4 ms·

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

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.
  - opportune 6y ago
    Thank you for this. I don't understand why people have such a hard time thinking this way. Many people are very elastic and flexible about where they live (especially when it's 'anywhere in the US') and as someone with a job in the bay area, I don't understand why I should take a pay cut to move somewhere cheaper to do the same job. The employer ends up incentivizing me to stay in the most expensive area that also happens to be the easiest place to get a competing offer... makes no sense
crashedsnow 6y ago
I don't see it as a relic, or a bad one. Some people can't just up and move to a cheaper location for a job they don't know they'll have in a year's time. How do you decide what to pay? Paying based on "experience and merit" needs to be anchored on something, so you just end up either massively over-paying someone in a location that's cheap, or massively under-paying someone in an expensive area. If you want to pay everyone like they live in Zurich, then more power to you but doesn't seem sensible from a business management standpoint and the person in North Carolina would probably be over the moon at half that. Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense
- ryanSrich 6y ago
  > Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense Good thing I have neither a board or a CFO. But to respond directly, I think you're down playing how much of an advantage over paying (as you've put it) can be for acquiring great talent. Great companies are built by great people. Paying them well for the work they're doing regardless of where they live shouldn't be a controversial opinion. In a post-covid, SaaS based world I just don't see how location matters at all. If I'm in Omaha Nebraska I pay the same amount for an item on Amazon as someone living in downtown San Francisco. The internet flattens.
  - jnwatson 6y ago
    I understand the ideal of it, but the main reason why it doesn't work is simple supply and demand. Your employment opportunity will seem compelling for folks that live in LCOL areas, or folks trying to escape HCOL. But for the 5x as many programmers that live in HCOL areas, your pay isn't competitive. If you want to reduce your candidate pool by 70 or 80%, by all means, go for it, but there's a clear market reason why folks are paid geographically.
    - dalyons 6y ago
      This is the reality, it’s supply and demand, not “fairness”
mbesto 6y ago
I agree with this. From a cashflow perspective a lot of "remote first" companies just use cost of living adjustments because, well, it's cheaper and employees are happy to oblige. This the dirty little secret. Here's the reality - the profitability of a tech company is directly related to the amount of total cost of running the business (duh) and human resources is typically one of the largest (usually at least 40% of the overall revenue on avg in my experience). If the same engineer is working remotely from NY versus Kansas City, their output doesn't change as a result of where they live, so profitability only changes if the company renegotiates their package (their revenue contribution stays constant, so only cost changes the profitability measure). The only reason the salary is higher in NYC to begin with is that the increase in demand for living in places like NYC is much higher than KC, which is directly correlated (on average) to the quality of talent. The assumption that top talent is coming from top tier cities has been challenged for the last decade and is only accelerating because of COVID. My prediction is that there is going to be a convergence of salary values that are location agnostic. The only thing stopping this convergence is information asymmetry (e.g. companies know remote employees are happy to oblige to lower salaries because they lack negotiating acumen/power). This will change.
andyjih_ 6y ago
Agreed. We're also building a remote-first, remote-only company and after much discussion landed on uniform salaries, regardless of geography in the U.S.
staticassertion 6y ago
FWIW 150k is plenty to live comfortably, without a roommate, in SF. SF is expensive but not that expensive. Even a 4k 1br (rounding way up, especially these days where you can get a 1br for < 3k) would be 48k/year, and assuming half your money goes to taxes, you could swing it while still putting money away.
121789 6y ago
It's not a relic, it's a way to price labor effectively. You're not paying for work, you're paying for the candidate to choose you over a competitor. If you're competing against local Bay Area or high CoL companies that are local, you will have a lower offer and will likely lose out on talent. That's OK as a strategy, but you may just be selecting out of low-CoL areas and limiting your pool of labor. The alternative, which sounds like a relic, is offer your 150K and a reasonable upward CoL adjustment certain areas. Small enough that someone from a low CoL place wouldn't want to move, but high enough to keep your company competitive in high CoL places. If you have enough labor supply, you many not have an issue, but if you are having trouble finding skilled people and assume that skilled people are unevenly distributed in high-CoL places, it's a reasonable path to go down.
- opportune 6y ago
  It doesn't seem that effective to me, because it makes some assumptions about employees' willingness to move or engage in location arbitrage. For many employees without children and especially those who are single, moving areas is not a dealbreaker. For those who save a lot, really you just end up incentivizing them to move to expensive areas. It's basically based on the model of thinking of "we should pay this employee the minimum it takes for them to work for us" rather than "we should pay this employee what it takes for working for us to be worth it to them" It makes more sense to lock someone's CTC (cost to company) if they're remote and then let them live anywhere. This allows them to fully realize the remote benefit of being able to live wherever they want. Especially if other companies stick to the old model of adjusting pay based on COL, this makes working remotely in a low COL a better offer at no price difference to the company for someone who is willing to move whichever place is most economically efficient for them.
- valuearb 6y ago
  If you have to pay $200k to get talented engineers in the Bay Area, and find out you can get equally talented people in the Midwest to work remotely for you for $130K, obviously it makes sense to set waters geographically. But what happens when your competitors realize this as well? Now you can no longer get the same level of talent in Iowa for $130K, soon it’s $150k, then it goes up again. You aren’t paying for work, you are competing for talent. I think the market ends up being bifurcated, where working locally in-office gets a premium when it’s worth a premium, but remote pays the same no matter where you are outside of time zone issues.
rorykoehler 6y ago
It's basically signalling that the company doesn't value employee output.
deleted 6y ago
[deleted]

