Our vision for location-independent salaries at Buffer
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I mean here are their salaries[1], how much do you think their fancy "cost-of-living bands" are actually saving? It's probably more of a bureaucratic headache to make sure the bands are always up to date. Speaking of savings, it's always a bit gauche when a CEO/founder pays themselves the biggest salary, especially in a startup, where they have the most equity and the most long-term upside, but that's neither here nor there.
Because you should pay equal. If you just use the same number on the payslip, some get more than others. It's like with currency. There is no reason to pay everyone 10k of their local currency, as that won't make sense. But paying 10k of the same makes none as well as for some this means they can have butlers, and other only get a bed under the next bridge.
Payment should be equal in Terms of living standard. Otherwise they are not equal.
right, or you were born there and have obligations and connections that keep you from saying well I am going to move now because my computations indicate that will be the optimal result!
At any rate, if I am in a higher cost of living area and your company will only pay the wage that fits the lower cost of living area that obviously means I will not work for you, and I think that is the case for anyone working in higher cost of living areas. So if you want to hire someone in higher cost of living areas you will have to handle that situation. And then we come back to the considerations that the parent poster said.
Companies are purchasing labor (a product). Trying to undermine the costs because they have inside knowledge on how the meat is made (or where the meat is made) is just them using their leverage to extract a better deal. Totally normal tactic, they do this in every facet of their business. Employees should also grab as much leverage as possible from shopping their product (labor) to competitors or banding together with others (union/guild/etc) to get the best deal.
tl;dr It makes rational sense for companies to want to pay different per location. It makes rational sense for employees to say "cool, but no." There are many examples of price not being location-dependent in our capitalist system, at least many I have experienced at a consumer level. But maybe you are onto something and online consumer stores should all start changing the base prices once they see your zip code/state/type of credit card (I'm positive there are already some out there that do things along these lines).
that is probably incorrect. Lots of places charge different based on location.
"The functionality works like a charm, which is exactly how Amazon or Staples.com works! You get to sell the same product at different prices for different geographical locations.
During the location-based pricing process, we realized that no matter how frowned upon a system like this may be, your business needs what it needs."
which I mean, what your business needs is money, amirite!?
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at any rate it's just a product offering:
Dynamic Product Pricing by Location via Zip-code or IP Recognition
so you can add this desirable feature to your CMS etc. etc.
They of course note that "When it comes to eCommerce sites, a location-based pricing strategy is not illegal, but it is frowned upon." but then they go into how great their product is which allows you to implement this.
They give reasons why a company might want to do this:
1. The company reduces prices of its products drastically in the North zone, thereby penetrating that market against competition.
At the same time, it increases their wholesale price exponentially across other regions where they are earning ample margins to overall increase revenue with minimal loss for a business like theirs which needs every penny counts!
blah blah blah
There are many factors that play a role in the pricing of a product including:
Demand
Distance from the warehouse
Local / Regional Income Levels
Local / Regional Competition
Supply fluctuation
In a recent discussion about Tinder charging more based on user profiles it was discussed that perhaps using PII to determine pricing, which location would be a part of, would be against GDPR.
If you are a highly paid engineer and want to keep it that way, you should do everything in your power to limit the industry to specific geographical locations.
There might also be value in having your employees be able to easily physically meet, and then location-dependent salaries make sense.
I get that some people have arguments for it, I just entirely disagree that any of them are valid. Whether I'm in a city that costs a lot to live in is no more the responsibility of my employer than whether I like to drive Ferraris.
If you’re talking about remote, maybe the argument stands up more, but I’d add that if a remote worker adds less value to the company (which I believe as a rule to be true, like for like), then you would pay them accordingly by that reasoning.
I am, as the post is too.
> then you would pay them accordingly by that reasoning.
Okay, but still none of these arguments means that one remote worker should be paid differently from another remote worker.
You probably do - you're probably hanging out with other programmers more, maybe you can meet up with colleagues sometimes - or, even better, suppliers and clients.
And you have more options for other employers, so you can capture more of the spread as producer surplus rather than consumer surplus.
Maybe that price gets driven up because of HCOL, or maybe it gets driven up by market competition, or skills scarcity (putting the employee in a position of bargaining). But it also gets driven down by the opposite effects. In the global market there are people with lower costs, lower market competition, but the same skills, and they are going to accept a much lower amount.
Take insane wages in SV as a great example, HCOL causes people to not accept lesser amounts, as does market competition. The fact that someone is getting paid more in SV is not because they add more value, it's because they won't accept any less.
