9 ms·

Market Rate is for Lobsters

120 points by mjbellantoni 11y ago

sokoloff 11y ago
Option 1 seems the best of those constrained choices. Until global and remote work is the norm and as productive as on-site work, there is a local market. And the local market is one of the factors you're competing within/against (employee/employer perspective). Setting one market wage worldwide as an employer ensures that you'll not get much (any?) talent from the high-cost locations.
- icebraining 11y ago
  Setting one market wage worldwide as an employer ensures that you'll not get much (any?) talent from the high-cost locations I don't see why; it just means you have to set the global wage equal to the ceiling, not the average of all local market wages.
  - sokoloff 11y ago
    Even then, you'll be deluged with applicants from low-cost locations where your offer is way above (local) market, and if I were in a high-cost location, I'd not apply, judging your investment/expense management policies to be unsound, as you're paying the highest worldwide wages and still not taking advantage of a co-located team.
  - jimminy 11y ago
    I think it would be better to set it some degree below the ceiling, not outside of livability for the high-cost locations, but such that it doesn't overly distort the low-average cost locations. Then it is the individuals choice of paying a portion of the cost for living in a high-cost location, or choosing to live in a lower-cost location and pocketing extra money. This reduction is associated with increased employee flexibility pertaining to their choice of lifestyle. It also might encourage a redistribution of individuals out of the high-cost locations. That would have some benefit (if this was industry standard) to the public in those locations as it could reduce market-demand for housing through redistribution of demand among the broader market.
  - morgante 11y ago
    As an employer, you're then leaving a ton of money on the table by paying people substantially more than their alternative offers.
    - NateDad 11y ago
      That's only true so long as everyone else is only paying local market rate. Once a company starts offering people in Argentina SF-level pay... that company now will get every single qualified developer in that location that they want. So now other companies have to start offering similar wages, or they only get second tier devs. It's called competition.
      - morgante 11y ago
        Sure, but as a company there's not really any incentive to do so. I could accomplish a similar effect by merely offering 50% more than the prevailing Argentinian developer wage while still realizing substantial savings over SF rates.
        NateDad 11y ago
        ...until someone else offers 55%, then you offer 60%... until it reaches equilibrium at approximately 100% (and I understand real life is a lot more complicated than one single salary number)
mahyarm 11y ago
Employers are customers that pay for semi fungible services. And like all people and organizations they will try to get the best price they can get. They want a certain amount and level of service and will try to pay the minimum to get it. Just like a person will try to get the cheapest plumber who is skilled enough for their needs.
amlgsmsn 11y ago
>What happens next? More importantly, what should happen? >So, we punish Ann for moving by reducing her salary? I don't see a problem with reducing Ann's pay. If rent is only $300 instead of $3000 the pay should reflect that. If that sounds like a problem, imagine that the company pays rent or for hotel stay for visiting employees. If hotels cost $400 a night in SV and $40 a night in Argentina, should the company pay $400 a night in Argentina in order to 'equalize the pay'?
- solidsnack9000 11y ago
  > I don't see a problem with reducing Ann's pay. It does seem odd that an employer can use a person's lifestyle as a basis for adjusting their pay. Almost a violation of privacy.
  - jacquesm 11y ago
    It is and it wouldn't. An employer that would adjust their rate downward if someone's living conditions change would lose their best people rapidly. If you want 'presence' in a certain location you'll be paying market rates and those already factor in what it costs to live there.
  - iopq 11y ago
    Someone in silicon valley might have local job offers for said $170,000 which will not be there if she moves away (let's say those offers are NOT remote work)
  - johnnyo 11y ago
    I was surprised they explicitly paid more based on the number of dependents. That seems odd, since it seems completely irrelevant.
  - rtpg 11y ago
    It does look bad in the "reducing salary" aspect, but if you're asking someone to come to SF I sure hope there's a major premium so you can afford your half-an-appartment
princeb 11y ago
I was about to write a long economic essay on why this can't always work out, but I think the main thing here is that he is talking about a distributed team. in which case, (I presume that) the location has very little advantage unlike a company that is let's say based in Sillycon Valley with sales efforts there as well elsewhere in the States, or development work that relies heavily on collaboration (as opposed to top down direction). In which case, realistically Ann should get paid the same amount as Sofia. No problem hiring all Sofias if Ann's situation in Sillycon Valley does not confer any benefit to the company at all.
- henrikschroder 11y ago
  Agree, it's a contrived example. The reason Ann can ask for $170k a year is because there are other companies in Silicon Valley that are not distributed companies, and that are competing for her, because they can't hire Sofia's. If this company hires her anyway, despite not getting any benefit from her location, the company is making a stupid decision. They shouldn't hire her, they should hire two Sofia's elsewhere instead. Salaries are both compensation for work performed, but also the cost of accessing certain labour markets. If you want to hire a bus driver in Manhattan, that person is going to cost you a lot more than hiring a busdriver in Hicksville. Not because there is a difference in skill, but because you need to pay a premium to get access to people who can work in Manhattan. Silicon Valley works exactly the same way, you need to pay a premium to access its labour force. And if you don't need access to it, don't pay the premium!!
patio11 11y ago
Cost-of-living adjustments are pretty de rigeur for global operations which hire out of a particular social class and want consistent ability to staff locations important to them regardless of variances in local cost of living. Consider, for example, megabanks. Many software companies hire remotely and are rediscovering this. We don't need, as a function of the business, to have someone in e.g. central Tokyo and central Kansas, but it turns out that we often end up having that, or the strong possibility of that given the ex ante distribution of individual candidates. Almost every distributed shop I worked with has a formal or informal discretionary bump in "the formula" to accommodate high-cost-of-living candidates. It is generally closer to $10 ~ $20k rather than "double." American companies used to (and some foreign companies still) adjust salaries based on family size, too, which was also primarily a way to maintain access to desirable candidates for non-managerial work who had gotten an early start on family formation. (This was subsequently illegalized in the US, AFAIK, but "city in which you live" is not in general a protected class in US labor law.)
