“Cost of Living” pay for remote workers is BS
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So does opening a physical office in a remote location suddenly make the idea of having “local pay” valid again? Why?
And if not: should all global companies pay equally around the world to anyone who provides the same value within the company? That’s a nice thought but it doesn’t feel realistic.
As a European developer for a US firm I’d love to get what US devs are paid. But for that, they could hire two of my neighbors instead of me, so why would they.
Companies arent paying for produced value, they are maximizing produced value and minimizing cost.
No.
> SV companies with a global presence surely don’t pay the same in their Bucharest office as they do in their SV office?
That's because local offices have limited hiring pools, because a person living in Bucharest can't practically work in an SF office, and vice versa.
> So does opening a physical office in a remote location suddenly make the idea of having “local pay” valid again?
For positions which must essentially be filled by on-site workers in that office, yes.
> And if not: should all global companies pay equally around the world to anyone who provides the same value within the company?
Rationally, they should offer as low as they think each employee will accept, but be willing to pay based on realized value (net, of course; people in different areas, even remote, may impose different costs.)
Otherwise they'll either be overpaying for value from high-cost regions, leaving money on the table, or missing out on talent thst would produce value in lower-cost regions thst take other offers, both of which reduce profits.
There are numerous rational reasons to offer employees more than the minimum they’d accept.
There's nothing wrong with paying people less in lower cost areas. If a worker can get the job done for half the price in Austin than SF, that's the market forces telling the company to get the heck out of SF.
Ultimately it's not about the value you provide. You might work at Google and provide x10 value of your salary or you might work at a startup that has no chance of success (thus providing 0 long term value) and still earn a normal salary.
It's about the supply of labor and demand for that labor. that's what dictates the cost.
Yes, this does mean that a remote job might pay less than SF, but also that it shouldn't vary based on the exact location. One rate for the entire pool of qualified people willing to work during acceptable hours in locations where the company is willing to comply with the employment laws.
That said, if the qualified people tend to live in expensive tech hubs, the rate will end up pretty close to tech hub rates, again due to standard supply and demand.
The real complaint here IMO is that compensation is set by supply and demand not value. That's kind of orthogonal to remote workers and location based pay. If you want to capture more of the value you need collective bargaining, regulation, or to be higher up the food chain where different forces are at work.
- Differentiating based on location can create an HR risk/burden.
- After you subtract out living costs, people living in a more desirable area still end up better compensated because they live in a more desirable area, with the associated cost difference subsidized by the employer.
That doesn't make any sense. The cost of living isn't just because there is more value there. It's often times because of idiotic housing policies.
A software developer living in LA is receiving no better compensation than one living in Miami just because the housing costs more.
Now all your expenses are 6% lower, but your money left after expenses is also 6% lower. That means that despite being no worse off in terms of quality of life, your savings went down 6%.
Strictly speaking, if you maintain the same relative ratio of costs to savings, it’s always rational to take the highest income, even if it’s in a higher COL area. This is because costs can be measured as a percentage of income, but savings ought to be measured as an absolute value.
A home requires expensive upkeep. They can be destroyed through natural disasters, or rendered undesirable by changing fashion tastes.
Investing your money in a broad index fund over 30 years would almost certainly provide much more growth. You can sell your position in a matter of minutes, there’s no maintenance cost, etc.
Short term market fluctuations could reduce value for a time, but over a 30 year time horizon, you’re basically certain to do well.
A 200k home in 1980 is probably worth about 2 million today in SF. It's for this reason I'll never move anywhere near there, I just don't see myself being to afford it even, if I do become a rockstar ai developer or something. I personally would like though for people outside SF to get more remote opps at higher rates than elsewhere, maybe even just drive up the freelance/conctract rates, although I think a lot of contract rates have to do with levels of imposter syndrome, I'm an intermediate dev, who is probably comparable to some senior devs by now, but still feel like I'm charging too much if I go above $50/hour, but part of me knows I can get $100/hour.
Your Amazon warehouse workers... the aviation repair people in El Salvador... the list is endless. Offshoring can make certain products cheaper and software is no exception.
