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Our vision for location-independent salaries at Buffer

38 points by albumdropped 5y ago

diordiderot 5y ago
I think location independent salaries will go towards helping fix broken markets. It also aligns with the classic econ salary ~= value mantra.
pl0x 5y ago
Who uses buffer?
- aidanlister 5y ago
  Approximately 63,000 people. See https://buffer.com/revenue https://buffer.com/revenue
stavros 5y ago
I completely don't get location-based pay. I provide you with some work, that's worth some amount of money. Why does my location change the value of my work? Do I suddenly become better if I move to SF? I get that some people have arguments for it, I just entirely disagree that any of them are valid. Whether I'm in a city that costs a lot to live in is no more the responsibility of my employer than whether I like to drive Ferraris.
- randomsearch 5y ago
  Well if your employer is based in NYC and they expect you to come to the office then presumably they can’t pay you Indonesian median pay. How is that hard to understand? If you’re talking about remote, maybe the argument stands up more, but I’d add that if a remote worker adds less value to the company (which I believe as a rule to be true, like for like), then you would pay them accordingly by that reasoning.
  - stavros 5y ago
    > If you’re talking about remote I am, as the post is too. > then you would pay them accordingly by that reasoning. Okay, but still none of these arguments means that one remote worker should be paid differently from another remote worker.
    - lostdog 5y ago
      Typically your pay reflects the company outbidding other offers. If you are able to work locally for large tech companies (in SF or NYC), then you get higher offers, which even the remote companies need to outbid.
- lmm 5y ago
  > Do I suddenly become better if I move to SF? You probably do - you're probably hanging out with other programmers more, maybe you can meet up with colleagues sometimes - or, even better, suppliers and clients. And you have more options for other employers, so you can capture more of the spread as producer surplus rather than consumer surplus.
  - SamReidHughes 5y ago
    Also, with a large pool of developers, employers get better matched with employees, creating more value. (At least this is true hypothetically. Maybe it was true before 2012.)
  - boredtofears 5y ago
    Yes, the bay is the only place you can hang out with programmers or meet with suppliers and clients.
    - lmm 5y ago
      It's exponentially better at it.
      - deleted 5y ago
        [deleted]
- jstx1 5y ago
  You’re not paid for the value of your work. You’re paid the necessary amount to hire you and keep you on board. That amount changes depending on where you’re located.
- ehnto 5y ago
  I don't disagree that it's silly but the common misconception is that salary is based on some kind value exchange, it's not. Salary is the minimum amount of money it will take to get someone to work for you. Of course there are exceptions, but most salaried workers are not the exception. Maybe that price gets driven up because of HCOL, or maybe it gets driven up by market competition, or skills scarcity (putting the employee in a position of bargaining). But it also gets driven down by the opposite effects. In the global market there are people with lower costs, lower market competition, but the same skills, and they are going to accept a much lower amount. Take insane wages in SV as a great example, HCOL causes people to not accept lesser amounts, as does market competition. The fact that someone is getting paid more in SV is not because they add more value, it's because they won't accept any less.
  - ithkuil 5y ago
    And cost of living is also driven by how much local industries can pump up the salaries. In a way it's a system designed to extract the most of the value generated by a local industry, "taxing" it at every layer, first you give some money to a engineer that then has to part a good chunk of it for rent and then even plumbers get their cut (who in turn spend it elsewhere), etc. The key insight here is the word "local" in "local industry". As the industry itself starts to be less local, this mechanism breaks down.
  - LAC-Tech 5y ago
    It has nothing to do with cost of living. At all. I live in New Zealand, cost of living here is insane. Local salaries are not.
    - checker659 5y ago
      I live in Kathmandu, Nepal. Same here. A cousin of mine in Seattle bought a similar sized home for less than what one of my relative spent in Kathmandu.
      - LAC-Tech 5y ago
        Americans really don't know how good they have it.
- Leherenn 5y ago
