7 ms·

Can someone explain the rationale behind geographically based pay in remote-first companies? I don't necessarily disagree with it, but I don't know what aspect

by kag0 6y ago

Can someone explain the rationale behind geographically based pay in remote-first companies? I don't necessarily disagree with it, but I don't know what aspects of the issue companies are actually looking at to decide that geo-based pay is the way to go.

barry-cotter 6y ago
> Can someone explain the rationale behind geographically based pay in remote-first companies? How much you are paid depends on how much they have to pay you before you decide to quit. The lowest pay you’ll accept before you decide to quit is based on what you think you can get if you quit. That’s heavily influenced by geography. As geography and job markets become uncoupled compensation will become more uniform regionally and then globally.
- kag0 6y ago
  There's a name for that kind of thinking, but I can't recall what it is. Essentially you're minimizing cost by paying the lowest possible local rate, but isn't it just as valid for someone else to maximize quality by paying a competitive rate for the most expensive locale? Presumably both would be pushed to a middle (location independent) wage because the company minimizing price will (presumably) have issues hiring all bottom-of-the barrel employees, while the company optimizing for quality will have issues paying top dollar when it only provides marginal gains over a high-average wage.
  - jlj 6y ago
    Game theory
    - kag0 6y ago
      I meant the thinking that tries to minimize cost and aims for "how much they have to pay you before you decide to quit".
      - barry-cotter 6y ago
        Profit maximization. You make the point that companies can choose to hire employees that aren’t the bottom of the barrel but then you’re selling a different product to those who really are squeezing every penny. CostCo and Walmart are both successful superstores but one sells many more products, in smaller minimum purchases, and hires lower quality employees while paying less. These kinds of differentiation factors lead to what’s called oligopolistic competition[1]. They’re not in separate markets but they’re it selling the same product either. [1] https://www.monash.edu/business/marketing/marketing-dictionary/o/oligopolistic-competition https://www.monash.edu/business/marketing/marketing-dictiona...
ryanSrich 6y ago
It's a relic, and a bad one. I run a remote-first, remote-only company and we pay everyone based on experience and merit. Not location. If you want to stretch $150k in San Francisco go for it. Good luck having to live with 3 other roommates. However, if you want to take that same $150k and live like a king in the middle of Kansas that's an option as well. Adjusting someones pay simply because they're logging onto their computer from a different location is perplexingly stupid in a world where people can work from wherever.
- erik_seaberg 6y ago
  Maybe someday all tech employers will be remote-first and pay will be the same everywhere. But if you don’t compete with Bay Area offers now, you filter out everyone who relocated to the Bay Area to benefit their career.
  - ryanSrich 6y ago
    That's my point. Your baseline should be bay area numbers. Don't change that number simply because the person you're hiring lives somewhere else. It also leaves the company open to gaming. If I know I can make significantly more than my peers just by having an address on the bay area I could find a way to get an address while living somewhere else.
    - nrmitchi 6y ago
      And hey, if you had started at Brex prior to Sept 1st, you wouldn't even have to game the system. But your coworkers _would_ (and would also likely be at risk of being terminated for cause if they got caught, not to mention state-tax issues).
      - esrauch 6y ago
        If your company has your address in the wrong state (and withholds there) you can still correct it when you file your taxes for a full refund in the state you didn't actually reside. Though you'd maybe be penalized in the proper state for underwithholding unless you manually paid quarterly estimates in that state as well.
ponker 6y ago
The fact is that having an employee in New York City, in the average case, is worth more than having an employee in Mongolia. They can talk to a customer more easily, given that your customers are more likely to be English-speaking Yankees fans in the Eastern Time Zone than Mongolian speakers in Ulaanbataar. They can go to an event more easily, since there are more conventions in NYC than Mongolia. They can fly to the company retreat more quickly and more cheaply. They can culturally align a product/brochure/email to a target customer more easily than their counterpart because the target customer is most likely to be in a high cost of living area (that's why they're high cost of living... lots of people with lots of money to spend on salaries or SaaS applications). If you need to read a bunch of English text, such as reading through a competitor's annual report or developer documentation, the New Yorker will likely be able to do so more quickly. They are more likely to understand "rich people" references that target customers make, like "I was at the regatta last weekend so I missed your call." There is an advantage to global diversitt for a company serving a global audience, but there are also a lot of reasons to, software engineering skills being equal, prefer the New York employee.
- bryanrasmussen 6y ago
  James Clark, open source programmer and standards expert, lives in Thailand https://en.wikipedia.org/wiki/James_Clark_(programmer) https://en.wikipedia.org/wiki/James_Clark_(programmer) he can probably speak adequately with English speaking Yankees fans - although time zone might be a problem. That said, I think the whole recruitment/interviewing phase of the whole tech world is geared towards local employees and not sure if it can all be moved remote first at any time.
ponker 6y ago
It’s easiest to understand when you realize that the company is not going remote to pay SF salaries everywhere, they’re going remote to pay rock bottom salaries everywhere. Geographic pay is a temporary patch to give extra to people in SF while they wait for SF engineers to decamp to the boonies or be replaced by people who do.
- dasil003 6y ago
  Lowering salary costs is one reason. The other potential reason is to vastly increase the talent pool. If it's only about the first reason then management will cut salaries as deep as possible, if it's only about the second then they'll keep salaries at the same level and just change the job description. I suspect for most companies final pay scales depend on the weighting of two reasons. A lot of companies will try to have their cake and eat it too with location-based pay, but that approach will neuter the benefits of opening up for remote work, and its efficacy will only degrade further over time.
staticassertion 6y ago
If you were already bought into and budgeting for 4 years of an employee at price X, it seems opportunistic and irrational to then try to cut them to price Y due to an unexpected factor. As some other CEOs have chimed in, I'll say that my relatively small startup (6 people, but growing) just pays people what they're valued at, regardless of location or business expenses. I budgeted for those salaries - if someone moved to a cheaper area I wouldn't cut their salaries because their location hasn't changed anything for me. Everyone makes enough to live in the bay area comfortably, which means they'll be just fine elsewhere.
- selfinvariant 6y ago
  The biggest question is how you determine 'what they are valued at', given that you would get drastically different numbers in different markets.
onion2k 6y ago
Can someone explain the rationale behind geographically based pay in remote-first companies? Profit.
malyk 6y ago
I think it all comes down to competition. If I'm hiring a remote team globally, then you are competing against people I can hire anywhere. A great engineer in Brazil could cost...I don't know...$45,000. An engineer with the same exact skill set who lives in California might be $160,000 and one in Chicago might be $110,000. If an employer paid $160,000 for every employee then they aren't using their capital very efficiently when they could have saved $115,000 on the employee in Brazil and potentially hired two more people for the team.