Software is particular because it is not tied to production location, but that does not mean you are not subject to market forces.
It’s hard not to imagine the same thing happening to remote work.
And wages HAVE to be higher where its expensive to live in order get people to live there. And the logistical advantages of having someone down the hall are usually worth the extra expense.
That's different from location based differential in the remote pool.
Or you may be an all-remote company. (Surprisingly, even that last group sometimes adjusts pay for CoL, like GitLab, but not always.)
I'm not being naive, I'm simply focusing on the minority of remote employers for which most of us on Hacker News might want to work - who frustratingly still often adjust pay by cost of living.
When you are a full remote worker, the offer and demand for your market is based on the global availability of remote workers. Which means that you are competing with that Ukrainian developer ready to work for 20k$/year.
The best way to hack this situation of course is to live cheaply in a high-wage city. Some of my friends managed to find a flatshare for less than 1k$/month in the bay area and are literally saving close to 8k$/month.
Pay is 100% about value.
> It's about supply and demand.
The supply function is a reflection of value perspective of potential suppliers.
The demand function is a reflection of value to potential purchasers.
Pay is a reflection of market demand, not the monetary value you bring to a company which is not easily quantifiable.
Walmart wouldn't function without someone at the register, but how much "value" that person at the register brings doesn't dictate their salary. The supply of people who could do the same job does.
Market demand is itself based on the perception of the hiring parties of the value you would supply. Companies hire people [0] only when they expect that that the cost of doing so will be justified by the return.
But, yes, I agree that supply and demand set price, but I just disagree with the idea that those are somehow unrelated to value.
> Walmart wouldn't function without someone at the register, but how much "value" that person at the register brings doesn't dictate their salary.
The value sets an upper limit to what WalMart will pay, just as the perceived opportunity cost to the worker of taking the job sets the lower limit of pay they’ll accept. The former is demand, the latter supply.
[0] outside of hires where a decision maker is funnelling business resources to the hired party as a kind of personal gift, which do happen, sure.
That sounds very much like what said about setting an upper limit, yes.
> It's meaningless when you are talking about giving paycuts to people you know are in cheaper locations.
Sure, each side is actually seeking the other sides limit price: as an employee, you demand what you think you are worth to the employer; as an employer, you offer what you think the employee is willing to work for (both sides, of course, present this as reflecting their own side rather than their guess of what the other side will accept.)
This gets weird when an employer continues to try to do this but tries to have salary transparency, because then they either have to abandon elements that go into their estimate of what employees will accept or make it clear that that' they are targeting an estimate of the employees lower limit.
In between, where most of us live, neither candidates nor jobs are fully exchangeable, so both value to company and appeal to candidate (however imperfectly estimated) come into play. A hiring manager's job is to pay an employee less than the value they generate, but as much or more than they would get at a job they like just as much.
Paying a Utah programmer 80 cents for what a SoMa dev gets a buck for sends the message that (a) you could pay either of them more than a dollar but (b) you could replace either of them for less than .80. Yet (c) for some reason you want them both to have the same left over after paying for their very different apartments.
Somewhere in rural America...
"Will you work for 80K?"
"Yes."
Meanwhile in San Francisco...
"Will you work for 80K?"
"No."
"Will you work for 120K?"
"No."
"Will you work for 160K?"
"Yes."
They'd all be competing for the same national pool of workers, and anyone that wanted to use cost of living as an adjustment for their offer would find that another company would beat them by offering the market rate for the fungible labor.
There isn't a great answer for this. Building housing in the places where tech companies have big offices helps, but a lot of folks don't want to live in cities or move halfway across the country.
Base cost of living on what goes into the employee's pocket.
* Austin tech workers saw the biggest jump in salary last year - Recode || https://www.recode.net/2018/2/8/16989150/annual-salaries-ris...
* A ranking of the highest tech salaries in the US, adjusted for cost of living — Quartz || https://qz.com/1195354/tech-salaries-in-austin-texas-are-eff...
