Stripe Employees Who Relocate to Get $20k Bonus and a Pay Cut
bloomberg.com
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Compensation Trajectory: Sure, I can relocate from [HCOL city] to [LCOL city] and come out ahead today after factoring taxes, home prices, etc. What happens in the long term? Will I have a harder time getting promoted because of lower visibility? Will my annual raises and stock refreshes be lower than my counterparts who did not relocate? In tech-dense areas like the Bay Area, I can switch jobs and negotiate a substantial salary increase. Will LCOL areas allow me to substantially increase my salary when I switch jobs?
Home Prices: Folks often cite cheaper housing as a reason for leaving HCOL areas. I generally agree with that. But housing is an investment, not necessarily an expense. You might be paying seven figures for a small townhouse in the Bay Area. However, you'll get your money back when you sell your home in the future (assuming a sufficiently long time horizon and the ability to wait out dips in the housing market). Like any other investment, there are risks associated and ROI is not guaranteed, but my point is that spending $1M on a house is not the same as spending $1M on a luxury car.
Purchasing Power: Earning more money in a HCOL city (relative to earning less in a LCOL city) goes a long way once you leave your local economy. Want to send your kids to a private university? Most tech employees won't qualify for financial aid regardless of where they live. In that case, tuition for [private university] is the same regardless of whether you live in San Francisco or rural Oklahoma.
Oh yeah and then after that you can choose where to live for whatever reasons work for you :-)
- Either you don't plan on moving or you can cover a substantial amount of your mortgage from rental income if you do move.
- You're not overleveraged. If you lose your job or take a pay cut due to a recession, you can still continue making mortgage payments on your house without risk of foreclosure.
Caveat: There are probably some areas where housing prices never fully recovered after the 2008 financial crisis. But there also areas like the SF Bay Area, where the housing market is doing well even in the midst of wildfires, a pandemic, and tech employees fleeing the area in U-Haul trucks. As with all investments, nothing is guaranteed. For what it's worth, your run of the mill index fund would have taken a huge hit in 2008 as well. It wasn't just the housing market.
Also the average cost to sell a house is around 10%. So 10% appreciates means you walk away with what you put in.
Cars turn into solid investments after a few hundred grand. People even make money selling their wait-list spots on some new cars.
This attitude is exactly why HCOL cities are HCOL cities, and why said cities have been pushing their low-income residents further and further into the suburbs (or into entirely different metropolitan areas!).
The sooner we can do away with this attitude of land being something to hoard instead of something to be used, the sooner we can start actually addressing things like income inequality. And in the process, doing away with this attitude will almost certainly put a massive dent in the NIMBYism that plagues a lot of these same HCOL cities.
I don't own a home and I've spent a nontrivial amount of my net worth paying rent in HCOL areas, including the Bay Area. Renters want prices to go down. Homeowners want prices to go up. And the world is round.
Perhaps some legislation and removal of zoning restrictions would help.
That is indeed the question. The people who stand to gain from a HCOL area being HCOL are almost certainly not going to do so on their own. Which brings us to...
> Perhaps some legislation and removal of zoning restrictions would help.
Perhaps. And luckily, renters typically outnumber landlords in these areas, so you'd think that'd be a slam dunk, but then said areas end up with milquetoast approaches like rent control instead of actually addressing the issue of land value speculation driving up rent.
My preferred solution would be to pull a Henry George and institute a land value tax, with the revenues going directly into a UBI program. This would readily stifle the idea of "investing" in land (since it'd be a waste of money to pay LVT on land you ain't using), while not stifling any incentives to develop on that land (since only the land itself would be taxed, rather than the improvements on it).
And then yeah, zoning restrictions need to get chopped down by quite a bit.
>Doesn't this just make it a little too obvious that the company is more interested in paying you as little as they can get away with rather than paying you for the value you bring. You are payed your replacement cost. If you bring more value, you are harder to replace. It has nothing to do with total value, if this was the case, no company would ever make a profit.
Is there anyone who thinks that a company pays employees $1 more than they have to? I haven't met anyone who thought otherwise. Afterall, they aren't a charity.
>The employee equivalent of this is accepting the wage they're offering and then optimizing to do as little work of value to the company as possible
I also haven't met anyone who goes above and beyond out of some sense charity. I know people who work hard because they enjoy their work, or think they will get more pay, but not simply for the sake of the company value.
the average FAANG engineer does a shockingly small amount of work that has any impact on revenue
Also:
1. Occam’s razor: Could it be that a Google is actually getting good value by paying very high salaries?
Yes. The average revenue per person for Google is about 160G$ / 115kiloemployees = 1M4 per employee. I do note that using an average is silly because the value distribution is not flat, but neither is the employee salary distribution flat. But the figure is so large, average does say something useful for back-of-envelope calcs.