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.
- opportune 6y ago
  Thank you for this. I don't understand why people have such a hard time thinking this way. Many people are very elastic and flexible about where they live (especially when it's 'anywhere in the US') and as someone with a job in the bay area, I don't understand why I should take a pay cut to move somewhere cheaper to do the same job. The employer ends up incentivizing me to stay in the most expensive area that also happens to be the easiest place to get a competing offer... makes no sense

crashedsnow 6y ago

I don't see it as a relic, or a bad one. Some people can't just up and move to a cheaper location for a job they don't know they'll have in a year's time. How do you decide what to pay? Paying based on "experience and merit" needs to be anchored on something, so you just end up either massively over-paying someone in a location that's cheap, or massively under-paying someone in an expensive area. If you want to pay everyone like they live in Zurich, then more power to you but doesn't seem sensible from a business management standpoint and the person in North Carolina would probably be over the moon at half that. Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense

ryanSrich 6y ago
> Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense Good thing I have neither a board or a CFO. But to respond directly, I think you're down playing how much of an advantage over paying (as you've put it) can be for acquiring great talent. Great companies are built by great people. Paying them well for the work they're doing regardless of where they live shouldn't be a controversial opinion. In a post-covid, SaaS based world I just don't see how location matters at all. If I'm in Omaha Nebraska I pay the same amount for an item on Amazon as someone living in downtown San Francisco. The internet flattens.
- jnwatson 6y ago
  I understand the ideal of it, but the main reason why it doesn't work is simple supply and demand. Your employment opportunity will seem compelling for folks that live in LCOL areas, or folks trying to escape HCOL. But for the 5x as many programmers that live in HCOL areas, your pay isn't competitive. If you want to reduce your candidate pool by 70 or 80%, by all means, go for it, but there's a clear market reason why folks are paid geographically.
  - dalyons 6y ago
    This is the reality, it’s supply and demand, not “fairness”

mbesto 6y ago

I agree with this. From a cashflow perspective a lot of "remote first" companies just use cost of living adjustments because, well, it's cheaper and employees are happy to oblige. This the dirty little secret. Here's the reality - the profitability of a tech company is directly related to the amount of total cost of running the business (duh) and human resources is typically one of the largest (usually at least 40% of the overall revenue on avg in my experience). If the same engineer is working remotely from NY versus Kansas City, their output doesn't change as a result of where they live, so profitability only changes if the company renegotiates their package (their revenue contribution stays constant, so only cost changes the profitability measure). The only reason the salary is higher in NYC to begin with is that the increase in demand for living in places like NYC is much higher than KC, which is directly correlated (on average) to the quality of talent. The assumption that top talent is coming from top tier cities has been challenged for the last decade and is only accelerating because of COVID. My prediction is that there is going to be a convergence of salary values that are location agnostic. The only thing stopping this convergence is information asymmetry (e.g. companies know remote employees are happy to oblige to lower salaries because they lack negotiating acumen/power). This will change.

andyjih_ 6y ago

Agreed. We're also building a remote-first, remote-only company and after much discussion landed on uniform salaries, regardless of geography in the U.S.

staticassertion 6y ago

FWIW 150k is plenty to live comfortably, without a roommate, in SF. SF is expensive but not that expensive. Even a 4k 1br (rounding way up, especially these days where you can get a 1br for < 3k) would be 48k/year, and assuming half your money goes to taxes, you could swing it while still putting money away.

121789 6y ago

It's not a relic, it's a way to price labor effectively. You're not paying for work, you're paying for the candidate to choose you over a competitor. If you're competing against local Bay Area or high CoL companies that are local, you will have a lower offer and will likely lose out on talent. That's OK as a strategy, but you may just be selecting out of low-CoL areas and limiting your pool of labor. The alternative, which sounds like a relic, is offer your 150K and a reasonable upward CoL adjustment certain areas. Small enough that someone from a low CoL place wouldn't want to move, but high enough to keep your company competitive in high CoL places. If you have enough labor supply, you many not have an issue, but if you are having trouble finding skilled people and assume that skilled people are unevenly distributed in high-CoL places, it's a reasonable path to go down.

opportune 6y ago
It doesn't seem that effective to me, because it makes some assumptions about employees' willingness to move or engage in location arbitrage. For many employees without children and especially those who are single, moving areas is not a dealbreaker. For those who save a lot, really you just end up incentivizing them to move to expensive areas. It's basically based on the model of thinking of "we should pay this employee the minimum it takes for them to work for us" rather than "we should pay this employee what it takes for working for us to be worth it to them" It makes more sense to lock someone's CTC (cost to company) if they're remote and then let them live anywhere. This allows them to fully realize the remote benefit of being able to live wherever they want. Especially if other companies stick to the old model of adjusting pay based on COL, this makes working remotely in a low COL a better offer at no price difference to the company for someone who is willing to move whichever place is most economically efficient for them.
valuearb 6y ago
If you have to pay $200k to get talented engineers in the Bay Area, and find out you can get equally talented people in the Midwest to work remotely for you for $130K, obviously it makes sense to set waters geographically. But what happens when your competitors realize this as well? Now you can no longer get the same level of talent in Iowa for $130K, soon it’s $150k, then it goes up again. You aren’t paying for work, you are competing for talent. I think the market ends up being bifurcated, where working locally in-office gets a premium when it’s worth a premium, but remote pays the same no matter where you are outside of time zone issues.

rorykoehler 6y ago

It's basically signalling that the company doesn't value employee output.

deleted 6y ago

[deleted]