Places like San Francisco and Miami are more expensive because demand is higher. Demand is higher because people think they are better places to live.
Does anyone honestly think that a studio apartment in Palo Alto is the same quality of life as a studio apartment in Sheldon, Iowa? There are so many factors at work here they go beyond living space (cost of rent is one of the most popular inputs to cost of living pay calculators). That apartment in the bay area has great weather, it's above a fun little Thai fusion dive bar, and within walking (or public transport) distance to some of the worlds largest tech conferences and meetups. Meanwhile, an employee in Iowa has to drive an hour for a P.F. Chang's and has to wake up 5am to shovel his driveway 5 months out of the year to get his kid to school. That's why he gets four bedrooms and a boat (which again, he can only use half of the year).
3. It's Legally Dangerous.
Diversity and inclusion are one of the top (if not THE top) priorities for many tech companies and rightly so. It goes without saying that none of these companies would ever dream of scaling pay based on race. But it's well understood that zip code is a proxy for race. It wouldn't be hard for a civil rights attorney to overlay a map of racial distribution with a map of cost of living and see what lines up. This represents a HUGE HR risk.
Does any company really want to try explain to an employee that he makes less than his peer who happened to inherit a home in an affluent city from a grandparent that the pay difference isn't a consequence of privilege?
4. It's Game-able
Humans are smart. Post office boxes are real things. Many people live full time out of campers, or hop from AirBnB to AirBnB. Now it's HR responsibility to check up on employees constantly, "I see you have a lot of photos from Utah on your facebook... do you really live in Soma?"
5. It Goes Against The Essence of Remote Working, In The Most Greedy Way.
The entire point of remote work, or remote first companies (like GitLab, who scale pay based on cost of living.) is that where you are doesn't matter... Except it suddenly does when it can save the company some money. Note that many of these Silicon valley startups and tech giants have founders and C-level executives who just happen to live in these high cost of living places.
6. "It shouldn't just be about the money!"
It's been said by some that employees who are focused solely on the monetary compensation aren't a good fit, and they should care about the work they do and the people they work with and the company culture they're a part of.
All true, but that doesn't mean employees that like their job, colleagues, and company deserve to get paid any less than employees that are just in it for the money.
7. It can punish people who are already disadvantaged.
Consider two engineers at the same level in an organization, one a single male who lives in a small apartment in the center of a bustling metropolis. One, a recently divorced mother of two who finds her self unable to afford her downtown condo. She needs to move to a more affordable place and not just for housing, there's things like childcare to consider as well. She finds a small town with great schools and affordable housing, and what is the outcome of a cost of living "Fair to all employees" system? She gets a pay-cut on top of the all the new hardships she has to deal with.
The whole reason people move to lower cost of living areas is to make their money go farther, and this isn't always a personal choice, sometimes it's out of necessity.
8. These pay differences compound.
It's very easy to say "Rent costs twice as much in city B, so employees in City B make twice as much" and think that's even. But so many parts of a standard compensation package are based on this base salary. Bonus calculations are often a percentage of base salary. 401k or IRA contributions are a percentage of base salary. Raises (which compound annually) are almost always done by percentage.
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This practice doesn't make any sense other than business sense. Lower cost of living? That would only make sense if we spent all of our money on food and housing. Programmers make more money, they can cover more needs. The best way to say how unfair it is, is to ask the following question: after covering all basic living cost, will it be the same financial impact to go from place A to B, like it is from place B to A? And don't get me started on diverse areas within single city, which is still considered the same place for an employer.
☝☝☝this 💯 times this!
I agree in that cost of living (monetarily or otherwise) is fairly equal across the country. Nobody wants to shovel snow before heading out in the morning.
Can we avoid defining location as some binary between "Expensive Metropolis of Awesomeness" and "Cheap Craphole of Nothingness"? There are a whole range of places to live that are not cornfields but have a lot of culture and great COL. For example, I'm in Lafayette, Louisiana. We have a populate a bit over 125k. We've had fiber as an internet option for a few years now and I've currently got a gig up and down. We have great culture, great food, a university in the city with a great comp sci department. And nope - I don't live in a swamp.