Texas doesn't have an income tax... cool, you don't need to pay as much as SF to get workers who are every bit as happy. Moreover... if I paid my guy in Austin the same as my guys in SF, it'd be like giving him a massive raise and showing a lot more favoritism.
If I just have rate X to spend on salaries, then the only people who I get live in cities where rate X is a good deal. I need flexibility to hire from anywhere, attract talent in Seattle, Boston, SF, Chicago, Geneva, Sydney... you get the idea.
No one is paying you to live in Texas, they are paying you to do some specific work. If you can produce as much value as the guy who lived in SF, and will accept 95% of the salary that applicant would, but the employer passed on you because you won't except 80% of what they’d pay for an SF developer, and they hire the SF developer instead, they’ve lost money.
Location pay when the job isn't tied to a location is irrational and involves the employer losing money.
Would you subsidize other employee lifestyle costs? Extra pay for a larger home, or more expensive car, or more frequent international travel? If not, why should you pay more for the same job because the employee lived in a more expensive region, when the job is not tied to that region?
Let's say the cost of living in Cracozia is 1/3 of that in San Francisco. If you pay an engineer in Cracozia the same as one in San Francisco, then the engineer in Cracozia is making 3x the amount in relative terms, e.g., instead of say $150k in SF dollars, you'll be paying him what amounts to $450k in Cracozia dollars relative to his own domestic market.
Let's say the cost of living in Luxurbourg is 3x that of San Francisco. If you pay an engineer in Luxurbourg the same as one in San Francisco, then the engineer in Luxurbourg is making 1/3 the amount in relative terms, e.g., instead of say $150k in SG dollars, you'll be paying him what amounts to $50k in Luxurbourg dollars relative to his own domestic market.
This blog post rests on a thick, greasy layer of schmaltz.
Of the limited samples I've seen "cost of living" is a fraction of base salary. They're not paying so that on-site staff live a champagne lifestyle. It's "how much does x need to live, eat and get to work". Cheaper housing, zero commute, etc all mean remotes "need" less to achieve this level.
Labour is also a marketplace. A big city, for all its sins, attracts more companies. And there are usually many times more on-site positions than remote (role dependant). So the best employees from a distinct location are scarce, and competed for.
People who work remote can be adult about this. They get other non-monetary benefits from not having to commute, seeing their family, having a bigger house (hey, even just owning their house), lower rates of crime, etc, etc, etc. Living in a city can be hard work in itself.
More than anything, they can argue their worth, they could move, or they could find another job.
Employers should not care about these things. It should be, "I need three devs and I can afford to pay each $X." It absolutely should not matter where they're located if they're allowing remote work.
Edit: Let me put this another way. You live where the company headquarters are but they're a remote company. During negotiations, do you think it would be fair if the employer asks if you ever intend to move? They should not be allowed to ask this any more than they can ask a women if she intends to ever have children. It's not their business and it should have no bearing on if they hire you and at what rate.
Yes. Clearly you are ignoring the reality of different labor laws in different places, and making sure the company is prepared to meet the needs of the law.
For example, when I worked at a small 5 person startup based in NYC, we hired a remote dev in St. Louis. Our cool tech-startup HR software _was not able to pay him_ because they were not prepared to operate in St. Louis. It took like about a month and a half to get that sorted.
Your logic is nice, but it fails to account for the realities of the world. Buisnesses will reduce risk in any way possible, and the situation you are describing is literally unlimited downside risk for the business. Those are nice signals to employees but create new overhead and problems for the business.
Okay so far, but if market prices dicatate that they could hire four devs for $X0.7, then wouldn't it make sense to do that? Or still hire three devs at $X0.7 while reducing the company burn rate and extend their runway?
Don't get me wrong, as an employee I'd be thrilled if an employer wanted to overpay me in relation to my peers (meaning those who do what I do, where I do it), but I'm not going to expect it.
I would define an employer market as the set of all the employers that a given employee is willing to work for, should he receive a competitive offer. Some Canadians really want to stay in Canada and therefore their market is Canada, others don't mind moving to the states and therefore their market is Canada+US (and obviously they move to the US). Canadian employers claim to pay "market rate", when in fact they only do so for employees unwilling to emigrate.
