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If you're running a remote company, there's another reason (besides fairness) that location-based pay is a bad idea: it makes it harder to create a compensation

If you're running a remote company, there's another reason (besides fairness) that location-based pay is a bad idea: it makes it harder to create a compensation structure that incentivizes high performance. If Person A is outperforming Person B, but is getting paid less because they happen to live somewhere else, you lose the ability to claim that you compensate people for performance without sounding like you're talking out of both sides of your mouth. Not only is Person A not going to be happy about that, Person A is not going to believe that compensation at your company is based on performance. Companies that want to hire and incentivize the best people need to be congruent in their messaging around compensation and performance. Claiming that compensation is performance-based and then including a factor (location) that has no bearing on performance is incongruent and will not help to develop the right culture in this regard.

deleted 6y ago
[deleted]
kmonsen 6y ago
I mean it’s, but if you don’t take location into account then suddenly you can only hire from low cost locations where the talent does not exist. It’s really unfair whatever you do, and right now there is no good solution. Partially because there is no good way of understanding the value of an employee.
- benrbray 6y ago
  What do you think of employee-owned companies as a way to accurately assess that value? It seems like capitalism and the question of whether profits should go to laborers vs owners is central to this issue.
  - kmonsen 6y ago
    I mean I like it, but I don’t think that’s very relevant as I don’t have a few billion dollars. There is just so much money splashing around in investor driven companies right now because of cheap money that I don’t see it working out. I also think investors provide more then money that is hard to overcome. They have a network you will only get access to if they get cheap investments and for some type of companies that is necessary.
- iEchoic 6y ago
  > right now there is no good solution. Partially because there is no good way of understanding the value of an employee. This is the perception among many startups, but I think this is more perception than it is reality. Exceptional engineers are several times more valuable to most startups than an average engineer, but almost all will hire an average engineer for $115k before they hire an exceptional one for $175k. There's no rational basis for this, but it is the path of least resistance. You won't need to defend hiring an engineer for $115k to cofounders or investors. This is counter-intuitive, but the solution is to actually pay more for remote engineering jobs. When you do this, you're widening your talent pool to the entire world - and then you're selecting from the very top of the pool. We've been doing this for years, and it's been one of our most significant competitive advantages.
  - kmonsen 6y ago
    Yeah, I feel we are a bit in an inverted world. Startups in my opinion need better engineers as they are in the hard part of making them product while the large companies mostly need people who can follow existing processes and do as they are told. Both types of companies hire the opposite because of economic incentives. I also agree with your solution, but not sure how practical it is short term. Long term that is probably what will happen.
    - humanrebar 6y ago
      Large companies also need excellent engineers because novel engineering problems emerge at scale and as a large codebase evolves over the years. You can't really attack those problems by only doing what you're told. If nothing else, someone has to figure out what the plan is.
      - kmonsen 6y ago
        For sure, but they need a few of those and a lot of average engineers with leadership skills to maintain everything. At least that is what I think having mostly working in very large FAANG's. The really hard part is in starting new projects, or maybe that is just hard for me.
jimmaswell 6y ago
If I could choose between paying $500 rent and earning $10000 a month or paying $5000 rent and earning $10001 a month I'd pick the first one even if the absolute number is higher, and I wouldn't feel ripped off if the other guy was a newer employee. The point of contention here seems to be people wanting to see a bigger number regardless of who actually takes home more disposable income. Seems short sighted to me.
- benrbray 6y ago
  The numbers don't quite work out that way though. What if it's $500 rent and $10,000 a month or $5000 rent and $16,000 per month?
PragmaticPulp 6y ago
I managed remote, multi-national teams before COVID. The unspoken advantage of remote teams is that employers can use the location pay disparity to their advantage. For example, we had pressure from executives to do more hiring in our international offices because employees were cheaper. Abandoning location-based pay sounds good to people who feel they are disadvantaged due to location, but location-based modifiers suddenly become popular again when companies start moving compensation toward their cheapest location instead of toward their most expensive location. The other advantage of hiring in cheap locations is that it's equally cheaper to provide large incentives to the best performers in those locations. I could pay $150,000 for an average engineer at some of our US offices, and that employee would still be shopping around for their next 10% raise at a competing company. Or I could pay $100,000 USD equivalent for a great engineer at some of our international offices, and that employee would be so far above market rate that they'd be doing their best work every day because they were so thankful for the opportunity. I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale, regardless of which state or city you live in.
- iEchoic 6y ago
  > I managed remote, multi-national teams before COVID. > I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale The world's most valuable tech companies still do the vast majority of development work in their home countries, and the trend to keep core development at home has only accelerated in recent years. A lot of things would have to change - including that - in order for this belief to age poorly. Also fwiw, we built our team fully-remote pre-COVID as well, with location-agnostic pay. It only becomes clearer that this has been the right move with each passing year, and we're continuing to lean into this as a result. I will say, though, that this can depend on what type of company you're building. If your company's core competency is something other than software (e.g. sales), building an extremely high-performing engineering culture may not be the most important thing to your company, and the tradeoffs you have to make in order to do so may not be worth it.
- ironmagma 6y ago

deleted 6y ago

[deleted]

kmonsen 6y ago

I mean it’s, but if you don’t take location into account then suddenly you can only hire from low cost locations where the talent does not exist. It’s really unfair whatever you do, and right now there is no good solution. Partially because there is no good way of understanding the value of an employee.