- johnnyo 11y ago
  If you look at the linked Buffer formula, they are explicitly paying 3k/year per dependent, which I thought was not legal in the US
  - jzwinck 11y ago
    Whether legal in the US or not, it is offensive that having four children gives more of a salary bump than increasing one's competency from "Advanced" to "Master." Seriously, you get an extra $10k for moving up the ladder of competency--what a trifle.
  - pravda 11y ago
    Why wouldn't it be legal? It is somewhat weird though. I think it would make more sense to pay employees with dependents less.
    - jzwinck 11y ago
      Paying more to people with more dependents effectively discriminates against several classes which are protected in the US: - Those who for medical reasons cannot have children. - Those who for (lack of) religious reasons do not have lots of children (families with 6+ children have a different distribution of religious beliefs than the overall population). - Homosexuals. On the other hand, paying less to people with dependents (why?) effectively discriminates against: - Heterosexuals. - People who for religious reasons have lots of children. - Disabled dependents (not a protected class in the US, but maybe it should be!).
Alex3917 11y ago
Hiring strategies like this are often used as a legal pretext for paying women less than men. Economists call this the 'marriage monopsony.' The idea is that because men on average earn more money, or at least did until recently, women generally move when their husbands get a new job. This means that men are able to compete for the best wages in a global market, but women are only able to compete for the best wages in their local market. Which, depending on their industry, often means only a handful of options, and thus severely limited bargaining power. See also: http://econpapers.repec.org/paper/izaizadps/dp7343.htm http://econpapers.repec.org/paper/izaizadps/dp7343.htm
- cperciva 11y ago
  until recently, women generally move when their husbands get a new job In academia we usually refer to this as the "two-body problem". It sometimes results in a spouse earning less because they can't negotiate as effectively; on the other hand, it also often results in a spouse being hired who wouldn't otherwise have been. Statements like "I'd love to work here, but my husband will need to find a job too... can you hire him as a lecturer?" are far from uncommon.
dmd149 11y ago
A lot of these issues only arise if you're assuming you need to create some sort of master pay system that is "fair." We all know in practice that decisions like pay can be based on the environment at the the time of hiring, or other random variables. For example, an engineer may get hired at a time when there is a high supply and relatively low demand, and is only able to negotiate a salary of $100k. 5 years later, because of the relative shortage of engineers, a junior engineer is hired at $130k, while the the more senior engineer is now only making $120k. Of course, trying to come up with a master system to adjust for something like that will be impossible, as this article points out (using a hypothetical move from a higher cost location to a lower cost location). The company will not adjust the senior engineers salary until he puts up a fight and comes in with competing offers. What this suggests is perhaps that the most effective and fair system is no system at all, one that remains dependent individual actors (or businesses) trying to get the best deal that they can for themselves. This is, in practice, what is happening now, but we wouldn't have any expectation of every company trying to create some sort of formula to determine what is "fair." This means sometimes that you will be hurt by environmental factors (say you quit or get fired in a down market in your field), but other times you may cash in (maybe the senior guy at your company quits and you have the opportunity to leverage that into a much higher salary for doing his job). Trying to make some master system that is "fair" and will work in all circumstances just seems silly. The market is perhaps a good arbiter of value on a broad scale over long time periods, but in more localized environments and shorter time spans, it is far more random. Thus, the best personal system in my mind is one in which we can take advantage of the randomness when possible, and learn to handle the inevitable downsides as well.
- sokoloff 11y ago
  I largely agree with you and think that fair is where you get cotton candy. However, employers who wait for their engineers to squawk and bring competing offers are playing a dangerous and inefficient game, IMO. I've absolutely given raises when the local market put my long-time employees under market. (And sometimes the way you find out is a competing offer, but if you're hiring, you generally know the market.)
  - 11y ago
morgante 11y ago
I think it depends to a large extent on whether you're paying for results or time. The remote contracting market, especially for fixed rate contracts, is not driven by locations. It's driven by who in the globe can do a particular job at a particular price, and there's a wide variety in how much that translates to in "goats" for different developers. Traditional remote jobs are still driven mostly by paying for a fixed amount of time working on the job per week. As such, they're not hiring for a "job to be done"—they're hiring you as an individual. To do that, they just need to pay more than the next best option, which is frequently determined by the local labor market. Given that, option 1 makes a lot of sense, with the catch that you have to have a clear policy so it's known ahead of time. Also realize that Ann might try to get a better replacement offer and then you'll have to match to the "new" market for that location.
deleted 11y ago
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jrs235 11y ago
Commenter on the story has an excellent point: "An even more absurd, but equally "market rate" scenario would be to pay Ann more because she wants to and has chosen to drive a luxury car, but to pay Sofia less because she chooses to take public transportation." - Philip Hallstrom
- deleted 11y ago
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- klochner 11y ago
  That scenario would only be "market rate" if the market put a higher price (market price) on luxury-car-driving engineers. In that case it would likely not seem absurd because presumably there would be some extra inherent value in luxury car drivers (e.g., uber drivers).
  - jlarocco 11y ago
    > That scenario would only be "market rate" if the market put a higher price (market price) on luxury-car-driving engineers. That's the point actually. Driving a luxury car is equally as irrelevant as location. There really isn't a good reason for a company to reward employees for how those employees spend money outside of work.
    - jrs235 11y ago
      And, this article/essay is more specifically talking about distributed/remote teams where "the market" is global. Making the rate based on employee spending desires, their cost of housing being influenced by were they (choose) to live, absurd.
    - hueving 11y ago