by kag0 6y ago

barry-cotter 6y ago

> Can someone explain the rationale behind geographically based pay in remote-first companies? How much you are paid depends on how much they have to pay you before you decide to quit. The lowest pay you’ll accept before you decide to quit is based on what you think you can get if you quit. That’s heavily influenced by geography. As geography and job markets become uncoupled compensation will become more uniform regionally and then globally.

kag0 6y ago
There's a name for that kind of thinking, but I can't recall what it is. Essentially you're minimizing cost by paying the lowest possible local rate, but isn't it just as valid for someone else to maximize quality by paying a competitive rate for the most expensive locale? Presumably both would be pushed to a middle (location independent) wage because the company minimizing price will (presumably) have issues hiring all bottom-of-the barrel employees, while the company optimizing for quality will have issues paying top dollar when it only provides marginal gains over a high-average wage.
- jlj 6y ago
  Game theory
  - kag0 6y ago
    I meant the thinking that tries to minimize cost and aims for "how much they have to pay you before you decide to quit".
    - barry-cotter 6y ago
      Profit maximization. You make the point that companies can choose to hire employees that aren’t the bottom of the barrel but then you’re selling a different product to those who really are squeezing every penny. CostCo and Walmart are both successful superstores but one sells many more products, in smaller minimum purchases, and hires lower quality employees while paying less. These kinds of differentiation factors lead to what’s called oligopolistic competition[1]. They’re not in separate markets but they’re it selling the same product either. [1] https://www.monash.edu/business/marketing/marketing-dictionary/o/oligopolistic-competition https://www.monash.edu/business/marketing/marketing-dictiona...

ryanSrich 6y ago

It's a relic, and a bad one. I run a remote-first, remote-only company and we pay everyone based on experience and merit. Not location. If you want to stretch $150k in San Francisco go for it. Good luck having to live with 3 other roommates. However, if you want to take that same $150k and live like a king in the middle of Kansas that's an option as well. Adjusting someones pay simply because they're logging onto their computer from a different location is perplexingly stupid in a world where people can work from wherever.