If you have a remote employee making $30k a year in Krakow, and he gets offered $150k by a SF startup that really likes him, can you reasonably argue that he was paid market wages, and now he's overpaid? I'd say that his market value is now $150k on the remote market, and if a different employer wants to poach him they need to compete with that.
I would expect a rational employer to set a hiring bar and then keep on hiring people and raising salaries until they can hire as many people as they need. Regardless of whether that turns out to be $40k or $120k (obviously depending on productivity, salary can't grow forever). What I think is happening here is that employers (and their friends and first employees) are making an emotional decision to somehow justify them being "worth" their salaries, and almost always scale salaries down but never up, effectively hiring from their market and less competitive ones. Then they start justifying this as being "fair" and "based on cost of living", when in fact it doesn't have anything with those at all.
Isn't that a mostly circular definition? The competitive offer from a less desirable employer would simply be higher than it would be for a more desirable employer.
Let's say Bob is a programmer and always loved games, and only wants to work for game companies. Let's also say that game companies pay roughly $50k, and the Google office down the street pays roughly $200k. The market rate for Bob is $50k, not $200k, because he is unwilling to work for Google (since it's not a game company) and they are therefore not part of his market. His market is only game companies.
I think examples of this happening are: - game programmers making considerably less so than other programmers simply because their employers can pay less and still get enough applicants - big tech companies paying through their nose because a lot of people are unwilling to put up with their hiring process bullshit - finance companies in London paying a lot because a lot of people don't want to touch them
So for programmer Joe, the market is the intersection of companies which would hire Joe and companies which Joe is willing to work for.
On all four of those options, there are arguments to be made in either direction, and I think the idea it is a single, one size fits all question is misplaced.
Part of the allure of remote work is reduced cost, and longer runway. On the flip side, remote workers get to offer a discount in return for vastly larger employment options despite some additional problems created by a lack of physical proximity. That even with the discount it is more money than locally available is a double win. A universal change would also change hiring. I doubt many people would hire equally qualified, equally paid workers remotely versus in-house.
I think that proceeding from an unclear perspective makes the conclusions less relevant, and misses some of the nuance of the question, on all sides.
1) Land a remote job while living in Venezuela. 2) Change your address to a maildrop in Lausanne Switzerland. 3) Profit!
I bet that never happens.
Would you pay someone in India the same salary as someone in San Francisco? You could argue that you'd be screwing your American employee in relative terms. The alternative is not to hire Indians if the cost is the same.
I just moved from NYC to Montreal. Same time zone, cheap to visit NYC, I can work legally in both places (and Canadians can easily visit NYC on business even without being American), etc.
A remote employer shouldn't change my salary much based on that - if anything they should raise it if they already deal with Canadian/Quebec payroll/benefits, since NYC benefits cost them more, or lower it just enough to compensate for the added compliance and travel burden.
But most would lower it dramatically.
Basically I wonder what that tipping point in pay differential between candidates would need to be to sway a decision to hire someone less skilled or desirable. (Not to say those outside of pricey metros are less desirable per se).
That's just how free markets work.
(I say this as someone who worked for a US-based company out of the Toronto office for a long time, getting less pay than my equivalents elsewhere)
We don't think cost of living make sense. We do think paying market rates is the way to go. Market rates vary around the world and so does our compensation.
What you're saying is self contradicting, and in any case GitLab does take cost of living (rent being the largest part of that) directly into account when calculating compensation.
It is very easy to find out how much employees charge in the US, but not so easy for remote. You can find remote workers from oversees at 30U$S, while engineers in SF make 70~80U$S on-site.
Also remoting as a contractor, when it includes differences in benefits and costs, compound: no lunches, office space, etc is very valuable to an employee and costly to the company.
OTOH, the employees that say that they should be able to make the same money working remotely because they provide roughly the same value really do not understand how fierce the competition for remote is, and how low their productivity, percieved or not, can get from that switch.