      But the location isn't irrelevant and that's the entire point that this article blindly misses. The company may not care that their developer is living in Silicon Valley, but there are a lot of companies that do care and will pay high salaries for him/her. Either the company competes and offers a high salary as well, or it just doesn't get to hire developers from Silicon Valley. It's basic supply and demand. If you're buying a car and it comes with a high power engine that you don't care about, you still have to pay the premium for the engine. You can't pay less because you tell the seller that you won't utilize the extra power. The car has a higher market price because there are people that will pay extra for the high power engine.
abannin 11y ago
Changing pay based on location seems to be creating a strong incentive for fraudulent behavior. I'll tell the company I'm living in San Francisco whilst living Buenos Aires. If they ever ask, I'll say that I'm traveling for a month. Cost of living adjustments makes a lot more sense when the employee must be physically present.
slackstation 11y ago
It's funny that the term "Market Rate" is used but, the actual market is never really mentioned. Ann is paid $170,000 in the Bay Area because that what all the other developers of her caliber are willing to exchange their time and expertise for. A company would pay Ann $50,000 if it could. They only hire people who they think they will eventually make more from their labor than they will pay the person. If you are Google, you will make roughly $1M per employee currently. For Software Developers that number is even higher, for Sr. Software Developers that number is even higher. The fact that how you get paid and how much value you generate don't have much of an effect on each other is basic capitalism. What's smart is to be Ann, get a $170k salary and move to Costa Rica and keep the $170k because at the end of the day, she wouldn't have been hired if she didn't make more than $170k of value for the company.
- pravda 11y ago
  >Ann is paid $170,000 in the Bay Area because that what all the other developers of her caliber are willing to exchange their time and expertise for. Well...sort of. Ann is paid $170K because Bay-area companies have bid up the cost of Bay-area developers to $170K. Ann doesn't really have a say in this, and it has nothing to do with how much value she adds to the company (although obviously a company wouldn't fork over 170K if she didn't add at least that much value to the company). Now if Ann moves to Costa Rica, she is now a Costa Rica-based remote developer. And I suspect that Costa Rica-based remote developers have not been bid up to the same level as Bay-area based developers. So her employer would certainly be justified in seeking a downward salary adjustment.
  - toomuchtodo 11y ago
    An interesting experiment would be a job board that stripped out names and locations, and only listed skills and accomplishments of technical hires. The goal would be an auction system to determine what "market rate" truly is for each role, with externalities filtered out. This would mean hiring companies would need to accommodate remote workers; are they willing to for the cost benefit? My experience says no (except for <100 companies that are remote first).
rch 11y ago
I think the formula makes more sense if you look at MRR from the perspective of workers in each market. Salary may naturally vary by location, but wealth accumulation (in dollars, not goats) should be the same for equivalent contributors across the distributed organization.
- rubyfan 11y ago
  I think that was the point the author was making. It's not the employers decision on your location adjusted wealth sccumulation opportunity, or how he puts it how many goats you get. He's basically advocating for global market value. The side effect here is that individuals are free to maximize their wealth by choosing to live where they can best maximize their wealth. This allows the individual to chose what is valuable to them - dollars/goats or the intangibles of a location, e.g. sunshine, culture, freedom, family, etc. This makes some sense for the individual where you have global scarcity. This enhances the competition for the individual's skill where geography in many cases presents a real barrier. For example in non-distributed workplaces you are essentially up against a sort of implicit collusion to minimize rates, the local market demand for your skill.
tptacek 11y ago
Wait, is it actually lawful to advertise salaries that vary with the size of employee families? That seems like a really, really bad idea.
- Alex3917 11y ago
  Some companies provide free or subsidized child care on premises. Is that any different? (Ethically, not legally.)
- simoncion 11y ago
  > ...is it actually lawful to advertise salaries that vary with the size of employee families? I'm no expert on labor law, but why wouldn't it be?
  - knughit 11y ago
    Housing law clearly bans that sort of thing for tenants. I can imagine labor law being similar.
    - simoncion 11y ago
      Housing law bans increasing rent based on number of children. I'm fairly certain that -at least in SF- it doesn't prohibit the reduction of rent for each child present in one's family. Why would labor law ban the increase of one's salary based on size of one's family?
- idlewords 11y ago
  He doubled his salary in just five minutes a day. Employers hate him!
NateDad 11y ago
I work remotely from outside Boston, a friend at work is remote from Argentina (I find the parallel to the article interesting). I make more than he does by a significant amount (very roughly similar to the salaries in the article). I actually don't know what would happen if I moved to Argentina. I presume my salary would get dropped. Maybe not.. depends on if I can convince someone else to give me an offer at my previous salary for remote work... but then what of my Argentinian friend? I think all developers should get offered the same amount independent of location. As remote work takes off (and I think it will...), this will become the norm. Why? Because of how market works. If Google will pay me 170k to work from my house, then smaller companies need to start competing with that. Ironically, the big companies are still way behind on this. I work at Canonical... our devs are all fully remote. I have people from nearly every continent working on my project. There's very very little friction to remote teams, except sometimes you need to talk to someone who's asleep. But that honestly is not usually that bad. You keep close teams in similar time zones and everything just works out. We use hangouts and irc and email... hell, the disincentive to have useless meetings probably saves us more time than we spend working around the relatively small problems remote work introduces. (also, I'm kinda glad to get away from whiteboarding crap... a whiteboard is not a good tool for pretty much anything in development... a shared text window is almost always superior)
- kspaans 11y ago
  I agree that your gross pay is higher, but I'm curious if your net take-home pay after "expenses" is still higher? I use scare-quotes because while it's easy to compare things like tax and rent, it's harder to compare food and entertainment (where cheaper costs may entice someone to eat out more regularly). It's hard to make a strictly apples-to-apples comparison, but I think it's a worth looking at whether you would take home more or less by working in Argentina. (The general "you", not suggesting that you have to consider moving to Argentina. :P) I think the article puts things a little unfairly by saying only "Option 1: Ann's pay is reduced". Yes that is what's happening, but if Ann knows what her compensation will look like in Buenos Tiempos, she should be able to figure out roughly if she will take home more money by moving there.