  It's not about the value you produce, that part is your compensation ceiling; it's about supply and demand. Cost of living is directly correlated with average pay in an area. If you are aiming as an employer to be in the top 10% of compensations, then that value will change based on whether the area average compensation is 50k or 150k (assuming a roughly similar distribution). Sure, you could pay the people from the low compensation area the same as the people from the high compensation area, but why would you? It would cost you a lot more while not meaningfully changing your recrutement pool since you are already at the top. So, they pay less based on location because they can, your alternatives to a 70k salary are 50k salaries, and they know that. On the other hand, in the high paying area, the alternatives to that same 70k salary are at 150k, so you would never hire anyone. I think the more interesting question is why companies hire people at 150k when people at 50k exist (but this is a different question which has already been discussed plenty of times around here).
- rahimnathwani 5y ago
  Salaries don't differ because of cost of living. They differ because of supply and demand. A software engineer in SF probably has a higher BATNA than one in Delhi. Not in every case, but in most cases. So the amount you'd need to pay her to accept is higher than the amount you'd need to pay the engineer in Delhi. You could decide you'll pay them both the same. Or you could decide you're not willing to pay SF salaries and will only hire people outside the US. But, even if you do this, would you be willing to pay every employee at each level the same amount as the highest paid employee at that level? If the answer is 'yes', what's the most expensive city you've visited? How much was a typical restaurant meal there? Do you pay that amount at every restaurant you visit, wherever in the world you are? I mean, the value of each meal is the same, right?
  - axiosgunnar 5y ago
    > her Why did you assume the gender of the software engineer?
  - stavros 5y ago
    > But, even if you do this, would you be willing to pay every employee at each level the same amount as the highest paid employee at that level? No, I'd negotiate. I'd get the cheapest ones first, then raise my offered salary until I couldn't find anyone, then again, then again. Note how none of this has to do with their location, because the engineer in Delhi will get a higher salary just because all the cheap ones have been taken. This indicates to me that location has nothing to do with salary, it's all market forces, and trying to insert COL adjustments into the mix is awkward and easily refuted.
    - rahimnathwani 5y ago
      "This indicates to me that location has nothing to do with salary, it's all market forces, and trying to insert COL adjustments into the mix is awkward and easily refuted." That's exactly what I said at the start of my comment: "Salaries don't differ because of cost of living. They differ because of supply and demand." Your proposed method of setting compensation ("get the cheapest ones first, then raise my offered salary until I couldn't find anyone") will end up paying people in Delhi less, because their BATNA will tend to be lower. So, even if that's not your intention, you will end up with location-based pay. And if there are significant differences between different same-level employees in Delhi? The lower-paid one will ask why. So you'll institute some sort of pay band that only applies to Delhi or India overall. So you'll end up with location-based pay bands.
- awb 5y ago
  > Why does my location change the value of my work? Do I suddenly become better if I move to SF? Plumbers charge more in SF than in rural Idaho. A plumber that moves from Idaho to SF starts charging more because 1) they need to to compensate for the high cost of living and 2) to keep up with market rates. SF would have no plumbers if they all thought it was immoral to charge more than their counterparts in Idaho for the same work. And SF would collapse economically if all salaries in all industries across the city were suddenly paid based on a national average, independent of cost of living.
  - vladvasiliu 5y ago
    Right, but that's because if you live in SF, you need the plumber to physically be in SF. A plumber in [far away, cheap locale] is of no use to you, even if for free. If this hypothetical plumber had a hypothetical way of traveling to SF for very little money and time, and would hence be able to charge much less than the local plumber, while having the exact same skills, which would you choose, and how much would you pay? If this hypothetical plumber now moved to SF for [reasons], would you pay more for his exact same service?
- user_named 5y ago
  Different locations have different pricing. If you want to hire in a specific location you will need to pay the local price.
- Loic 5y ago
  BATNA: Best alternative to a negotiated agreement. HCOL: High Cost of Living. For the poor minds like me outside of San Francisco.
- OJFord 5y ago
  When you're shopping for something, do you pay what you think it's worth, or just the cheapest you can find (within some level of effort that may be just buying the first one, depending what it is)?
- emerged 5y ago
