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.
Oldest comments (68)
This! So much this! But it not only affects remote workers within the US, it also affects international remote workers.
I live in Mexico City, where developer salaries are really low. It is the worst when a company wants to hire a remote worker from here, and offers only to pay based on cost of living, or local market rates.
I know of a lot of developers from Mexico that work remotely for US or European companies that do pay well (I'm lucky enough to be in that group), but there are also a lot of companies that get away with paying very little, just because it is a higher salary than what they would get in the local market.
For reference, a Ruby on Rails developer would get between $800, and $2000 per month depending on experience, and the company. Foreign companies could get away with paying just a bit above that.
But when you hear a developer in the US, with very similar education, experience, and skills makes 4 or even 6 times that amount, and the cost of living is only 1.5 times higher, you immediately feel undervalued.
I understand the need to adjust salary a bit to local market, but getting greedy and wanting to exploit a market that is still very undervalued, is just wrong.
I am glad that there are companies like Basecamp that pay all their remote workers based on Bay Area salaries (even the international ones). They set an amazing example.
And others like Buffer have a publicly accessible salary calculator, so you can see how your potential salary could look like. They still apply reductions based on where you live, but these reductions are not that high (it could be better, though).
My point is, if you are an international remote worker, know what your work is worth and fight for the salary you deserve.
Feeling your pain over here. Last year I worked for three months with an European startup, they paid me around 300 euros per month. It was a Java project, involving Spring, microservices and the whole shebang. 300 euros it's a lot of money in my country but they won't get an European or American developer to get out of bed for that amount. I knew it, they knew it, I needed the money, end of story.
I think the cost of living in Bay Area or worst in San Francisco is not just 1.5 time the one of mexico. Education is very expensive as well as real estate. If you come working alone with 2 childs and sell you home in mexico for one in SF, you'll see it isn't just 1.5 time more.
Oh, I was never talking about SF, when I mentioned the 1.5 times increase in cost of living. I was talking about Smalltown, USA. @sam_ferree mentions Iowa, as an example. I'm doing the same.
Salaries in the Bay Area are crazy high, because cost of living is also crazy high. That was never in question.
I know that feel. And your are lucky for working in a foreign company. I live in Yucatan, and the average salary here is not more than 600 usd / month. I luckyly work remote too, but for a local agency in Mexico City.
The fact that humans game all systems is so overlooked. We are so hardwired to optimize that we always find the equilibrium.
I suppose it is worth noting that employees can game a value based compensation system by creating more value...
There's a reason military personnel who are at their 20yr mark try to ensure that they retire while stationed someplace like DC.
While I can understand a degree of distance-sensitive salary-scaling, it really only seems justifiable if the company is paying for everything involved in the inevitable "mothership" trips. Even there, it only makes sense if the aggregated mothership trip-costs exceed the delta in raw pay.
When you factor in (now) traditional retirement planning, it really becomes bogus. "Ok, you cut my salary because I moved, but now, in order to max my 401(k), I need to set aside 15% of that reduced salary vice the 9% of my salary when I was in the more expensive market."
Plus, how many companies that do location-aware compensation will scale it upwards if the job is notionally located in a market that is 80% the cost-of-living of where the candidate actually lives?
It's truly shocking to me how all these great points can be made, and companies still do this and insist it's "Fair to all employees"
Personally, I've never heard of company that does location based pay that isn't based in the Bay Area, so I don't even know where to check to see if I can find a company that will upscale your pay.
If the government counts as a company, they most definitely do. Though, in fairness, they do scale in both directions.
There have been a few that I've encountered - but never worked for - that toyed with location-scaled salaries. However they were pretty much all located in high labor-cost markets. And they pretty much all tried to use it as a method of reducing salaries of the remote workers.
I don't really think it's unfair. Of course given that any employee is allowed to relocate anywhere else and have their salaries re-adjusted.
Saying everybody is allowed to relocate is just another BS that goes along with these sick capitalist premises. I can think of multiple scenarios when someone just can't move out, most importantly including family.
You are thinking about this wrongly. Employees are not paid by how much value they add to the company. Employees are paid by how rare their skills are in the marketplace, and also how in-demand their skills are. If your skills are rare and in-demand, you get paid well. You get paid badly if your skills are abundant in the marketplace or not in-demand.
So if the job can be done remotely, existing on-premises and remote employees are competing with everyone in the world who can do that job - they are competing on skills and price. And obviously someone who is in somewhere cheaper to live can still afford to take a job at $75,000 whereas someone who is in San Fran might want to be paid $100,000 for (because they have higher living costs).
You are forgetting the job market IS A market. Companies will pay the minimum that they can get away with.
I'm not saying I agree or like it. But you have to see that the world is one big marketplace for employees if your job can be done remotely. Take to the streets and demonstrate, unionise, protest if you want.