- facepalm 11y ago
redguava 11y ago
There's an important thing that is not covered here. Currency fluctuations. Assuming you pay people in their own currency (which is useful to make sure they don't pay unnecessary fees, and also that they get a consistent pay each month). How do you keep salaries consistent globally? Do you adjust them each month to compensate fluctuations? Sucks for those that just got a pay cut. I don't know the answer, I think the way Buffer does it is the best of the options I've come across so far. I'd like a better solution.
tyoma 11y ago
Discriminating based on location for 100% remote work is opening up a big can of worms. Since in this case physical location isn't material to the work, paying less based on location could be inadvertently discriminatory. For instance, do localities with low pay just happen to correspond to where certain ethnic minorities live? Other parts of the Buffer payment formula simply illegal. The practice of paying people more for each dependent [0] violates many localities' (e.g. Cook County, IL [1]) anti-discrimination ordinances. 0. https://open.buffer.com/transparent-salaries/ https://open.buffer.com/transparent-salaries/ 1. http://www.jmls.edu/clinics/fairhousing/pdf/cook-county-human-rights-ordinance.pdf http://www.jmls.edu/clinics/fairhousing/pdf/cook-county-huma...
- knughit 11y ago
  He does health coverage which is worth more to employees with dependents , provided by most employers, avoid the anti-discrimination laws?
  - tyoma 11y ago
    Benefits like healthcare coverage are usually explicitly exempted. For example, see the relevant law in the State of Alaska: http://www.touchngo.com/lglcntr/akstats/statutes/title18/chapter80/section220.htm http://www.touchngo.com/lglcntr/akstats/statutes/title18/cha..., specifically section (c).
lopatin 11y ago
I actually think that Option 1, where Ann has her salary lowered after moving out of the valley is the most reasonable way to handle remote compensation. In other words, as an employee you get compensated by the quality of life that you can afford (how many goats you can buy regardless of what city you live in) instead of by some metric of how many dollars you are worth to the company. The way I look at is that employment is a mutually beneficial agreement. Both parties should have the option to end the agreement when some part of the situation changes. When Ann moves and for some reason thinks that it's unfair that she won't be making an SF salary in Ohio, she can leave the company. Same goes for the employer when an employee moves from Ohio to SF. Saying "you're working remotely and we will pay you Ohio market rate but if you move to SF, we cannot afford that, so you will either have to accept Ohio market rate in SF or leave to find another company that will pay you SF market rate" sounds like the only fair option to me.
- paulddraper 11y ago
  If you buy your goats from the local market, they are more expensive in the valley. But if you buy them from Amazon, they are the same across the US. Where are you buying your goats?
chris_b_ 11y ago
Slightly unrelated, but I find the scaling factor based off experience interesting. Speaking as a junior, I am convinced that in 2 years or so when I would probably be classed as intermediate I will be worth far more than 10% more than I am now. Beyond that, I work at the moment with people who would be in the advanced/master range who are I think are definitely worth more than 20/30% more than me.
paulddraper 11y ago
The remote work market will trend towards location-independence. Differential pricing cannot last in a fungible market. The companies that offer $100k and get $300k value from each employee will eventually out-compete those that offer $100-200k and get $300k value. It's the same mechanism behind free markets defeating other forms of discrimination (I use this in the general, non-legal sense). If most companies pay women less because that's the market, eventually the non-discriminating outliers will do better and the market adjusts to the more efficient reality. The timing may be unknown, but the movement towards a non-discriminating equilibrium in fungible markets is not.
hueving 11y ago
The author is failing to understand basic supply and demand. Just because the company doesn't care that the developer is in Silicon Valley doesn't mean there aren't a ton of companies that do care and will pay a large salary for it. Either you compete with those companies and offer a high salary, or you will just exclude yourself from higher silicon valley developers. Just because you don't value location doesn't make the location premium any less real. The simple fact is that there is a lot more demand for developers in the bay than there is in South America. A company could certainly overpay the devs outside of SV so the numbers look the same, but it's fiscally irresponsible.
lewisl9029 11y ago
One of the replies to a Buffer employee's comment caught my attention: > Perhaps you are (inadvertently) either using location as a lever to underpay employees, or using it as an excuse to overpay people you like but perhaps do not justify the cost for the business? I think this hits the mark. Companies that push heavily for remote work generally aren't doing it because they genuinely care for the benefits it brings employees. They're pushing for it because it saves them money over operating with an entirely local team (when local means a high market-rate area like SF), precisely because they can discriminate based on location when negotiating salaries.
prewett 11y ago
I'm curious what this guy's view of free markets is (for/against). A competitive global market should end up with the situation he complains about (developers in low-income countries being paid less). Buyers (companies) will try to buy as cheaply as they can, and sellers (employees) as expensive as they can. Developers in "Buenos Tiempos" can't charge SF prices, because all the other developers would be happy to work for 10% less than SF prices, resulting in a downward spiral. In a non-free market, such as a command economy, prices could be set by someone(s). But he doesn't like the idea of an arbitrary entity (the company, in his case) setting the number of "goats" (living standard) you get paid. He wants developers to get to negotiate that. But they already are, and globally developers and companies have settled on the prices we have. I suspect that some analysis would show that developers want a certain standard of living globally, and beyond that, they are pretty happy. I'd love to be paid the living standard of a millionaire, but I'm also okay to be paid what other developers are getting paid. Until all of us decide refuse anything less than living like millionaires, we'll get paid a middle class salary.
facepalm 11y ago
Come to think of it, supposing a company is OK with remote workers, why would they hire somebody in an expensive location?
rdl 11y ago
The military solves this by having "Basic Allowance for Housing" and COLA multipliers be VERY specific to "duty station". Those absolutely do change if you move, and are separate from "salary", so it's not perceived as the same thing as reducing salary on move.