  People from SV like to convince themselves they deserve more money because they happened to squat in one of the most absurdly expensive places in the country. I agree, as a resident of Gold and Diamond Castles Avenue.
tr4389 5y ago
I really hate location-based pay. Why should people from East Europe or Vietnam subsidize rich people in SF? If you can not afford your rent talk to city hall, get a van or change city! Do not export your problems to other parts of the world!
- SamReidHughes 5y ago
  It's the employer capturing the surplus value, not the coworker.
dvt 5y ago
This seems like penny-pinching that has the possibility of creating friction among remote teams. The realistic business impact is marginal, and the downside seems higher than the upside. I mean here are their salaries[1], how much do you think their fancy "cost-of-living bands" are actually saving? It's probably more of a bureaucratic headache to make sure the bands are always up to date. Speaking of savings, it's always a bit gauche when a CEO/founder pays themselves the biggest salary, especially in a startup, where they have the most equity and the most long-term upside, but that's neither here nor there. [1] https://buffer.com/salaries https://buffer.com/salaries
Mave83 5y ago
Why does it make sense to pay different per location? Because you should pay equal. If you just use the same number on the payslip, some get more than others. It's like with currency. There is no reason to pay everyone 10k of their local currency, as that won't make sense. But paying 10k of the same makes none as well as for some this means they can have butlers, and other only get a bed under the next bridge. Payment should be equal in Terms of living standard. Otherwise they are not equal.
- nightski 5y ago
  Presumably if you are in a higher cost of living area you chose to live there because you obtain a higher standard of living (otherwise one may want to re-think that decision). Why should that be subsidized by your peers? Maybe I should get a raise to buy video games?
  - chrischen 5y ago
    People should call it “lifestyle based pay adjustment.”
  - bryanrasmussen 5y ago
    >Presumably if you are in a higher cost of living area you chose to live there because you obtain a higher standard of living right, or you were born there and have obligations and connections that keep you from saying well I am going to move now because my computations indicate that will be the optimal result! At any rate, if I am in a higher cost of living area and your company will only pay the wage that fits the lower cost of living area that obviously means I will not work for you, and I think that is the case for anyone working in higher cost of living areas. So if you want to hire someone in higher cost of living areas you will have to handle that situation. And then we come back to the considerations that the parent poster said.
  - wdb 5y ago
    High cost of living area sadly doesn't mean a higher standard of living. For example, the living standard in UK or London is much worse compared to other countries in Europe (e.g. Netherlands or Belgium).
tails4e 5y ago
I have to say I am constantly amazed at how high silicon Valley renumeration is. 600k to 1M would get you a lot of engineers pretty much anywhere else. Even if we don't look at the higher end, 200k is very common it would seem, and that would get you 2x engineers is Europe. Im in Europe and I've seen the quality of engineering is no different; the SV engineers perform the same (and some much worse), but still hiring plans favour SV typically. Can someone explain why, especially for publically traded companies that are typically very tight on budgets?
- jmchuster 5y ago
  The top companies make over a million in revenue per employee.
  - tails4e 5y ago
    They would still make that by employing in cheaper locations also, that's the main point I was making, enginneer capability is very high in Europe (and I've direct experience by having lived and worked in both US in SV and Europe)
steenreem 5y ago
I imagine there's a lot of value in having your employees share a timezone for the benefit of easy cooperation, so it might make sense to have at least timezone-dependent salaries. There might also be value in having your employees be able to easily physically meet, and then location-dependent salaries make sense.
ceilingcorner 5y ago
Getting employees to accept remote work was a brilliant reverse psychology move by companies. Now industry salaries will drop as it becomes acceptable to hire in low cost regions or abroad. This will happen automatically as the market adjusts. If you are a highly paid engineer and want to keep it that way, you should do everything in your power to limit the industry to specific geographical locations.
wdb 5y ago
The costs in some parts of Europe has increased, e.g. people might now need to pay 500+ EUR per month (from like 150EUR) for the energy bill (electricity, gas and water) but I don't expect this will get swiftly adapted to cover this major jump by these COL schemes