In a way it's a system designed to extract the most of the value generated by a local industry, "taxing" it at every layer, first you give some money to a engineer that then has to part a good chunk of it for rent and then even plumbers get their cut (who in turn spend it elsewhere), etc.
The key insight here is the word "local" in "local industry".
As the industry itself starts to be less local, this mechanism breaks down.
I live in New Zealand, cost of living here is insane. Local salaries are not.
All other things being equal, you don't have a reason to accept a lower offer but that's completely separate from the question of COL adjustments. If the best offer you get is from a company that has a COL adjustment policy, well... that's still the best offer that's available to you.
So, they pay less based on location because they can, your alternatives to a 70k salary are 50k salaries, and they know that. On the other hand, in the high paying area, the alternatives to that same 70k salary are at 150k, so you would never hire anyone. I think the more interesting question is why companies hire people at 150k when people at 50k exist (but this is a different question which has already been discussed plenty of times around here).
A software engineer in SF probably has a higher BATNA than one in Delhi. Not in every case, but in most cases. So the amount you'd need to pay her to accept is higher than the amount you'd need to pay the engineer in Delhi.
You could decide you'll pay them both the same. Or you could decide you're not willing to pay SF salaries and will only hire people outside the US.
But, even if you do this, would you be willing to pay every employee at each level the same amount as the highest paid employee at that level?
If the answer is 'yes', what's the most expensive city you've visited? How much was a typical restaurant meal there? Do you pay that amount at every restaurant you visit, wherever in the world you are? I mean, the value of each meal is the same, right?
Why did you assume the gender of the software engineer?
No, I'd negotiate. I'd get the cheapest ones first, then raise my offered salary until I couldn't find anyone, then again, then again. Note how none of this has to do with their location, because the engineer in Delhi will get a higher salary just because all the cheap ones have been taken.
This indicates to me that location has nothing to do with salary, it's all market forces, and trying to insert COL adjustments into the mix is awkward and easily refuted.
That's exactly what I said at the start of my comment:
"Salaries don't differ because of cost of living. They differ because of supply and demand."
Your proposed method of setting compensation ("get the cheapest ones first, then raise my offered salary until I couldn't find anyone") will end up paying people in Delhi less, because their BATNA will tend to be lower. So, even if that's not your intention, you will end up with location-based pay. And if there are significant differences between different same-level employees in Delhi? The lower-paid one will ask why. So you'll institute some sort of pay band that only applies to Delhi or India overall. So you'll end up with location-based pay bands.
I disagree, the company will just avoid SF engineers. Then, because nobody artificially adjust your salary based on location, salaries will equalize, so someone in Delhi and someone in Madrid will make the same, regardless of their location.
We're talking remote, you can't mix remote and on-site in the same conversation. The BATNA of both is the same, because they're competing in the same global market.
You must consider both because, for now at least, people's BATNA is affected by local opportunities as well as remote ones.
> The BATNA of both is the same, because they're competing in the same global market.
The BATNA is different. The SF-based engineer can choose from a remote job or one in SF. The Delhi-based engineer can choose from a remote job or one in Delhi.
If the BATNA for both were the same, then you wouldn't be able to hire an engineer in Delhi for less than 80k USD (or whatever today's entry level engineer salary is in SF). But you can. This proves the BATNA is not the same.
We might want the BATNA to be the same. But today it is not. As a result, market conditions don't require companies to use the same pay grades everywhere.
When I lived in China, I worked for two different FANG companies (in Beijing and Shanghai). In both cases, the compensation bands for folks in China wasn't the same as those in the US West Coast. My total compensation was lower than I would have accepted had I been based in the US. But it was reasonable compared with the other options available to me without needing to move out of China. So neither company had an incentive to pay me more.
Plumbers charge more in SF than in rural Idaho.
A plumber that moves from Idaho to SF starts charging more because 1) they need to to compensate for the high cost of living and 2) to keep up with market rates.
SF would have no plumbers if they all thought it was immoral to charge more than their counterparts in Idaho for the same work.
And SF would collapse economically if all salaries in all industries across the city were suddenly paid based on a national average, independent of cost of living.
If this hypothetical plumber had a hypothetical way of traveling to SF for very little money and time, and would hence be able to charge much less than the local plumber, while having the exact same skills, which would you choose, and how much would you pay? If this hypothetical plumber now moved to SF for [reasons], would you pay more for his exact same service?
HCOL: High Cost of Living.
For the poor minds like me outside of San Francisco.
I agree, as a resident of Gold and Diamond Castles Avenue.