benrbray 6y ago
What do you think of employee-owned companies as a way to accurately assess that value? It seems like capitalism and the question of whether profits should go to laborers vs owners is central to this issue.
- kmonsen 6y ago
  I mean I like it, but I don’t think that’s very relevant as I don’t have a few billion dollars. There is just so much money splashing around in investor driven companies right now because of cheap money that I don’t see it working out. I also think investors provide more then money that is hard to overcome. They have a network you will only get access to if they get cheap investments and for some type of companies that is necessary.
iEchoic 6y ago
> right now there is no good solution. Partially because there is no good way of understanding the value of an employee. This is the perception among many startups, but I think this is more perception than it is reality. Exceptional engineers are several times more valuable to most startups than an average engineer, but almost all will hire an average engineer for $115k before they hire an exceptional one for $175k. There's no rational basis for this, but it is the path of least resistance. You won't need to defend hiring an engineer for $115k to cofounders or investors. This is counter-intuitive, but the solution is to actually pay more for remote engineering jobs. When you do this, you're widening your talent pool to the entire world - and then you're selecting from the very top of the pool. We've been doing this for years, and it's been one of our most significant competitive advantages.
- kmonsen 6y ago
  Yeah, I feel we are a bit in an inverted world. Startups in my opinion need better engineers as they are in the hard part of making them product while the large companies mostly need people who can follow existing processes and do as they are told. Both types of companies hire the opposite because of economic incentives. I also agree with your solution, but not sure how practical it is short term. Long term that is probably what will happen.
  - humanrebar 6y ago
    Large companies also need excellent engineers because novel engineering problems emerge at scale and as a large codebase evolves over the years. You can't really attack those problems by only doing what you're told. If nothing else, someone has to figure out what the plan is.
    - kmonsen 6y ago
      For sure, but they need a few of those and a lot of average engineers with leadership skills to maintain everything. At least that is what I think having mostly working in very large FAANG's. The really hard part is in starting new projects, or maybe that is just hard for me.

jimmaswell 6y ago

If I could choose between paying $500 rent and earning $10000 a month or paying $5000 rent and earning $10001 a month I'd pick the first one even if the absolute number is higher, and I wouldn't feel ripped off if the other guy was a newer employee. The point of contention here seems to be people wanting to see a bigger number regardless of who actually takes home more disposable income. Seems short sighted to me.

benrbray 6y ago
The numbers don't quite work out that way though. What if it's $500 rent and $10,000 a month or $5000 rent and $16,000 per month?

PragmaticPulp 6y ago

I managed remote, multi-national teams before COVID. The unspoken advantage of remote teams is that employers can use the location pay disparity to their advantage. For example, we had pressure from executives to do more hiring in our international offices because employees were cheaper. Abandoning location-based pay sounds good to people who feel they are disadvantaged due to location, but location-based modifiers suddenly become popular again when companies start moving compensation toward their cheapest location instead of toward their most expensive location. The other advantage of hiring in cheap locations is that it's equally cheaper to provide large incentives to the best performers in those locations. I could pay $150,000 for an average engineer at some of our US offices, and that employee would still be shopping around for their next 10% raise at a competing company. Or I could pay $100,000 USD equivalent for a great engineer at some of our international offices, and that employee would be so far above market rate that they'd be doing their best work every day because they were so thankful for the opportunity. I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale, regardless of which state or city you live in.

iEchoic 6y ago
> I managed remote, multi-national teams before COVID. > I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale The world's most valuable tech companies still do the vast majority of development work in their home countries, and the trend to keep core development at home has only accelerated in recent years. A lot of things would have to change - including that - in order for this belief to age poorly. Also fwiw, we built our team fully-remote pre-COVID as well, with location-agnostic pay. It only becomes clearer that this has been the right move with each passing year, and we're continuing to lean into this as a result. I will say, though, that this can depend on what type of company you're building. If your company's core competency is something other than software (e.g. sales), building an extremely high-performing engineering culture may not be the most important thing to your company, and the tradeoffs you have to make in order to do so may not be worth it.
ironmagma 6y ago