2. Can Google monopolise by buying power alone?
No. Other companies have similarly high returns per employee (Apple is 260G$/160kiloemployees, Netflix is 20G$/20kiloemployees) so for Google to outbid them, it needs to outbid above the marginal revenue per employee, which clearly is well above a 600k$ salary.
3. Can Google corner the market for talent by restricting supply?
No. We know that there are plenty of talented developers because Google isn’t the only company making over $1M revenue per employee. Google employs about 115000 people. Let’s say 50000 of those were “overpaid“ to remove them from the competitors. If the total pool of equivalent talent were as small as 250000, then Google couldn’t monopolise talent. Yet other companies with high revenues per employee have a sum total of employees higher than 250000. Furthermore Google’s returns per effective employee become ~$2.8M/employee, so Google can obviously afford to pay $1M for talent it really wants!
Your sports analogy fails because sports are designed to be zero-sum where there can be only one winner, so the best player can capture more of the winnings.
I don't disagree with your other points, just the first.
However making the argument that the marginal gain from an employee has to exceed the marginal cost is much more difficult, so using an average is just a fair proxy for making the point.
My assumption is that Google are smart enough to know extremely well their marginal gain, which must be an upper bound of what they would rationally pay for an employee (salary plus overhead plus opportunity cost plus variance).
Anyone that thinks a Google is employing people at a loss to cause damage to other businesses is a double plus badthinker IMHO.
Your implication is that the pool of talent is limited and that there is some sort of zero-sum game being played.
The pool of talent is clearly not limited and there are multiple indications of that e.g. a rockstar developer would be employed at rockstar prices of millions (or signed on at millions as per your sports analogy).
If Google were to take a talented person out of the pool, the loss to the competitors is the marginal difference in talent to the next lower talented person.
Put simply, the variation in measurement of talent is large, and training can make huge differences to talent levels. Your premise can’t work without some sort of perfect oracle.
That isn’t to say it doesn’t happen at some microscopic level, or that it doesn’t happen with some particular individuals... Edited: there are just too many sensible reasons why I think it couldn’t happen systematically.
A tremendous amount of value was created by the early engineers of course and they still have top performers shipping new things. But as somebody who worked at one of these companies early in my career well after its monopoly was established, I felt like I was just given busy work to do.
In stark contrast to the average pre-ipo company engineer who has rarely discussed this “revenue” business and certainly not its even more shy friend, “profit”
Now sometimes after a new CEO or an acquisition you do see some internal shuffle and some positions deemed redundant are removed, but that's rare, and generally the positions are transfered from one less profiting category of the company to another.
So from my point of view, you could argue that the employees are worth ("value of company" / "number of employees") - "value of patents" - "value of brand recognition" - "value of production equipment".
I would bet that, especially at FANNGS, that equation would result on a much higher compensation per employee then what is currently given.
The reason people arn't being paid that amount though I believe is due to investors having the option to invest in someone else.
As an investor (an employer is an investor into an employees career). You always take a bigger cut of the value of what you invest in, and you're allowed that leverage because you tend to have the option to not invest in some particular X, and have a plethora of alternatives you could invest in as well.
Thus as en employee we tend to be paid market rate, instead of by value, because there are other possible employees who could provide similar value that be willing to undercut you.
If companies go full remote, it could mean that there are even more options for employers to hire someone who could provide the same value and is willing to undercut you, for example if they have a much lower cost of living, they might be happy with a lot less money.
My bet will be that if remote dev work becomes the norm in the industry, you'll see compensations level off, Bay Area compensations will go down as employer can hire from cheaper places, and places that currently had low compensations will increase, because local companies will now have to compete for talent with big companies like FANNG.
Tech companies are in the business of creating new products. Hell its practically the name. All companies use technology, technology companies are ones that create new technology as a core aspect of what they do.
Predicting what new thing will be valued by the market and what won’t is a very hard and unsolved problem.
So just like the VCs that funded them, tech companies adopt a throw shit at the wall and see what sticks approach.
They can do that because the scale of users that can use your work is enormous. Getting it right in software can make up for a lot more of getting it wrong than in most industries.
I suspect this is just the beginning of the move away from the Bay Area. Give it twenty years and small offices and remote workers distributed across the country will be very normal. Wages (and Bay Area house prices) will reflect that.
Might as well say it’s a little too obvious that shoes go on feet.
If the act of paying remote people differently based on where they remote from is successful then it means the free market isn’t working right and engineers for these jobs are commoditized.
Wages will naturally trend downward as you're now competing with developers everywhere.
Tying pay to location makes sense in the short-term as the industry transitions, but I don't see these policies holding over the longer-term.
Also, what about if you had all women at a location and a man relocates there and gets to keep their higher salary. I think the women would feel that this is not okay either. This applies to any other protected categories where legal issues can come up.
There are other considerations when talking about salary, and whether people can keep higher salaries when they relocate from a place where there is high competition for employees and a high average salary to a place with lower competition for employees and lower average salaries.