120 points by mjbellantoni 11y ago

Option 1 seems the best of those constrained choices. Until global and remote work is the norm and as productive as on-site work, there is a local market. And the local market is one of the factors you're competing within/against (employee/employer perspective). Setting one market wage worldwide as an employer ensures that you'll not get much (any?) talent from the high-cost locations.

icebraining 11y ago
Setting one market wage worldwide as an employer ensures that you'll not get much (any?) talent from the high-cost locations I don't see why; it just means you have to set the global wage equal to the ceiling, not the average of all local market wages.
- sokoloff 11y ago
  Even then, you'll be deluged with applicants from low-cost locations where your offer is way above (local) market, and if I were in a high-cost location, I'd not apply, judging your investment/expense management policies to be unsound, as you're paying the highest worldwide wages and still not taking advantage of a co-located team.
- jimminy 11y ago
  I think it would be better to set it some degree below the ceiling, not outside of livability for the high-cost locations, but such that it doesn't overly distort the low-average cost locations. Then it is the individuals choice of paying a portion of the cost for living in a high-cost location, or choosing to live in a lower-cost location and pocketing extra money. This reduction is associated with increased employee flexibility pertaining to their choice of lifestyle. It also might encourage a redistribution of individuals out of the high-cost locations. That would have some benefit (if this was industry standard) to the public in those locations as it could reduce market-demand for housing through redistribution of demand among the broader market.
- morgante 11y ago
  As an employer, you're then leaving a ton of money on the table by paying people substantially more than their alternative offers.
  - NateDad 11y ago
    That's only true so long as everyone else is only paying local market rate. Once a company starts offering people in Argentina SF-level pay... that company now will get every single qualified developer in that location that they want. So now other companies have to start offering similar wages, or they only get second tier devs. It's called competition.
    - morgante 11y ago
      Sure, but as a company there's not really any incentive to do so. I could accomplish a similar effect by merely offering 50% more than the prevailing Argentinian developer wage while still realizing substantial savings over SF rates.
      - NateDad 11y ago
        ...until someone else offers 55%, then you offer 60%... until it reaches equilibrium at approximately 100% (and I understand real life is a lot more complicated than one single salary number)

mahyarm 11y ago

Employers are customers that pay for semi fungible services. And like all people and organizations they will try to get the best price they can get. They want a certain amount and level of service and will try to pay the minimum to get it. Just like a person will try to get the cheapest plumber who is skilled enough for their needs.

amlgsmsn 11y ago

>What happens next? More importantly, what should happen? >So, we punish Ann for moving by reducing her salary? I don't see a problem with reducing Ann's pay. If rent is only $300 instead of $3000 the pay should reflect that. If that sounds like a problem, imagine that the company pays rent or for hotel stay for visiting employees. If hotels cost $400 a night in SV and $40 a night in Argentina, should the company pay $400 a night in Argentina in order to 'equalize the pay'?

solidsnack9000 11y ago
> I don't see a problem with reducing Ann's pay. It does seem odd that an employer can use a person's lifestyle as a basis for adjusting their pay. Almost a violation of privacy.
- jacquesm 11y ago
  It is and it wouldn't. An employer that would adjust their rate downward if someone's living conditions change would lose their best people rapidly. If you want 'presence' in a certain location you'll be paying market rates and those already factor in what it costs to live there.
- iopq 11y ago
  Someone in silicon valley might have local job offers for said $170,000 which will not be there if she moves away (let's say those offers are NOT remote work)
- johnnyo 11y ago
  I was surprised they explicitly paid more based on the number of dependents. That seems odd, since it seems completely irrelevant.
- rtpg 11y ago
  It does look bad in the "reducing salary" aspect, but if you're asking someone to come to SF I sure hope there's a major premium so you can afford your half-an-appartment

princeb 11y ago

I was about to write a long economic essay on why this can't always work out, but I think the main thing here is that he is talking about a distributed team. in which case, (I presume that) the location has very little advantage unlike a company that is let's say based in Sillycon Valley with sales efforts there as well elsewhere in the States, or development work that relies heavily on collaboration (as opposed to top down direction). In which case, realistically Ann should get paid the same amount as Sofia. No problem hiring all Sofias if Ann's situation in Sillycon Valley does not confer any benefit to the company at all.

henrikschroder 11y ago
Agree, it's a contrived example. The reason Ann can ask for $170k a year is because there are other companies in Silicon Valley that are not distributed companies, and that are competing for her, because they can't hire Sofia's. If this company hires her anyway, despite not getting any benefit from her location, the company is making a stupid decision. They shouldn't hire her, they should hire two Sofia's elsewhere instead. Salaries are both compensation for work performed, but also the cost of accessing certain labour markets. If you want to hire a bus driver in Manhattan, that person is going to cost you a lot more than hiring a busdriver in Hicksville. Not because there is a difference in skill, but because you need to pay a premium to get access to people who can work in Manhattan. Silicon Valley works exactly the same way, you need to pay a premium to access its labour force. And if you don't need access to it, don't pay the premium!!

patio11 11y ago

Cost-of-living adjustments are pretty de rigeur for global operations which hire out of a particular social class and want consistent ability to staff locations important to them regardless of variances in local cost of living. Consider, for example, megabanks. Many software companies hire remotely and are rediscovering this. We don't need, as a function of the business, to have someone in e.g. central Tokyo and central Kansas, but it turns out that we often end up having that, or the strong possibility of that given the ex ante distribution of individual candidates. Almost every distributed shop I worked with has a formal or informal discretionary bump in "the formula" to accommodate high-cost-of-living candidates. It is generally closer to $10 ~ $20k rather than "double." American companies used to (and some foreign companies still) adjust salaries based on family size, too, which was also primarily a way to maintain access to desirable candidates for non-managerial work who had gotten an early start on family formation. (This was subsequently illegalized in the US, AFAIK, but "city in which you live" is not in general a protected class in US labor law.)