38 points by albumdropped 5y ago

I think location independent salaries will go towards helping fix broken markets. It also aligns with the classic econ salary ~= value mantra.

pl0x 5y ago

Who uses buffer?

aidanlister 5y ago
Approximately 63,000 people. See https://buffer.com/revenue https://buffer.com/revenue

stavros 5y ago

I completely don't get location-based pay. I provide you with some work, that's worth some amount of money. Why does my location change the value of my work? Do I suddenly become better if I move to SF? I get that some people have arguments for it, I just entirely disagree that any of them are valid. Whether I'm in a city that costs a lot to live in is no more the responsibility of my employer than whether I like to drive Ferraris.

randomsearch 5y ago
Well if your employer is based in NYC and they expect you to come to the office then presumably they can’t pay you Indonesian median pay. How is that hard to understand? If you’re talking about remote, maybe the argument stands up more, but I’d add that if a remote worker adds less value to the company (which I believe as a rule to be true, like for like), then you would pay them accordingly by that reasoning.
- stavros 5y ago
  > If you’re talking about remote I am, as the post is too. > then you would pay them accordingly by that reasoning. Okay, but still none of these arguments means that one remote worker should be paid differently from another remote worker.
  - lostdog 5y ago
    Typically your pay reflects the company outbidding other offers. If you are able to work locally for large tech companies (in SF or NYC), then you get higher offers, which even the remote companies need to outbid.
lmm 5y ago
> Do I suddenly become better if I move to SF? You probably do - you're probably hanging out with other programmers more, maybe you can meet up with colleagues sometimes - or, even better, suppliers and clients. And you have more options for other employers, so you can capture more of the spread as producer surplus rather than consumer surplus.
- SamReidHughes 5y ago
  Also, with a large pool of developers, employers get better matched with employees, creating more value. (At least this is true hypothetically. Maybe it was true before 2012.)
- boredtofears 5y ago
  Yes, the bay is the only place you can hang out with programmers or meet with suppliers and clients.
  - lmm 5y ago
    It's exponentially better at it.
    - deleted 5y ago
      [deleted]
jstx1 5y ago
You’re not paid for the value of your work. You’re paid the necessary amount to hire you and keep you on board. That amount changes depending on where you’re located.
ehnto 5y ago
I don't disagree that it's silly but the common misconception is that salary is based on some kind value exchange, it's not. Salary is the minimum amount of money it will take to get someone to work for you. Of course there are exceptions, but most salaried workers are not the exception. Maybe that price gets driven up because of HCOL, or maybe it gets driven up by market competition, or skills scarcity (putting the employee in a position of bargaining). But it also gets driven down by the opposite effects. In the global market there are people with lower costs, lower market competition, but the same skills, and they are going to accept a much lower amount. Take insane wages in SV as a great example, HCOL causes people to not accept lesser amounts, as does market competition. The fact that someone is getting paid more in SV is not because they add more value, it's because they won't accept any less.
- ithkuil 5y ago
  And cost of living is also driven by how much local industries can pump up the salaries. In a way it's a system designed to extract the most of the value generated by a local industry, "taxing" it at every layer, first you give some money to a engineer that then has to part a good chunk of it for rent and then even plumbers get their cut (who in turn spend it elsewhere), etc. The key insight here is the word "local" in "local industry". As the industry itself starts to be less local, this mechanism breaks down.
- LAC-Tech 5y ago
  It has nothing to do with cost of living. At all. I live in New Zealand, cost of living here is insane. Local salaries are not.
  - checker659 5y ago
    I live in Kathmandu, Nepal. Same here. A cousin of mine in Seattle bought a similar sized home for less than what one of my relative spent in Kathmandu.
    - LAC-Tech 5y ago
      Americans really don't know how good they have it.
Leherenn 5y ago
It's not about the value you produce, that part is your compensation ceiling; it's about supply and demand. Cost of living is directly correlated with average pay in an area. If you are aiming as an employer to be in the top 10% of compensations, then that value will change based on whether the area average compensation is 50k or 150k (assuming a roughly similar distribution). Sure, you could pay the people from the low compensation area the same as the people from the high compensation area, but why would you? It would cost you a lot more while not meaningfully changing your recrutement pool since you are already at the top. So, they pay less based on location because they can, your alternatives to a 70k salary are 50k salaries, and they know that. On the other hand, in the high paying area, the alternatives to that same 70k salary are at 150k, so you would never hire anyone. I think the more interesting question is why companies hire people at 150k when people at 50k exist (but this is a different question which has already been discussed plenty of times around here).