He is hitting the "flyover country" concept a bit too hard while still making a good point.
Another way I've argued this is whether it would be appropriate to ask an employee what he/she pays in rent and then base their salary on this number. Everyone agrees that is nuts, but cost of living is (as you pointed out) heavily influenced by rent.
The only reason this currently works is because the market hasn't reached a tipping point where there are enough remote opportunities, and I suspect that when it does people will remember which companies did COL based salary.
Now all this said, I do understand a slight adjustment in salary for remote employees vs in office ones in some cases but it should likely be a fixed adjustment regardless of where you live.
Seems like something the free market should easily solve - as it probably does. I've never seen a company do this. Only heard about it once or twice on forum posts. And I've looked through tonnes of remote job postings. So companies that do this are really in the minority. I've worked remotely for most of the last 5 years.
GitLab and Buffer are the two most prominent and both have their calculators available for the world to see. Github and others have the policy, but don't make it or the calculation public. They're in the minority, yes (maybe?), but there are enough prominent ones that it's worth calling out.
I think, to make this argument, you need to offer a solution to the inverse: If a company is based in Iowa, and you live in SF, then I assume you don't want them to pay everyone Iowa rates, because you couldn't afford your rent. What should they do about that? Seems to me the answer is: cost of living adjustment.
Companies in he Midwest already do this and I have no problem with it. Remember one of my points is that SF is so expensive because people consider it a better place to live. People living their value the cities amenities over the affordability of say, Iowa.
I think companies should pay people what they think the candidate will accept, that the company thinks is a responsible use of their companies capital. If that means employees in the Midwest are willing to accept less, then that’s those employees choice. I don’t think companies should have an explicit policy that discriminates by zip code.
A bit confused, are you saying that companies in the midwest already pay midwest prices regardless of where you live, or that they already offer cost of living adjustment?
Pay their local rates. I dislike the term "Cost of living adjustment", since it implies some people need more money to be compensated equally (See above. a studio in Palo Alto and a studio in Kanses are not the same quality of life. SF is a very desirable place to live for a practically uncountable number of reasons. That's why a guy surrounded by corn, paid equally gets 4 bedrooms and a boat. Part of why I think companies that pay CoL invite a coastal urban monoculture.)
For a while, I think it was basecamp, paid Chicago rates no matter where the employee was located. If it was basecamp, they now pay SF rates globally, despite not having a single employee in the bay area.
I think you would be very hard to find a midwest based company, that paid bay area rates for a remote developer.
There are some companies that have offices in the midwest, but HQ'd in coastal urban locations, and they tend to pay more than a local company would pay, but that's not entirely the same as remote work.
My whole thing (since I know it seems contradictory at times): Companies are going to (and have the right to) offer whatever they think is best use of their capital. Employees are going to accept whatever they feel is worth their time. If a company knows it can pay a rural engineer less than one in Cupertino, and they offer less because of that, that's just the reality of supply and demand....
However, I'm calling BS on an explicit policy of "You live next to poor people, and we want you to fit in." Even when a company like GitLab admits it's all about saving them money (Their official document on pay says something to the effect of "all things equal, we will pick the candidate living in the lower pay area") Then I'm still calling BS on that company culture, which is hiring the people because they're the right price, not because they're right fit.
You forgot to mention that people also want to travel or that they want to buy expensive stuff - cars, TVs... These things cost the same for everyone, but a poorly paid employee has to save many more months than a well payed one.
For example, people from high income areas travel to where others get lower income and enjoy they vacation that also might save them some money, whereas others must actually save money for several months to be able to pay for such a VAC.
Do you think it is possible to create a fair pay structure that considers the cost of living (or even just rent)?
As an example:
I think the most fair thing is for employers to offer what they think the employee will accept, have the employee to decide what he's willing to accept and then negotiate compensation from there.
If they do some COL calculations behind the scenes to get their number that's fine.
If the employee lowers his number because his rent is cheap (or maybe he lives in NYC, but inherited a paid off house from a dead relative) that's fine too.
What they agree on is between those two, and nobody else's business.
