I don't necessarily disagree with it, but I don't know what aspects of the issue companies are actually looking at to decide that geo-based pay is the way to go.
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.
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.
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.
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.
Cripes, US$150k is good money in London and that's a considerably higher cost location than rural Kansas.
One thing it does not flatten is time zone. When two team members have 11 hours difference, their ability to collaborate is very limited. It's reasonable to discount the pay of employees who are too far in time. Alternatively, avoid hiring people outside of +/- 4 hours from the mean (unless they are the best in the world in something).
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.
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.
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.
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.
How much you are paid depends on how much they have to pay you before you decide to quit. The lowest pay you’ll accept before you decide to quit is based on what you think you can get if you quit. That’s heavily influenced by geography. As geography and job markets become uncoupled compensation will become more uniform regionally and then globally.
Essentially you're minimizing cost by paying the lowest possible local rate, but isn't it just as valid for someone else to maximize quality by paying a competitive rate for the most expensive locale? Presumably both would be pushed to a middle (location independent) wage because the company minimizing price will (presumably) have issues hiring all bottom-of-the barrel employees, while the company optimizing for quality will have issues paying top dollar when it only provides marginal gains over a high-average wage.
[1] https://www.monash.edu/business/marketing/marketing-dictiona...
As some other CEOs have chimed in, I'll say that my relatively small startup (6 people, but growing) just pays people what they're valued at, regardless of location or business expenses. I budgeted for those salaries - if someone moved to a cheaper area I wouldn't cut their salaries because their location hasn't changed anything for me. Everyone makes enough to live in the bay area comfortably, which means they'll be just fine elsewhere.
If it's only about the first reason then management will cut salaries as deep as possible, if it's only about the second then they'll keep salaries at the same level and just change the job description. I suspect for most companies final pay scales depend on the weighting of two reasons. A lot of companies will try to have their cake and eat it too with location-based pay, but that approach will neuter the benefits of opening up for remote work, and its efficacy will only degrade further over time.
If I'm hiring a remote team globally, then you are competing against people I can hire anywhere. A great engineer in Brazil could cost...I don't know...$45,000. An engineer with the same exact skill set who lives in California might be $160,000 and one in Chicago might be $110,000.
If an employer paid $160,000 for every employee then they aren't using their capital very efficiently when they could have saved $115,000 on the employee in Brazil and potentially hired two more people for the team.
That said, I think the whole recruitment/interviewing phase of the whole tech world is geared towards local employees and not sure if it can all be moved remote first at any time.
Profit.