rahimnathwani 5y ago
Salaries don't differ because of cost of living. They differ because of supply and demand. A software engineer in SF probably has a higher BATNA than one in Delhi. Not in every case, but in most cases. So the amount you'd need to pay her to accept is higher than the amount you'd need to pay the engineer in Delhi. You could decide you'll pay them both the same. Or you could decide you're not willing to pay SF salaries and will only hire people outside the US. But, even if you do this, would you be willing to pay every employee at each level the same amount as the highest paid employee at that level? If the answer is 'yes', what's the most expensive city you've visited? How much was a typical restaurant meal there? Do you pay that amount at every restaurant you visit, wherever in the world you are? I mean, the value of each meal is the same, right?
- axiosgunnar 5y ago
  > her Why did you assume the gender of the software engineer?
- stavros 5y ago
  > But, even if you do this, would you be willing to pay every employee at each level the same amount as the highest paid employee at that level? No, I'd negotiate. I'd get the cheapest ones first, then raise my offered salary until I couldn't find anyone, then again, then again. Note how none of this has to do with their location, because the engineer in Delhi will get a higher salary just because all the cheap ones have been taken. This indicates to me that location has nothing to do with salary, it's all market forces, and trying to insert COL adjustments into the mix is awkward and easily refuted.
  - rahimnathwani 5y ago
    "This indicates to me that location has nothing to do with salary, it's all market forces, and trying to insert COL adjustments into the mix is awkward and easily refuted." That's exactly what I said at the start of my comment: "Salaries don't differ because of cost of living. They differ because of supply and demand." Your proposed method of setting compensation ("get the cheapest ones first, then raise my offered salary until I couldn't find anyone") will end up paying people in Delhi less, because their BATNA will tend to be lower. So, even if that's not your intention, you will end up with location-based pay. And if there are significant differences between different same-level employees in Delhi? The lower-paid one will ask why. So you'll institute some sort of pay band that only applies to Delhi or India overall. So you'll end up with location-based pay bands.
awb 5y ago
> Why does my location change the value of my work? Do I suddenly become better if I move to SF? Plumbers charge more in SF than in rural Idaho. A plumber that moves from Idaho to SF starts charging more because 1) they need to to compensate for the high cost of living and 2) to keep up with market rates. SF would have no plumbers if they all thought it was immoral to charge more than their counterparts in Idaho for the same work. And SF would collapse economically if all salaries in all industries across the city were suddenly paid based on a national average, independent of cost of living.
- vladvasiliu 5y ago
  Right, but that's because if you live in SF, you need the plumber to physically be in SF. A plumber in [far away, cheap locale] is of no use to you, even if for free. If this hypothetical plumber had a hypothetical way of traveling to SF for very little money and time, and would hence be able to charge much less than the local plumber, while having the exact same skills, which would you choose, and how much would you pay? If this hypothetical plumber now moved to SF for [reasons], would you pay more for his exact same service?
user_named 5y ago
Different locations have different pricing. If you want to hire in a specific location you will need to pay the local price.
Loic 5y ago
BATNA: Best alternative to a negotiated agreement. HCOL: High Cost of Living. For the poor minds like me outside of San Francisco.
OJFord 5y ago
When you're shopping for something, do you pay what you think it's worth, or just the cheapest you can find (within some level of effort that may be just buying the first one, depending what it is)?
emerged 5y ago
People from SV like to convince themselves they deserve more money because they happened to squat in one of the most absurdly expensive places in the country. I agree, as a resident of Gold and Diamond Castles Avenue.

tr4389 5y ago

I really hate location-based pay. Why should people from East Europe or Vietnam subsidize rich people in SF? If you can not afford your rent talk to city hall, get a van or change city! Do not export your problems to other parts of the world!