But don't think about it wrongly - you aren't paid according to your value to the company, you are paid according to the minimum the company can get away with to get the skills they need.
I assure you friend, you'll find quite hard to find a bigger fan of free enterprise capitalism than me. I understand completely what's going on here, but that doesn't mean I don't recognize the difference between what a company can do and what a company should do
My point is not to start some revolution whereby this practice is made illegal, I want to raise awareness that this practice is not a "Fair to all employees" system, it is a "Save the company money wherever we can" system, and the appropriate way to fix this is to let remote workers know the shouldn't just tacitly accept it.
Honestly if a company like GitLab came forward and said "Yes, we pay people less where we can to save money" I'm all out of complaints. It's this facade of "fairness" that I find extremely disingenuous an utterly indefensible.
Point taken - the company should be honest about their motivations when introducing a change to cost of living pay schemes and not call it "fair to all employees" and it is right to call them out on this. I stand corrected!
I love this comment thread so much, because of the respect for each other's opinions and kindness in communication! There are so many sites where "don't read the comments" is great advice, and I'm so so glad that The Practical Dev isn't one of them!
I worked for GitLab for 2 and half years. I joined as the 9th employee, and that is exactly what they do. The way their salary calculator works has nothing to do about fairness. It is about how much money can we save by hiring this person in this country. They even have "Compensation Specialists" whose sole purpose is to handle these situations.
They will never say it is that way. They hide a lot of bad culture underneath that whole "we are super open" facade.
Let's be honest we all do it. People buy from china/brazil whatever because of the price. They go in vacations in cheap places/coutries (or even retire there). If you discuss with them they'll say they don't want child labor, people without vacation or social security and so on, that they want to protect local work but they are the first to try to get the most of their money regardless.
An enterprise is exactly the same. There no reason why they should be more ethical than the rest of us. And we can't ask them to be when our own behavior mean that if they don't do it they go bankrupt.
See my response to your previous comment.
Shopping around for the lowest price, and a company policy that says "Screw people who live in poor communities" are not the same thing.
But the policy doesn't say it. You say it. They don't So that the whole difference.
Exactly the same if you buy cheap from country that don't provide decent working conditions. You don't say it, but you do it.
GitLab wrote a whole article that says it:
about.gitlab.com/handbook/people-o...
it's this EXPLICIT policy, I'm against. Not voluntary market negotiations that result in unequal pay.
github is just one actor inside what you call voluntary market negociations.
I mean there no such thing as getting what you want. Both parties have to agree and if they do not, there no contract, if they agree there a contract. But that doesn't mean the company can force people to work for them or that on the contrary they are forced to provide a given level of compensation (outside of local regulation rules).
I work in India, where salaries are very low compared to USA or Europe.
I am just pointing out about the line pertaining to going to cheaper vacations, the truth at least for me is, some of the vacations might end up taking more than half of my yearly salary, which might not even end up as a month for a dev located in USA.
Become a freelancer and charge what you are worth based on things like supply and demand and your abilities. It's less risky for the companies buying your services and you'll be able to charge exactly what you are worth in the market, which will be typically a lot more than your salaried colleagues get for essentially the same work. On top of that you get this weird dynamic where external contractors tend to have a lot of authority relative to employees. And best of all your only relation with HR is making them pay your invoices.
If you are thinking about job security, be aware that in many places things are not that secure. My understanding in especially the US is that your employer can end your job at will for pretty much any reason at any time with little or no risk. So if you are doing work for an employer that does not properly value what you are doing, maybe it is time to reconsider that relation.
I typically charge a lot more for showing up on remote sites. It's inconvenient for me and travel + hotels + restaurants just cost money. So if the customer wants me on site, that will cost them. It kind of reverses the logic of working remotely. If my customers believe that they can get a better deal from somebody else, I encourage them to take it. No hard feelings. The reality is that many companies prefer to have people on site; which forces them to hire locally, which in some areas is beyond ridiculously expensive.
Even in places that don't have at-will lots will treat it like it is. Be aware of your rights.
It only add additional reasons as to contract and to trust those who are trustworthy on the employment front. Do your due diligence.
I also like your comment to not take it personal. I try my best not to as it's business. We all try to work together for the best outcomes and sometimes the correct answer or best answer is moving on company or employee or contractor or contract or what have you.
Globally you have to pay people enough so they accept to work for you as they are not slaves. If they ask more than you can afford, you do without it.
In computer science basically there more demand for workers than there workers available. So they'll not work for you if it isn't interesting for them. Standard workers will not move to work in a given area if you don't pay them enough for that, they have no reason to move and get reduced quality of life. And workers in that area will not accept to work remotely for you if you pay them significantly less than if they work at an office in their area. That's logical.
Maybe you don't like it, but your arguments on diversity and all do not apply. Again there so much demand that everybody is welcome. Want to get the wage of a worker in the bay area. Well relocate there, get the big salary and enjoy. You can do it, your set of skills is your lift to greater condition.