But I'm not sure an explicit policy, of devaluing employees based on address will ever be "fair" simply because cost of living is already a function of quality of life. The same salary buys a bigger house in farmville, Minnesota than Miami, because Minnesota has winter and winter sucks. So you get 4 bedroom house and a boat, because you choose to deal with winter. So maybe you can only afford a studio in Miami. But how much time do you spend there? You get to enjoy the city (and beaches) of Miami year round. It's a tradeoff people make for a virtually uncountable number of reasons.
Some people prefer vibrant urban communities and variety of cultural experiences, some people prefer to have a lot of stuff in the middle of a corn field. A COL pay policy rewards employees who prefer the former.
Maybe people live in low COL areas not by choice (or by very difficult ones). Taking care of a sick or elderly relative? Being near their children whom the other parent has custody of. Visa issues. COL Pay policies effectively say "This is fair because square footage of living space is equal, I don't care what your situation is."
Paying based on what employees are willing to accept feels somewhat contradictory to your earlier sentiments about the moral implications of zipcodes affecting CoL and, consequently, pay. And there will be a variety of circumstances that employees face with regards to taking care of relatives, et al. I think there's a question about social programs there, but that's a deep tangent to go down.
It is a fair assessment to question how a company values their employees when they are entirely remote and doing a CoL based pay. I'm left somewhat unsatisfied by it because I feel there is somewhat more, but I can't quite put my finger on it.
THIS!!!! I'm so glad you mentioned the race/zip code thing.
Also:
My cost of living isn't just where I live. It's my student loans. It's paying off the high interest debt I went into while learning to code, attending a bootcamp in NYC, and looking for a job for 7 months. It's coming from a lower income family, helping my mom pay the rent, and being the go-to person for emergencies, given that I'm the highest earner in my family by far.
Someone else's cost of living might involve having kids, or a health problem/disability, or taking care of an elder.
Just pay people what they're worth!
Omg THIS!!!
When I read the headline, I thought your argument was of not increasing pay based on location, but as I read, I agree that it says more that someone is earning less than someone else based on where they live. A company should set salaries based on the most expensive cost of living out of their employee pool.
I found one of these companies who do this and the "places you live" were highly generic. For instance, they had a "North America" bucket, which earned the most based on cost of living. I live in a suburban town outside Toronto, Canada. If someone lived in Downtown Toronto they would earn the same as me, even though the cost of living is significantly lower not 40 km/25 miles east; not even taking into account the people who live in New York City or Miami or even Silicon Valley.
It's a slippery slope.
Basecamp pays San Francisco rates, and has no employees in that area.
As a fellow remote employee, I feel ya. However, pay is often first and foremost determined by market rates. What could you get paid by other companies if you worked locally? That's the market rate for you.
Granted, nothing says a company has to follow that logic, but it kinda makes sense from a fiscal responsibility point of view.
Further, I think (and maybe more so hope) that our industry is waking up that people don't need to be local more and more. That will make the market rates more global, or at least national, so employers will have to compete across the board, not just based on locality.
And lastly, if you feel you are underpaid, go get another offer to prove it. I never met a company (who valued the employee) that is not willing to increase based on real market evidence they are paying too little. Unless they just can't afford it, of course. You could also just bring it up as a concern, first. Sometimes employees don't realize that just making their concerns known can change things.
I'm about as pro-free enterprise capitalism as they come. I have zero problem with private, consensual salary negotiations that result in unequal pay.
I have zero complaints if a company says something like "We like this person, and want to hire them. We have to be responsible with our capital, so here is an offer we think is fair that we also think they will accept"
It's quite another thing to say "This is what your skills are normally worth to us, and some of our engineers at your level who enjoy the wonderful city of San Jose get paid that. You however, live near poor people, for reasons we don't know or even care about, and we want to make sure you fit in with your neighbors, in the name of fairness." which is what a strict COL based pay policy says.
I agree with you, if COL adjustment is the company rationale. If your company is telling you that, then yep, they're off base. I would suspect they are just articulating the situation poorly.
I'm just speaking as a long-time hiring manager of many locations around the world. You hire at the local market rate.