SamReidHughes 5y ago
It's the employer capturing the surplus value, not the coworker.

dvt 5y ago

This seems like penny-pinching that has the possibility of creating friction among remote teams. The realistic business impact is marginal, and the downside seems higher than the upside. I mean here are their salaries[1], how much do you think their fancy "cost-of-living bands" are actually saving? It's probably more of a bureaucratic headache to make sure the bands are always up to date. Speaking of savings, it's always a bit gauche when a CEO/founder pays themselves the biggest salary, especially in a startup, where they have the most equity and the most long-term upside, but that's neither here nor there. [1] https://buffer.com/salaries https://buffer.com/salaries

Mave83 5y ago

Why does it make sense to pay different per location? Because you should pay equal. If you just use the same number on the payslip, some get more than others. It's like with currency. There is no reason to pay everyone 10k of their local currency, as that won't make sense. But paying 10k of the same makes none as well as for some this means they can have butlers, and other only get a bed under the next bridge. Payment should be equal in Terms of living standard. Otherwise they are not equal.

nightski 5y ago
Presumably if you are in a higher cost of living area you chose to live there because you obtain a higher standard of living (otherwise one may want to re-think that decision). Why should that be subsidized by your peers? Maybe I should get a raise to buy video games?
- chrischen 5y ago
  People should call it “lifestyle based pay adjustment.”
- bryanrasmussen 5y ago
  >Presumably if you are in a higher cost of living area you chose to live there because you obtain a higher standard of living right, or you were born there and have obligations and connections that keep you from saying well I am going to move now because my computations indicate that will be the optimal result! At any rate, if I am in a higher cost of living area and your company will only pay the wage that fits the lower cost of living area that obviously means I will not work for you, and I think that is the case for anyone working in higher cost of living areas. So if you want to hire someone in higher cost of living areas you will have to handle that situation. And then we come back to the considerations that the parent poster said.
- wdb 5y ago
  High cost of living area sadly doesn't mean a higher standard of living. For example, the living standard in UK or London is much worse compared to other countries in Europe (e.g. Netherlands or Belgium).

tails4e 5y ago

I have to say I am constantly amazed at how high silicon Valley renumeration is. 600k to 1M would get you a lot of engineers pretty much anywhere else. Even if we don't look at the higher end, 200k is very common it would seem, and that would get you 2x engineers is Europe. Im in Europe and I've seen the quality of engineering is no different; the SV engineers perform the same (and some much worse), but still hiring plans favour SV typically. Can someone explain why, especially for publically traded companies that are typically very tight on budgets?

jmchuster 5y ago
The top companies make over a million in revenue per employee.
- tails4e 5y ago
  They would still make that by employing in cheaper locations also, that's the main point I was making, enginneer capability is very high in Europe (and I've direct experience by having lived and worked in both US in SV and Europe)

steenreem 5y ago

I imagine there's a lot of value in having your employees share a timezone for the benefit of easy cooperation, so it might make sense to have at least timezone-dependent salaries. There might also be value in having your employees be able to easily physically meet, and then location-dependent salaries make sense.

ceilingcorner 5y ago

Getting employees to accept remote work was a brilliant reverse psychology move by companies. Now industry salaries will drop as it becomes acceptable to hire in low cost regions or abroad. This will happen automatically as the market adjusts. If you are a highly paid engineer and want to keep it that way, you should do everything in your power to limit the industry to specific geographical locations.

wdb 5y ago

The costs in some parts of Europe has increased, e.g. people might now need to pay 500+ EUR per month (from like 150EUR) for the energy bill (electricity, gas and water) but I don't expect this will get swiftly adapted to cover this major jump by these COL schemes