Buffer’s Salary Formula 3.0
open.buffer.com
open.buffer.com
Or, alternatively, "You don't live in SF so we don't have to compete with a bunch of other companies for your salary? Haha, sucker, here's less money for the same job."
I'm all for personally earning more money, but this also disproportionately rewards people who live in cheap places.
They do have places where your value is tied to your location. They're called offices.
The main goal here appears to be securing their talent, as it’s becoming increasingly difficult to hold onto staff and create a stable enterprise. I imagine that only becomes more difficult when you’re a distributed team.
From the employee perspective: Will you really switch jobs now that your salary is top of market for your location? Any job nearby won’t pay you anywhere near that salary! You will have to move to the valley.
So it obviates job choice based on salary being a deciding factor in your life, your location and your connections. (Just because SF and other places have opportunity doesn’t make it attractive to all - opportunity cost like being away from family or friends can outweigh it.)
It’s then entirely up to you where you live and how beneficial you make that salary to you and your family.
The community where the staff live benefits too. Their surplus income will most likely be spent locally and depending on how they’re taxed, the local authority will benefit too.
Basecamp also has a sideline benefit: the massive PR that comes from awareness of this. And I bet they get droves of great talent jumping all over their new positions this year, from everywhere, _especially_ the valley!
Great tactic. Putting people first.
But we are the ones who decide whether paying the countryside person less is "fair". The moral weight of our actions are mostly independent of what a free market gives.
The market is a tool, not the objective.
This perspective I agree on. Specifically, markets are a tool for finding prices, because we've observed all throughout humanity that alternative methods of pricing (and hence resource allocation) go poorly. It's the least worst system! If you need to do that thing (establish prices and distribution of resources with minimum waste) then the market is a great tool.
If you're trying to solve some other problem (establishing "fair" pay) -- then I agree that appealing to the market is like pounding nails with a saw. It isn't even supposed to do that thing.
In Buffer's case, they're trying to go after fairness, which is fine. But this overall post above (bringing us back to topic) is that they're starting to introduce factors that are swinging them back towards the market. The market is pretty tough to ignore in the long term, irrespective of our feelings about its fairness.
On the other hand, I'd take the opposition position of yours and say that we should be incentivizing people to live in big cities for [many reasons](https://www.city-journal.org/html/why-big-cities-matter-more...). It is not perfect or tradeoff-free, but nothing ever is.
The reason these high cost of living places exist is because they are in high demand due to all the benefits. Someone living in North Dakota (sorry anyone who is, I'm sure it is great!) won't have all the culture, food, weather, entertainment, night life, etc of someone living in the bay area.
A "Do the Right Thing" would be to truly embrace "remote-first" and realize you are paying someone for the work they do, not where they live. We are paying $x for job y and what you do with the value you bring to the company is up to you: live some place nice or some place cheap.
Our company is 100% remote (most live in bay area anyways) and we don't have pay scales by area.
OTOH, location matters a lot. Otherwise your company wouldn't be in the Bay Area. Centers of gravity are a thing. Why not pay for location? Even if an employee is remote only, if they network well where they are, it's worth paying for location.
Given a group of 7 people (posit some great team) their output is the same irrespective of location, sure -- but how did you get those 7 people? If you were in rural USA, your probability of ever having arrived at that situation is already much lower.
If location truly didn't matter, then you'd be able to move your SF team to Iowa and save a lot of money, but that's not going to work.
Or it matters very little for most things and companies choose the Bay Area for shared reasons: preferences of independently wealthy executives, signalling of some sort, etc.
The magic of concentrations of people is that the advantages scale faster than population growth because of the network effect.
Which, separately, is why cities are awesome and population density is a good thing for the planet and most people, even if it upsets some people that they can't have a big yard.
However, your argument is not valid: Large size doesn't imply high cost. Neither Shanghai (most populous city) nor Manila (most dense city) have higher costs of living than SF.
This comment doesn't take away from your point - but isn't densest either Dhaka or Mumbai?
https://en.m.wikipedia.org/wiki/List_of_cities_by_population...
That makes sense. Thank you for the reference.
You know - it's funny. Paris rates above Hong Kong (which does not even appear in the table), and Paris never felt (to me) as dense as HK. Even Manila never felt (to me, subjectively) as dense as HK.
Smaller cities like Boulder, Fort Collins, etc offer a decent amount of variety while eliminating the majority of the problems with the large cities.
Career is about the only thing a big city can be critical for and you have to be in the right city for your field.