This would mean that working a remote job in SV pays the same. Which would mean workers in SV would have an incentive to get out of SV which would mean little pockets of cool would pop up as developers realized they could do things like move with a group of peers to a small town and still make SV wages.
This could help alleviate pressure from the SF housing market.
What you're proposing is completely insane. No reasonable business owner would put up with it, and hiring in any sector beyond menial service industry jobs would disappear from whatever jurisdiction enacted that law, while management works on spinning up operations elsewhere.
If someone is applying for an on-site job, why does where they live matter? The duty is to be at the specified place at the specified time, how they acheive that isn't really the employer’s concern.
Perhaps there are some edge cases where this makes sense to consider, but I don't really understand what they are.
Judge the person's performance within the organization not where they live.
I'm simply saying don't ask your team where they live -- let them decide how far they want to commute. Also, for remote jobs, there is no reason to ask where someone lives.
Is it insane to say "don't ask people where they live, hire them based on their merits and abilities not on where they sleep at night?" I don't think so.
I think the author just doesn't understand negotiation. I am no expert either, but perhaps they should read a couple books on the subject.
The problem with this line of thinking is that employers don't actually need to do this. There are no external pressures that would force this behavior, so why would they bother?
EDIT: why downvote? i simply describe a situation i had at the past with my company.
If they don't do some form of adjustment by location, they will either end up paying more than they need to for people in locations with low wages or they will get outbid when trying to hire people in locations with high wages.
Let's say an SF company limits max pay for Kenya remote employs to 10% of the maximum that Texas remote employees would get paid for the same duties, which is in turn 80% of the max that Bay Area remote employees would get.
The the actual applicants, of equal ability, are a Kenya applicant who will accept a minimum of 10% of Bay Area pay, a Texas applicant who will accept 85% of Bay Area pay, and an Oakland applicant who will accept 100% of Bay Area pay.
The first two don't get hired because a mutually acceptable salary can't be agreed, the last one is and the company pays 10× what it needed to.
It makes some sense to scale offers based on factors that you think will shape what people will accept, except where this is prohibited by law (e.g., protected class), and location may fit within that [0]. But it doesn't make sense to adjust the limit of what you accept that way.
Of course, if you try to have a consistent transparent salary methodology, you either have to give up location-based offers or accept the inefficiency of location-based pay limits. But the whole point of salary transparency is to avoid the perception that people are being paid differently for the same work based on non-germane factors as a way of exploiting people from disadvantaged backgrounds, so why you'd keep location-based limits with transparency is beyond me.
[0] Or may not: location clearly correlates with various protected attributes, which may get you bit by disparate impact if location isn't measurably linked to value.
> I still don't know if it's good or bad but I do know that if you'll pay someone in Kenya a SF salary it will unbalance the local market.
It seemed to imply that for a company that was trying to do "good" as opposed to getting "the best workers they can for as cheapest as they can", it might be bad that they unbalance the market in Kenya in the sense that if SF regularly hired based on the value they receive then employers in Kenya might not be able to keep up with the rising wages. My reply was, basically, it's not bad for Kenya overall. Sure, it's bad for the SF company in the sense that it costs them more, but if we're talking about if it's generally a good or bad thing to happen, then it's good for a company that is trying to prioritize doing good over being cheap.
In the end, I don't think we'll see a trend where companies prioritize their employees over greater profits. This is a matter of workers becoming as good at negotiations as companies, and just as companies try to lower the price by looking at worker's cost of living, workers should try to raise the price by looking at the value they'd be giving to the company. If the majority of workers did this, then the price should effectively rise, and provide a more equal quality of life overall. The difficulty here is getting workers to learn this and be as effective at negotiating as human resource workers that have specialized in doing these negotiations. It also doesn't help that there's a general culture, which is probably stronger in developing countries, where employees try to work hard beyond what they owe the company for the honor of being labeled a hard worker.
EDIT: Changed "morally good or bad" to "generally a good or bad thing to happen" and "being good" to "doing good". I meant to match shubidubi's use of good or bad, rather than imply that it's immoral for a company to negotiate.