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Comment by iEchoic | Hacker News Reader

If you're running a remote company, there's another reason (besides fairness) that location-based pay is a bad idea: it makes it harder to create a compensation structure that incentivizes high performance.

If Person A is outperforming Person B, but is getting paid less because they happen to live somewhere else, you lose the ability to claim that you compensate people for performance without sounding like you're talking out of both sides of your mouth. Not only is Person A not going to be happy about that, Person A is not going to believe that compensation at your company is based on performance.

Companies that want to hire and incentivize the best people need to be congruent in their messaging around compensation and performance. Claiming that compensation is performance-based and then including a factor (location) that has no bearing on performance is incongruent and will not help to develop the right culture in this regard.

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I managed remote, multi-national teams before COVID.

The unspoken advantage of remote teams is that employers can use the location pay disparity to their advantage. For example, we had pressure from executives to do more hiring in our international offices because employees were cheaper.

Abandoning location-based pay sounds good to people who feel they are disadvantaged due to location, but location-based modifiers suddenly become popular again when companies start moving compensation toward their cheapest location instead of toward their most expensive location.

The other advantage of hiring in cheap locations is that it's equally cheaper to provide large incentives to the best performers in those locations.

I could pay $150,000 for an average engineer at some of our US offices, and that employee would still be shopping around for their next 10% raise at a competing company.

Or I could pay $100,000 USD equivalent for a great engineer at some of our international offices, and that employee would be so far above market rate that they'd be doing their best work every day because they were so thankful for the opportunity.

I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale, regardless of which state or city you live in.

There's nothing stopping companies from shipping their jobs overseas. It's always been an option. Luckily (for Americans), we as workers carry significant advantages over those who work overseas. If we didn't, there would be no reason to hire locally at all.

Moved from Australia to US. The significant advantage is same timezone, physical proximity, top notch CS universities and the idea that birds of a feather flock together.

Remote is great, but there’s something valuable about being in the same room when making decisions. The communication bandwidth really matters for small to medium sized startups.

I don’t have strong data to back this up, but an anecdotal evidence is how many unicorns SV spins up vs rest of the world. The concentration of talent + VCs + risk tolerating culture is what makes SV special.

what are those "significant advantages"?

English.

Timezones. Also, lack of enough talent in other countries with similar timezones (Canada/Mexico) since talented folks there can easily move to the US on TN visa.

A lot of high-growth companies starting in the US[1], thus providing a BATNA to what your current job is offering.

Lack of regulatory hurdles to hire more in the US vs setting up shop in a different country and bring in more regulatory compliance requirements.

[1] This itself is due to other factors like: deep capital pools available for seemingly ridiculous ideas, lots of existing talent available to scale your company once there is a product market fit (all the current execs/senior people in tech), relatively less regulations etc.

No idea, but I presume it’s partly education/pedigree, lack of language barrier, accountability due to being in the same network, and availability in the same timezones.

Can confirm. Was involved in interviewing multiple candidates a day the moment our non-London UK office opened

> I managed remote, multi-national teams before COVID.

> I suspect HN's opinion on location-based pay might change over time as Americans realize that US salaries are the outlier on an international scale

The world's most valuable tech companies still do the vast majority of development work in their home countries, and the trend to keep core development at home has only accelerated in recent years. A lot of things would have to change - including that - in order for this belief to age poorly.

Also fwiw, we built our team fully-remote pre-COVID as well, with location-agnostic pay. It only becomes clearer that this has been the right move with each passing year, and we're continuing to lean into this as a result.

I will say, though, that this can depend on what type of company you're building. If your company's core competency is something other than software (e.g. sales), building an extremely high-performing engineering culture may not be the most important thing to your company, and the tradeoffs you have to make in order to do so may not be worth it.

I mean it’s, but if you don’t take location into account then suddenly you can only hire from low cost locations where the talent does not exist.

It’s really unfair whatever you do, and right now there is no good solution. Partially because there is no good way of understanding the value of an employee.

> right now there is no good solution. Partially because there is no good way of understanding the value of an employee.

This is the perception among many startups, but I think this is more perception than it is reality.

Exceptional engineers are several times more valuable to most startups than an average engineer, but almost all will hire an average engineer for $115k before they hire an exceptional one for $175k. There's no rational basis for this, but it is the path of least resistance. You won't need to defend hiring an engineer for $115k to cofounders or investors.

This is counter-intuitive, but the solution is to actually pay more for remote engineering jobs. When you do this, you're widening your talent pool to the entire world - and then you're selecting from the very top of the pool. We've been doing this for years, and it's been one of our most significant competitive advantages.

Yeah, I feel we are a bit in an inverted world. Startups in my opinion need better engineers as they are in the hard part of making them product while the large companies mostly need people who can follow existing processes and do as they are told. Both types of companies hire the opposite because of economic incentives.

I also agree with your solution, but not sure how practical it is short term. Long term that is probably what will happen.

Large companies also need excellent engineers because novel engineering problems emerge at scale and as a large codebase evolves over the years. You can't really attack those problems by only doing what you're told. If nothing else, someone has to figure out what the plan is.

For sure, but they need a few of those and a lot of average engineers with leadership skills to maintain everything. At least that is what I think having mostly working in very large FAANG's.

The really hard part is in starting new projects, or maybe that is just hard for me.

whatever happened to the mentality, that "nobody ever got fired buying IBM" - seems to me that 175k for a corporation paying an exceptional engineer would see that as a steal.

I think a lot of the discussion is assuming FAANG rates, and realistically, exceptional engineers at those companies should be getting paid absurd, outrageous amounts of money. However what you're talking about is a smaller company, and sure, you can hire two average engineers for only 2/7th more money than one exceptional person.

What do you think of employee-owned companies as a way to accurately assess that value? It seems like capitalism and the question of whether profits should go to laborers vs owners is central to this issue.

I mean I like it, but I don’t think that’s very relevant as I don’t have a few billion dollars.

There is just so much money splashing around in investor driven companies right now because of cheap money that I don’t see it working out.

I also think investors provide more then money that is hard to overcome. They have a network you will only get access to if they get cheap investments and for some type of companies that is necessary.

If I could choose between paying $500 rent and earning $10000 a month or paying $5000 rent and earning $10001 a month I'd pick the first one even if the absolute number is higher, and I wouldn't feel ripped off if the other guy was a newer employee. The point of contention here seems to be people wanting to see a bigger number regardless of who actually takes home more disposable income. Seems short sighted to me.

The numbers don't quite work out that way though. What if it's $500 rent and $10,000 a month or $5000 rent and $16,000 per month?

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