I wrote this to contrast any size city with places like the endless suburbs or rural areas, not to create a hierarchy of "biggest is best".
Problems do also scale with size, so it's not like the massive benefits of cities are tradeoff-free. For as great as San Francisco is purported to be, they have a huge homeless problem that they seem to do relatively little about.
If the company forced you to be in a high cost area, then by all means they should adjust for it. If they want their employees to be in a specific area they could add a bonus for it.
Think of it the other way. Let's say we have two people with exactly the same skills and experience, the only difference is that one lives in SF and the other in Sri Lanka. They both provide the same value to the company but according to the calculator, if the person in Sri Lanka gets $100,000 the person in SF should get $438,000. Is that fair?
Unfair how? The ENTIRE POINT of paying in currency rather than in square feet of living space is that it abstracts all of this - you earn the cash proportionate to the value you create then spend it however (and wherever) you like
A fully rational company should be thinking "what do I have to pay to get the work I need doing done?" If that work can be done remotely then that optimisation works out as:
- Who can I hire in low cost locations and pay less for, without sacrificing quality (which I'm using VERY broadly to represent ANY differences in the work, team interactions, etc.).
- If I can't hire enough of those, fast enough, how much am I willing to pay in high-cost locations.
In the short term, when the company is trying to hire fast, talent is scare globally, and the company isn't connected to all global talent pools (so struggle to hire there) a sensible optimisation is salaries adjusted by location.
In the long term, as the company has time to build its remote brand and (if) its hiring requirements stabilise, a sensible optimisation will be work leaving high-cost centres like SF.
Don't feel too sorry for people in low-cost centres who work gets redistributed to at a lower cost - in the long term work from the high-cost centres is shifting to them, unless there are quality reasons for it to stay in the high-cost areas.
"Who is the cheapest person I can hire that passes a quality bar?"
Why should they care about location at all? They just want the job done.
> Don't feel too sorry for people in low-cost centres who work gets redistributed to at a lower cost - in the long term work from the high-cost centres is shifting to them, unless there are quality reasons for it to stay in the high-cost areas.
I don't feel sorry for them (us), I just dislike it because I see job postings from companies I'd like to work at that say "Come work for us! Oh, you live in <place>? We can only make you an offer that's a fourth of what you're currently making at <other company>, sorry. Feel free to move to SF and our offer will go up fivefold, though!".
In the end, it's a free market and everyone does what they want, but these companies end up missing out on good people because they artificially restrict their search to high-cost areas (because people in low-cost areas won't work for these companies when they can get higher-paying work elsewhere). It just irks me to see that a company I like is engaging in misguided, indirect area targeting when they purport to do remote.
But they should just call a spade a spade. It's basically a retention bonus: somebody living in SF is far more likely to jump ship than somebody living in Podunk Hollow. So just practice some of that radical transparency they're claiming and say that outright.
> It's basically a retention bonus: somebody living in SF is far more likely to jump ship than somebody living in Podunk Hollow
That's more reasonable, but again, the probability of jumping ship doesn't correlate with cost of living. We already give people who are likely to jump ship more money than others when we do the initial salary negotiations, this is a strict subset of that.
A good developer can negotiate a bette rate if he wants, or at the least, he'll be offered gigs at above average rates. By sticking to the exact market average according to their salary surveys, they're only able to select from the list of candidates who don't meet the above criteria. That is, the below average ones, and the occasional good one who has never been told what he's worth.
I've written about this in the past:
http://www.expatsoftware.com/articles/developers-should-lear...
I see this overall approach as more like flying a flag and publicly indicating culture because there's a particular crowd they want. This is how they advertise what's important to them and draw like minded people closer. That seems 100% legit to me, and super useful for any dev considering them that they're so straightforward.
No one has to like it or choose it for themselves, but I see it as nothing but laudable. It's a big wide market out there, and this is a quirky option I'm glad exists
Leaving $50k/year on the table at age 30 will move your retirement date back ten years. It takes a lot of culture to make up for that.
In other markets, like those for cars, there are specialists that focus on naming fixed, non-negotiable prices. What buffer is doing seems pretty similar.
Like I said, the market has lots of options for devs. I don't know if they're $50k off...when I said not all devs care about salary, I'm talking about the last 10%. I don't know anybody who ignores $50k.
I'm not sure anyone except college hires (though we should be skeptical here, too) pick a company for the foosball tables, beer fridges, and intramural bowling teams. Having those things signals to me that I'm probably free to network with a contributor from another team to share some ideas, though.