"Just move to X place" glosses over so many hurdles, many of them legal, some of them insurmountable.
As I've stated earlier, I have no problem with private, consensual salary negotiations that result in unequal play. That's just a consequence of the free market. My point is that I think it's a shit policy to explicitly state "Normally your skills are worth $X to us, and that's what we pay our engineers in the Bay area, who get to enjoy all the wonderful things that the bay area has to offer. But we noticed that you live next to poor people, for reasons we honestly don't care about, and we want to make sure you fit in with your neighbors... because of fairness"
"Equal Pay" is a cop out and BS Excuse. Companies are trying to save a buck and should just admit it.
"Just move to X place" glosses over so many hurdles, many of them legal, some of them insurmountable.
More than half the people working for my employer are foreigners. Either hired directly or sometime in another country and then relocated. My employer need lot of people. This year only 500-600 persons are expected to be hired. if you got the diploma/skills and you manage the interview you can work for them: India, France, England, US, Thailand, Australia and many other countries. Your choice.
A friend of mine was selected by facebook, they couldn't regularize him that year for US, so they got him a job for 1 year in Japan and them bring him back to US.
I know an old woman that decided to go to europe illegally she even left her son that join her back long after. Now she is in Italy legally and her son thank to lot of work opened shops, work a lot and now they are quite wealthy.
I tend to think, that when you want it, you can do it. Work even localy for an employer that would accept internal move later. Or go to a country that want lot of people, get the nationality then move again. Lot of things are possible.
Sure some situations are worse than others, but with enough motivation, a lot is possible.
I agree with all of this, but my OP is about what a good company should do, not what we should legally force all companies to do. (Although I maintain that a clever civil rights attorney could make a solid argument for it, so HR beware...)
If you force your employees to make these kinds of hard choices, but then parade yourself under this banner of "We're a super fair company that cares about how we treat our employees" I can and will call B.S.
You're doing it to save money, so just be honest about it.
Companies adjust salaries based on what they can negotiate. If remote workers feel the benefit is so valuable, they may tend to settle for less pay.
I've been consulting for 20+ years, and much of it has been remote work. When I frame rates, I always offer onsite. But I put the base rate as remote. Then I charge an "onsite premium". As companies are naturally cost minimizing, they will hesitate to use those onsite days. It's all about the framing.
One time years ago I had a customer, which was based on the west coast. I'm in New York. But they had some on-premise work, and some was in the midwest, which I was really loathe to travel to. I reached out to a colleague of mine and asked him what to do. He said quote a ridiculous amount of money. They'll say no, problem solved. Then they said yes! LOL. At those rates, I was willing to travel to wisconsin. :)
Moral of the story, it is about negotiating. There is a similar dynamic at play among colleagues. Sometimes salaries are published anonymously, and there is a big stink because people realize they aren't all making the same pay for the same jobs. That's again about negotiating. If a hiring manager can get away with paying one person less than another for a similar role, they will of course do this.
Cost minimizing. It's a natural capitalist behavior. Now how to start acting like a business of one?!?
I get free markets, I love free markets. But, From other replies: “Shopping around for the lowest price, and a company policy that says "Screw people who live in poor communities" are not the same thing.”
Did the employer ask where the person lives? It's like when asked what your past salary is? Never show your poker hand.
It is always about negotiating. Some people's approach is, I'll just share my whole story, and everyone will be fair. It just doesn't work that way.
Even if you didn’t have to put it on like 15 HR forms, some companies like GitLab even make you tell them when you move...
To your point, see #4 “It’s game-able”
Use a pobox. Corps do it with delaware companies. Negotiating salaries is absolutely a game of poker. And a high stakes one at that.
For me I work 5-10 projects per year, so in 20 years I've worked 150-200. So I have a lot of opportunities to experiment. If you work 3-5 jobs in 20 years, you have less chance to test the market. So it's even more important to get it right. It's like locking in interest rates, it's worth your time to get .2 or .3 points because you hold that rate for so long.
I've seen friends get 1-2 offers and then just take the first one they like. To me that's crazy. Imagine selling your house and you take the first offer. You would then wonder, maybe the price was too low! So too with salaries. If you wait for 10 offers, one of them will be 10-20% higher. It's just a numbers game.
Whether you like it or not isn't really germane to anything. The fact is that employers can pay it, or give up hiring anyone from high-cost/high-salary locations like San Francisco or Seattle. Simple as that.
The way out of this situation for remote workers is:
If you need a compass on international rates, have a look at this site: Codementor - Freelance rates.
Good software engineers/developers/programmers don't have too much trouble getting a decent USD/hr rate wherever they are. Trust me.
People from past jobs have told me that finding good programmers is hard, and when companies find one, they go a long way to try not let them go.
If you are good, companies will usually offer a good raise in payment to try to convince you to stay if you are thinking about leaving them.
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.