Most companies I've worked for don't pay based on "value"; they pay based on what X role is paid in Y market. It really is supply-demand economics. This is why offshoring "works" (if I may use that term loosely).
I wonder what you, as a hiring manager, would say what my rate would be. (Not a challenge or anything, just as a thought exercise)
The position is Senior Ruby Developer for a company based in Colorado. They are looking for someone with 4 years experience with Ruby and anything Rails related.
I have 5 years experience with Ruby, and I have been a Senior Dev for 1.5 years. I studied CS in Germany, worked for GitLab for 2.5 years.
I live in Mexico City. What would be your first offer?
(I wonder how close, or not, you come to what I’m actually getting paid right now at my current job)
Hi Patricio, if I were hiring in Mexico City, I'd do my best to research prevailing market rates there. Barring anything else, job listings are not a bad place to start. In the U.S., there are research companies who find out directly from companies' HR how much they pay for X role. They collate this by various factors, including area, and some companies (one I have worked for) pay for this information--because it is more reliable than job listings and public salary surveys (which are also not terrible sources).
I have never hired in Mexico City, so I couldn't say what your role is worth. Sorry. If you're honestly wondering, you could do the research. Another good source is recruiters because they are placing people and get a commission, so they know what the going rates are in their areas usually.
P.S. I say "I" above, only in the context of working as a hiring manager for a company who did not have some other pay philosophy. I know there are definitely companies that pay the same no matter where you live, for instance. As we move towards more remote work, I think the notion of market rates expand to be more national/global, which is good for us.
P.P.S. I've also seen the inverse, where a company pays based on what they, regardless of market, think it is worth to them. What I saw then was it was below market, so for us, I think market-based pay (for the foreseeable future) works in our favor, over the idea of value-based pay.
I've done my research on this already. In my initial comment you can see the rates that I have come across. (between $800 and $2000 per month depending on experience).
After I left GitLab, I looked for a local job. While negotiating I had to be pretty aggressive to get an offer that is for less than half of what I make today. Both positions were very similar, Senior Ruby Dev, with similar experience necessary.
An acquaintance of mine is a recruiter (DonChambitas for those in the region). He works with a lot of companies and knows the market extremely well, not only in Mexico City, but in the entire country. He has worked with big companies as well as start ups. The overall pattern is that the market here in Mexico pays way too little for what the work is actually worth.
For the Spanish speakers here, you can see a survey performed by Software Guru magazine about tech salaries for 2017 here: sg.com.mx/buzz/reporte-salarios-y-...
This is only exacerbated by the fact that some of these companies (listed above like iTexico) are near-shore companies. This means that they do outsourcing work for US companies. They charge their customers regular US rates per developer, but then only pay the people doing the actual work lousy salaries and they make an obscene profit on that.
They are selling your work for what it's actually worth, but you are only getting market rates. This is why I hate the idea of basing salaries on local market rates.
Sorry, I did not see your other post.
FWIW, I don't think that's fair--particularly the imbalance between near-shoring rates vs. your local rates. It's odd, because it seems like the main reason to off/near shore is to save $$, so if they charge US rates, not sure why companies here would use them.
Anyhow, for the record, I would much prefer the same-rate-regardless-of-locale approach. My comments here are only to provide rationale for why companies don't do that, and why they're not likely to, until/if remote work becomes more of a norm (and thus the regional market becomes less of a thing).
And in general, I think developers, no matter where they live, are undervalued for what they do. It is one of the most highly-skilled, volatile-knowledge jobs in the world. But we're all up against market forces that work against being paid by value.
The near-shoring companies do charge a bit less, but the difference is negligible, specially compared to what the developer ends up getting. The major attraction factor these companies have is that they can supply you with experienced developers, located in your timezone that speak good english. So you can go from a team of 5 to a team of 25 in just a week, without having to vet the candidates yourself. That is why they can charge pretty close to what the 20 extra developers would cost them in net salary (they save in acquisition costs, training, hiring, etc. so the deal is still pretty sweet for them).
Thank you for the insights 👍
That makes 2 of us 😊
Thanks! :)
What's the meaning of BS?
In the UK the usual example is the London allowance. I've never been offered enough money to put up with living in London though.