johnnyo 11y ago
If you look at the linked Buffer formula, they are explicitly paying 3k/year per dependent, which I thought was not legal in the US
- jzwinck 11y ago
  Whether legal in the US or not, it is offensive that having four children gives more of a salary bump than increasing one's competency from "Advanced" to "Master." Seriously, you get an extra $10k for moving up the ladder of competency--what a trifle.
- pravda 11y ago
  Why wouldn't it be legal? It is somewhat weird though. I think it would make more sense to pay employees with dependents less.
  - jzwinck 11y ago
    Paying more to people with more dependents effectively discriminates against several classes which are protected in the US: - Those who for medical reasons cannot have children. - Those who for (lack of) religious reasons do not have lots of children (families with 6+ children have a different distribution of religious beliefs than the overall population). - Homosexuals. On the other hand, paying less to people with dependents (why?) effectively discriminates against: - Heterosexuals. - People who for religious reasons have lots of children. - Disabled dependents (not a protected class in the US, but maybe it should be!).

Alex3917 11y ago

Hiring strategies like this are often used as a legal pretext for paying women less than men. Economists call this the 'marriage monopsony.' The idea is that because men on average earn more money, or at least did until recently, women generally move when their husbands get a new job. This means that men are able to compete for the best wages in a global market, but women are only able to compete for the best wages in their local market. Which, depending on their industry, often means only a handful of options, and thus severely limited bargaining power. See also: http://econpapers.repec.org/paper/izaizadps/dp7343.htm http://econpapers.repec.org/paper/izaizadps/dp7343.htm

cperciva 11y ago
until recently, women generally move when their husbands get a new job In academia we usually refer to this as the "two-body problem". It sometimes results in a spouse earning less because they can't negotiate as effectively; on the other hand, it also often results in a spouse being hired who wouldn't otherwise have been. Statements like "I'd love to work here, but my husband will need to find a job too... can you hire him as a lecturer?" are far from uncommon.

dmd149 11y ago

A lot of these issues only arise if you're assuming you need to create some sort of master pay system that is "fair." We all know in practice that decisions like pay can be based on the environment at the the time of hiring, or other random variables. For example, an engineer may get hired at a time when there is a high supply and relatively low demand, and is only able to negotiate a salary of $100k. 5 years later, because of the relative shortage of engineers, a junior engineer is hired at $130k, while the the more senior engineer is now only making $120k. Of course, trying to come up with a master system to adjust for something like that will be impossible, as this article points out (using a hypothetical move from a higher cost location to a lower cost location). The company will not adjust the senior engineers salary until he puts up a fight and comes in with competing offers. What this suggests is perhaps that the most effective and fair system is no system at all, one that remains dependent individual actors (or businesses) trying to get the best deal that they can for themselves. This is, in practice, what is happening now, but we wouldn't have any expectation of every company trying to create some sort of formula to determine what is "fair." This means sometimes that you will be hurt by environmental factors (say you quit or get fired in a down market in your field), but other times you may cash in (maybe the senior guy at your company quits and you have the opportunity to leverage that into a much higher salary for doing his job). Trying to make some master system that is "fair" and will work in all circumstances just seems silly. The market is perhaps a good arbiter of value on a broad scale over long time periods, but in more localized environments and shorter time spans, it is far more random. Thus, the best personal system in my mind is one in which we can take advantage of the randomness when possible, and learn to handle the inevitable downsides as well.

sokoloff 11y ago
I largely agree with you and think that fair is where you get cotton candy. However, employers who wait for their engineers to squawk and bring competing offers are playing a dangerous and inefficient game, IMO. I've absolutely given raises when the local market put my long-time employees under market. (And sometimes the way you find out is a competing offer, but if you're hiring, you generally know the market.)
- 11y ago

morgante 11y ago

I think it depends to a large extent on whether you're paying for results or time. The remote contracting market, especially for fixed rate contracts, is not driven by locations. It's driven by who in the globe can do a particular job at a particular price, and there's a wide variety in how much that translates to in "goats" for different developers. Traditional remote jobs are still driven mostly by paying for a fixed amount of time working on the job per week. As such, they're not hiring for a "job to be done"—they're hiring you as an individual. To do that, they just need to pay more than the next best option, which is frequently determined by the local labor market. Given that, option 1 makes a lot of sense, with the catch that you have to have a clear policy so it's known ahead of time. Also realize that Ann might try to get a better replacement offer and then you'll have to match to the "new" market for that location.

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jrs235 11y ago

Commenter on the story has an excellent point: "An even more absurd, but equally "market rate" scenario would be to pay Ann more because she wants to and has chosen to drive a luxury car, but to pay Sofia less because she chooses to take public transportation." - Philip Hallstrom

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klochner 11y ago
That scenario would only be "market rate" if the market put a higher price (market price) on luxury-car-driving engineers. In that case it would likely not seem absurd because presumably there would be some extra inherent value in luxury car drivers (e.g., uber drivers).
- jlarocco 11y ago
  > That scenario would only be "market rate" if the market put a higher price (market price) on luxury-car-driving engineers. That's the point actually. Driving a luxury car is equally as irrelevant as location. There really isn't a good reason for a company to reward employees for how those employees spend money outside of work.
  - jrs235 11y ago
    And, this article/essay is more specifically talking about distributed/remote teams where "the market" is global. Making the rate based on employee spending desires, their cost of housing being influenced by were they (choose) to live, absurd.
  - hueving 11y ago
    But the location isn't irrelevant and that's the entire point that this article blindly misses. The company may not care that their developer is living in Silicon Valley, but there are a lot of companies that do care and will pay high salaries for him/her. Either the company competes and offers a high salary as well, or it just doesn't get to hire developers from Silicon Valley. It's basic supply and demand. If you're buying a car and it comes with a high power engine that you don't care about, you still have to pay the premium for the engine. You can't pay less because you tell the seller that you won't utilize the extra power. The car has a higher market price because there are people that will pay extra for the high power engine.