erik_seaberg 6y ago
Maybe someday all tech employers will be remote-first and pay will be the same everywhere. But if you don’t compete with Bay Area offers now, you filter out everyone who relocated to the Bay Area to benefit their career.
- ryanSrich 6y ago
  That's my point. Your baseline should be bay area numbers. Don't change that number simply because the person you're hiring lives somewhere else. It also leaves the company open to gaming. If I know I can make significantly more than my peers just by having an address on the bay area I could find a way to get an address while living somewhere else.
  - nrmitchi 6y ago
    And hey, if you had started at Brex prior to Sept 1st, you wouldn't even have to game the system. But your coworkers _would_ (and would also likely be at risk of being terminated for cause if they got caught, not to mention state-tax issues).
    - esrauch 6y ago
      If your company has your address in the wrong state (and withholds there) you can still correct it when you file your taxes for a full refund in the state you didn't actually reside. Though you'd maybe be penalized in the proper state for underwithholding unless you manually paid quarterly estimates in that state as well.

ponker 6y ago

The fact is that having an employee in New York City, in the average case, is worth more than having an employee in Mongolia. They can talk to a customer more easily, given that your customers are more likely to be English-speaking Yankees fans in the Eastern Time Zone than Mongolian speakers in Ulaanbataar. They can go to an event more easily, since there are more conventions in NYC than Mongolia. They can fly to the company retreat more quickly and more cheaply. They can culturally align a product/brochure/email to a target customer more easily than their counterpart because the target customer is most likely to be in a high cost of living area (that's why they're high cost of living... lots of people with lots of money to spend on salaries or SaaS applications). If you need to read a bunch of English text, such as reading through a competitor's annual report or developer documentation, the New Yorker will likely be able to do so more quickly. They are more likely to understand "rich people" references that target customers make, like "I was at the regatta last weekend so I missed your call." There is an advantage to global diversitt for a company serving a global audience, but there are also a lot of reasons to, software engineering skills being equal, prefer the New York employee.

bryanrasmussen 6y ago
James Clark, open source programmer and standards expert, lives in Thailand https://en.wikipedia.org/wiki/James_Clark_(programmer) https://en.wikipedia.org/wiki/James_Clark_(programmer) he can probably speak adequately with English speaking Yankees fans - although time zone might be a problem. That said, I think the whole recruitment/interviewing phase of the whole tech world is geared towards local employees and not sure if it can all be moved remote first at any time.

ponker 6y ago

It’s easiest to understand when you realize that the company is not going remote to pay SF salaries everywhere, they’re going remote to pay rock bottom salaries everywhere. Geographic pay is a temporary patch to give extra to people in SF while they wait for SF engineers to decamp to the boonies or be replaced by people who do.

dasil003 6y ago
Lowering salary costs is one reason. The other potential reason is to vastly increase the talent pool. If it's only about the first reason then management will cut salaries as deep as possible, if it's only about the second then they'll keep salaries at the same level and just change the job description. I suspect for most companies final pay scales depend on the weighting of two reasons. A lot of companies will try to have their cake and eat it too with location-based pay, but that approach will neuter the benefits of opening up for remote work, and its efficacy will only degrade further over time.

staticassertion 6y ago

If you were already bought into and budgeting for 4 years of an employee at price X, it seems opportunistic and irrational to then try to cut them to price Y due to an unexpected factor. As some other CEOs have chimed in, I'll say that my relatively small startup (6 people, but growing) just pays people what they're valued at, regardless of location or business expenses. I budgeted for those salaries - if someone moved to a cheaper area I wouldn't cut their salaries because their location hasn't changed anything for me. Everyone makes enough to live in the bay area comfortably, which means they'll be just fine elsewhere.

selfinvariant 6y ago
The biggest question is how you determine 'what they are valued at', given that you would get drastically different numbers in different markets.

onion2k 6y ago

Can someone explain the rationale behind geographically based pay in remote-first companies? Profit.

malyk 6y ago

I think it all comes down to competition. If I'm hiring a remote team globally, then you are competing against people I can hire anywhere. A great engineer in Brazil could cost...I don't know...$45,000. An engineer with the same exact skill set who lives in California might be $160,000 and one in Chicago might be $110,000. If an employer paid $160,000 for every employee then they aren't using their capital very efficiently when they could have saved $115,000 on the employee in Brazil and potentially hired two more people for the team.