I'm thinking about comp for a company. I'm looking to make it (I think they call it) "remote-first", because there are some fabulous people on planet earth that don't live in the Bay Area. Also, I have no intention of living in the Bay Area, so it's selfish too.
Question 1: IF I had a goal to pay every new employee 10% above market rate - should I peg that to their locale or to the highest rate market (e.g. the Bay Area)
Question 2: SINCE I intend to grow 2x~3x YoY w/ no VC investment, the VCs are not going to pressure me to have a liquidity event at any particular time. That "uncertainty" means that stock-options are a highly speculative bet on the part of of the employee(s). Would you consider 30% of your base to be adequate to make up for the lack of options that would-or-would-not make in any particular time-frame? If not - what would be a nice kicker (for you)?
Whenever you sell your labor, obviously the buyer of that labor thinks it's worth more than what they're paying for it, otherwise they wouldn't do it. So you're always working for someone else to make money unless you own your own thing.
It's just a question of degree there.
However:
> The new formula now includes an elastic part that adjusts to the cost of living and market influence of salaries for different roles.
The transparency and simplicity of the old model was its key value. The more complex and hard to assess terms you put in, the more you lose transparency and make salary assignment something that can be "massaged" to fit the circumstances. And I think having a formula is supposed to be the antithesis of that.
But this is a really hard damn problem. Markets aren't the same, and people's egos are real. Algorithms don't tend to do well when one of the things in the balance is "people's perception of fairness" since fairness is an emotional and non-quantitative concept.
- They say they are doing away with location-specific factors in the formula. However, their formula still uses Numbeo to calculate cost-of-living based on your locality (which is location-specific)
- They seem to be transparently "hiding" (an oxymoron I know) the fact that their new formula is stripping away 2 major benefits:
- Removing 3% Loyalty Raise
- The Salary Choice Option Now Phases out at 4 Years ("In fact, in May of 2016, we stopped offering this choice.")
I'm going to agree with StavrosK on this and say that these formulas are pointless at best (and probably just a means to give HR/finance/marketing some extra work).
Living in SF/NY/London is expensive, but the tradeoffs for living in these areas is the high demand for technical skills and networking (tradeoffs in a professional sense).
Equity is not equality, which is giving everybody the same opportunities, like the same starting salary and the same objective performance reviews (which I fully support).
Equity means equality of outcome regardless of merits. It means you have to actively discriminate against your most productive members and reward others for their poor choices.
This usually has two effects: the most productive people leave for places that reward their productivity and others have no incentive of being more productive [1]
You can see this in their formula:
* Location base: did you chose to live in a place that cost more? No problem. Here is a bunch of money completely unrelated to your performance.
* Cost of living correction: we didn't reward you enough for your expensive choices, so here is some more money on top of that.
* Loyalty: did you stay here for a long time, maybe because you have no other choice, or because we give you money to live in an expensive place? Here is another bunch of money again unrelated to your performance.
At least they have multipliers for role value and experience, which sort of reward the ability of each individual.
But what if a person is more productive than others in the same role with the same experience? Can they negotiate a higher salary? Given the existence of a formula, I doubt. Although I might be wrong.
And yes, these people could be promoted, but there are not enough higher positions for everyone (there is only one team lead in each team), not everybody has the skills for a different role (managing people is different from writing code) and not everyone has even interest in changing roles.
If your engineers are this good
You don't need support
:roll-safe:
Also, cost of living adjustments should only be applied to subsistence-level, locally-priced expenses (i.e. rent, gas prices, fresh groceries, etc.). You don't want the $X you are putting into savings every year to be adjusted down because you moved to a cheaper zip code.
If the formula for salary was (basic expenses * life factor) + (benchmark * role * experience) I would understand, but we're nowhere near that.
It's more complicated than that, too. The average NYC rent is higher, but the average NYC apartment is also smaller. And the average commute for a SF employee is longer. Let's say you're in a three bedroom townhouse with a garage ten minutes from work in Austin. Is the COL adjustment going to pay you enough to have a three bedroom townhouse ten minutes from work in SF?
Also, COL is more local than the city. The rent in Jackson Heights, Queens is a fraction of the rent in Chelsea, Manhattan.
And then you describe your actual duties and experience.
I don't think titles matter at all because they're always different everywhere you go. The only exception is if you're a committed ladder climber and you're going from one place with a rigid hierarchy to another similar place. In this case jockeying for title position can be important.
Most of those people will likely end up at other startups anyway.
The formula in that post is outdated, they recently changed it again, this is the blogpost from December about the changes: https://open.buffer.com/salary-formula/