abannin 11y ago

Changing pay based on location seems to be creating a strong incentive for fraudulent behavior. I'll tell the company I'm living in San Francisco whilst living Buenos Aires. If they ever ask, I'll say that I'm traveling for a month. Cost of living adjustments makes a lot more sense when the employee must be physically present.

slackstation 11y ago

It's funny that the term "Market Rate" is used but, the actual market is never really mentioned. Ann is paid $170,000 in the Bay Area because that what all the other developers of her caliber are willing to exchange their time and expertise for. A company would pay Ann $50,000 if it could. They only hire people who they think they will eventually make more from their labor than they will pay the person. If you are Google, you will make roughly $1M per employee currently. For Software Developers that number is even higher, for Sr. Software Developers that number is even higher. The fact that how you get paid and how much value you generate don't have much of an effect on each other is basic capitalism. What's smart is to be Ann, get a $170k salary and move to Costa Rica and keep the $170k because at the end of the day, she wouldn't have been hired if she didn't make more than $170k of value for the company.

pravda 11y ago
>Ann is paid $170,000 in the Bay Area because that what all the other developers of her caliber are willing to exchange their time and expertise for. Well...sort of. Ann is paid $170K because Bay-area companies have bid up the cost of Bay-area developers to $170K. Ann doesn't really have a say in this, and it has nothing to do with how much value she adds to the company (although obviously a company wouldn't fork over 170K if she didn't add at least that much value to the company). Now if Ann moves to Costa Rica, she is now a Costa Rica-based remote developer. And I suspect that Costa Rica-based remote developers have not been bid up to the same level as Bay-area based developers. So her employer would certainly be justified in seeking a downward salary adjustment.
- toomuchtodo 11y ago
  An interesting experiment would be a job board that stripped out names and locations, and only listed skills and accomplishments of technical hires. The goal would be an auction system to determine what "market rate" truly is for each role, with externalities filtered out. This would mean hiring companies would need to accommodate remote workers; are they willing to for the cost benefit? My experience says no (except for <100 companies that are remote first).

rch 11y ago

I think the formula makes more sense if you look at MRR from the perspective of workers in each market. Salary may naturally vary by location, but wealth accumulation (in dollars, not goats) should be the same for equivalent contributors across the distributed organization.

rubyfan 11y ago
I think that was the point the author was making. It's not the employers decision on your location adjusted wealth sccumulation opportunity, or how he puts it how many goats you get. He's basically advocating for global market value. The side effect here is that individuals are free to maximize their wealth by choosing to live where they can best maximize their wealth. This allows the individual to chose what is valuable to them - dollars/goats or the intangibles of a location, e.g. sunshine, culture, freedom, family, etc. This makes some sense for the individual where you have global scarcity. This enhances the competition for the individual's skill where geography in many cases presents a real barrier. For example in non-distributed workplaces you are essentially up against a sort of implicit collusion to minimize rates, the local market demand for your skill.

tptacek 11y ago

Wait, is it actually lawful to advertise salaries that vary with the size of employee families? That seems like a really, really bad idea.

Alex3917 11y ago
Some companies provide free or subsidized child care on premises. Is that any different? (Ethically, not legally.)
simoncion 11y ago
> ...is it actually lawful to advertise salaries that vary with the size of employee families? I'm no expert on labor law, but why wouldn't it be?
- knughit 11y ago
  Housing law clearly bans that sort of thing for tenants. I can imagine labor law being similar.
  - simoncion 11y ago
    Housing law bans increasing rent based on number of children. I'm fairly certain that -at least in SF- it doesn't prohibit the reduction of rent for each child present in one's family. Why would labor law ban the increase of one's salary based on size of one's family?
idlewords 11y ago
He doubled his salary in just five minutes a day. Employers hate him!

NateDad 11y ago

I work remotely from outside Boston, a friend at work is remote from Argentina (I find the parallel to the article interesting). I make more than he does by a significant amount (very roughly similar to the salaries in the article). I actually don't know what would happen if I moved to Argentina. I presume my salary would get dropped. Maybe not.. depends on if I can convince someone else to give me an offer at my previous salary for remote work... but then what of my Argentinian friend? I think all developers should get offered the same amount independent of location. As remote work takes off (and I think it will...), this will become the norm. Why? Because of how market works. If Google will pay me 170k to work from my house, then smaller companies need to start competing with that. Ironically, the big companies are still way behind on this. I work at Canonical... our devs are all fully remote. I have people from nearly every continent working on my project. There's very very little friction to remote teams, except sometimes you need to talk to someone who's asleep. But that honestly is not usually that bad. You keep close teams in similar time zones and everything just works out. We use hangouts and irc and email... hell, the disincentive to have useless meetings probably saves us more time than we spend working around the relatively small problems remote work introduces. (also, I'm kinda glad to get away from whiteboarding crap... a whiteboard is not a good tool for pretty much anything in development... a shared text window is almost always superior)

kspaans 11y ago
I agree that your gross pay is higher, but I'm curious if your net take-home pay after "expenses" is still higher? I use scare-quotes because while it's easy to compare things like tax and rent, it's harder to compare food and entertainment (where cheaper costs may entice someone to eat out more regularly). It's hard to make a strictly apples-to-apples comparison, but I think it's a worth looking at whether you would take home more or less by working in Argentina. (The general "you", not suggesting that you have to consider moving to Argentina. :P) I think the article puts things a little unfairly by saying only "Option 1: Ann's pay is reduced". Yes that is what's happening, but if Ann knows what her compensation will look like in Buenos Tiempos, she should be able to figure out roughly if she will take home more money by moving there.
facepalm 11y ago

redguava 11y ago

There's an important thing that is not covered here. Currency fluctuations. Assuming you pay people in their own currency (which is useful to make sure they don't pay unnecessary fees, and also that they get a consistent pay each month). How do you keep salaries consistent globally? Do you adjust them each month to compensate fluctuations? Sucks for those that just got a pay cut. I don't know the answer, I think the way Buffer does it is the best of the options I've come across so far. I'd like a better solution.

tyoma 11y ago

Discriminating based on location for 100% remote work is opening up a big can of worms. Since in this case physical location isn't material to the work, paying less based on location could be inadvertently discriminatory. For instance, do localities with low pay just happen to correspond to where certain ethnic minorities live? Other parts of the Buffer payment formula simply illegal. The practice of paying people more for each dependent [0] violates many localities' (e.g. Cook County, IL [1]) anti-discrimination ordinances. 0. https://open.buffer.com/transparent-salaries/ https://open.buffer.com/transparent-salaries/ 1. http://www.jmls.edu/clinics/fairhousing/pdf/cook-county-human-rights-ordinance.pdf http://www.jmls.edu/clinics/fairhousing/pdf/cook-county-huma...

knughit 11y ago
He does health coverage which is worth more to employees with dependents , provided by most employers, avoid the anti-discrimination laws?
- tyoma 11y ago
  Benefits like healthcare coverage are usually explicitly exempted. For example, see the relevant law in the State of Alaska: http://www.touchngo.com/lglcntr/akstats/statutes/title18/chapter80/section220.htm http://www.touchngo.com/lglcntr/akstats/statutes/title18/cha..., specifically section (c).

lopatin 11y ago

I actually think that Option 1, where Ann has her salary lowered after moving out of the valley is the most reasonable way to handle remote compensation. In other words, as an employee you get compensated by the quality of life that you can afford (how many goats you can buy regardless of what city you live in) instead of by some metric of how many dollars you are worth to the company. The way I look at is that employment is a mutually beneficial agreement. Both parties should have the option to end the agreement when some part of the situation changes. When Ann moves and for some reason thinks that it's unfair that she won't be making an SF salary in Ohio, she can leave the company. Same goes for the employer when an employee moves from Ohio to SF. Saying "you're working remotely and we will pay you Ohio market rate but if you move to SF, we cannot afford that, so you will either have to accept Ohio market rate in SF or leave to find another company that will pay you SF market rate" sounds like the only fair option to me.

paulddraper 11y ago
If you buy your goats from the local market, they are more expensive in the valley. But if you buy them from Amazon, they are the same across the US. Where are you buying your goats?

chris_b_ 11y ago

Slightly unrelated, but I find the scaling factor based off experience interesting. Speaking as a junior, I am convinced that in 2 years or so when I would probably be classed as intermediate I will be worth far more than 10% more than I am now. Beyond that, I work at the moment with people who would be in the advanced/master range who are I think are definitely worth more than 20/30% more than me.

paulddraper 11y ago

The remote work market will trend towards location-independence. Differential pricing cannot last in a fungible market. The companies that offer $100k and get $300k value from each employee will eventually out-compete those that offer $100-200k and get $300k value. It's the same mechanism behind free markets defeating other forms of discrimination (I use this in the general, non-legal sense). If most companies pay women less because that's the market, eventually the non-discriminating outliers will do better and the market adjusts to the more efficient reality. The timing may be unknown, but the movement towards a non-discriminating equilibrium in fungible markets is not.

hueving 11y ago

The author is failing to understand basic supply and demand. Just because the company doesn't care that the developer is in Silicon Valley doesn't mean there aren't a ton of companies that do care and will pay a large salary for it. Either you compete with those companies and offer a high salary, or you will just exclude yourself from higher silicon valley developers. Just because you don't value location doesn't make the location premium any less real. The simple fact is that there is a lot more demand for developers in the bay than there is in South America. A company could certainly overpay the devs outside of SV so the numbers look the same, but it's fiscally irresponsible.

lewisl9029 11y ago

One of the replies to a Buffer employee's comment caught my attention: > Perhaps you are (inadvertently) either using location as a lever to underpay employees, or using it as an excuse to overpay people you like but perhaps do not justify the cost for the business? I think this hits the mark. Companies that push heavily for remote work generally aren't doing it because they genuinely care for the benefits it brings employees. They're pushing for it because it saves them money over operating with an entirely local team (when local means a high market-rate area like SF), precisely because they can discriminate based on location when negotiating salaries.

prewett 11y ago

I'm curious what this guy's view of free markets is (for/against). A competitive global market should end up with the situation he complains about (developers in low-income countries being paid less). Buyers (companies) will try to buy as cheaply as they can, and sellers (employees) as expensive as they can. Developers in "Buenos Tiempos" can't charge SF prices, because all the other developers would be happy to work for 10% less than SF prices, resulting in a downward spiral. In a non-free market, such as a command economy, prices could be set by someone(s). But he doesn't like the idea of an arbitrary entity (the company, in his case) setting the number of "goats" (living standard) you get paid. He wants developers to get to negotiate that. But they already are, and globally developers and companies have settled on the prices we have. I suspect that some analysis would show that developers want a certain standard of living globally, and beyond that, they are pretty happy. I'd love to be paid the living standard of a millionaire, but I'm also okay to be paid what other developers are getting paid. Until all of us decide refuse anything less than living like millionaires, we'll get paid a middle class salary.

facepalm 11y ago

Come to think of it, supposing a company is OK with remote workers, why would they hire somebody in an expensive location?

rdl 11y ago

The military solves this by having "Basic Allowance for Housing" and COLA multipliers be VERY specific to "duty station". Those absolutely do change if you move, and are separate from "salary", so it's not perceived as the same thing as reducing salary on move.