Ask HN: Should a remote employee’s salary be tied to their physical location? This debate has come up at my place of work recently: Should the area where someone lives impact their salary if they are working as a remote employee? Should someone be paid less if they move to an area with a lower cost of living, even if they started in an area where they were making a higher salary? |
If its an 8 hour workday, being able to make hypothetical emergency briefings at the office within 2 hours with no/short notice may be worth a 25% salary hike.
Its the new remote first companies that will exclusively hire for skill and balance the equation once the next wave gains more traction.
I think learning to negotiate is second to selling something which you have multiple buyers to choose from and few competing sellers. If that’s not the case, you won’t be able to negotiate in the first place, and you need to figure out something else to sell.
Also, there are trade-offs to where one lives.
I probably don't need to list the up and downsides of urban living to this audience, but living in a rural area, you:
- Definitely can't get by without a vehicle, if you live some distance from a city
- Fuel for that vehicle
- Goods and services tend to cost more
- Less convenient access to museums, parks, gyms, etc.
- Often more money is needed to maintain real estate.
But if you're not able to account for all these factors, why not determine what an employee at a given level is worth to the company, and pay that amount to anybody who can successfully communicate & do the work, regardless of their circumstances or physical attributes?
If I move from nowhere, KS to NYC or SF, should my salary quadruple (or more)?
Hmm, if so, how hard would it be to game the system and only make it look like you moved to an area with a high CoL?
Should employees be thought of differently?
My answer is No, they should not have to take a pay cut based on location.
Another thought, if you do cut their salary, what does that do to loyalty and retention? Will you be paying more in the end to replace good people?
If location was the only factor that changed then I would a agree that the companies monetary exchange for work value should be the same. It's very rare that when making a move like this that location will be the only factor that changed.
When a person moves, what other factors are effecting the company which justified the reduced salary?
If someone did that to me, is be looking for new work while grumbling doing old work. So if you do this and lose the employee, does it actually cost the company more?
Assume the company pays the same irrespective of location.
Should an employee in SF or NY have a lower standard of living compared to an engineer who lives in a low COL area?
Sounds good to me. I'd be a retired millionaire at age 30 something if any of the companies I've worked for (remotely or otherwise) followed that logic.
Example: I found the correct root causes of failures in an aerospace product within months. The company's own R&D team had been trying different "fixes" that weren't fixes for at least 5 years. They had spent 1 million EUR in R&D material cost alone (not counting engineering time cost). They lost multiple clients to competitors (> 15 years contracts worth millions per client) due to the malfunctioning product. After I came through the problem was fixed, tested, confirmed to be fixed and implemented within months.
And that's an example of one project of a few months for one of my clients.
hmmm. Maybe I should start charging differently. :D
If you somehow save the company (provably), do you get to own the company? Likely not, although most of the lower employees probably would vote for that if it meant they kept their job vs. the company dissolving.
But companies can do this too: "If we hire you and you make a simple mistake and leak our database or something, do we get to charge you millions in potential damages?" At some point it goes to a court.
Maybe you just have to get adversarial and say "I can save you tens of millions and you should give me a million dollar bonus if it works, but if the bonus is not in writing, I won't give it to you".
How do you know what value the companies would assign to those factors?
Nobody does this. It's not even possible apart from the most contrived cases. Salary is determined by a number of factors none of which have anything to do with the employee's worth to the company.
This is hyperbole, right?
>why not determine what an employee at a given level is worth to the company, and pay that amount to anybody
Because the same salary may be worth the same amount to the company paying it, but it is not worth the same amount to different people receiving it. Among two equally valuable people, one may accept and one may decline due to salary's differing value to them based on environmental factors. This is obvious to businesses, and is generally accounted for (fairly or unfairly).
Especially in a bigger company, where the work you do is tied to so many others' work in the company (sales, etc) - how do you expect them to figure out what the value of the work you did is, vs your teammates, let alone vs all the non-SW folks involved?
Example: You could have done a great job, but someone further down the pipeline screwed things up and the product never got released, and your code is never reused. This is a case where your work produced no value to the company (through no fault of your own). Should you get paid $0?
In case you're fixing an existing problem, the cost of the problem is often roughly known (like in my example). Lost clients due to the specific bug, current clients threatening to leave, sunken/running R&D costs without a solution, missed sales/tenders where clients mentioned the bug as a reason, long term damage to the brand, etc. You might be able to roughly extrapolate that into the future.
In case you're working on a new product or general improvement it can be impossible to measure how much your contribution was worth.
Hence, employees/contractors are usually valued by the hour or by the amount of equity they own and not actually by their value to the company.
In some industries it is possible to be valued exactly by the value you saved. A common example that comes to mind: a lawyer who does pro bono work.
Another example in engineering: filing warranty claims for failing (very expensive) products. You could negotiate to get a percentage of every successful claim. I've heard of people making millions that way in aerospace. Apparently companies in aerospace for whatever reason often don't claim warranty when they're entitled too. Keep in mind that large companies in some industries really really don't care about a couple of deci-millions here and there because their turnover is in the billions and they have "better things to do" :D
The value often depends on the customer's location. Or do you think, e.g., Photoshop provides the same value to a photographers in New York and Cairo?
Additionally, moving also usually accompanies lifestyle changes as well. Is the timezones the same as other, will collaboration be the same as it was before? If travel is required will they still have the same access to do so? Will internet access be the same or stable as before?
There are many factors, perhaps the only change is the physical location and everything else is equal but it's almost needs to be determined on a case by case basis.
In SF/Seattle, if they do not add the COL multiplier, your wages are low enough, that you might reject the offer. On the other hand, it is quite unlikely for a person to able to find another competitive offer, even if their salary is significantly lower than their colleague who make less.
At an ideological level, this poses a much bigger question. Are employees paid a proportional amount to the value they bring to their organization ?
I would say no. I do not believe every talented European is 40% as capable as the average developer in the US. I do not believe that the same software engineer that made $10k in India, suddenly brings 10x as much value due to a 1 year masters, once they move to the US.
Everything points towards companies historically paying employees not the salary they deserve, but the salary they will accept. As long as remote employees continue accepting these lower salaries, they will continue to be paid lower salaries.
It is a chicken and egg problem, in that sense.
Exactly.
The salaries in some countries (e.g. India) are so low that it befuddles me. In smaller cities in India, software engineers actually make closer to around $4K a year, and new grads with no experience start at around $2.5K a year.
Compare that to the new grad pay rate of $180K+ at Google. Also, a close friend of mine at Google makes over $400K.
In some cases, the pay gap is literally 100X. E.g. in the US, it's $400K, and in India, it's $4K.
Why?
This pay gap makes no sense.
And, you're right. As soon as the same dev from India comes over to the US (and gets a Master's or directly comes on an H1B), their pay goes from $4K to $200K. (Another friend of mine moved here from India, and is making over $200K now.)
Why are salaries so far apart, even with all the tech we have today? Doing remote work over the Internet is so easy.
Makes no sense..
My friends in Google India on the other hand make close to $50K/yr. My friends in Google MTV make $200K/yr. So the difference is 4x, not 100x.
I've struggled with the answer to this myself as well.
For some reason people leading companies decided that they want their employees to sit in an office. Even when there's 0 reason for it.
The best explanation I can come up with is plain old stubbornness with a hint of craving for human connection. The madness of crowds: everybody does it this way, so it must be the only way.
As a contractor I offer clients a 30 % discount on my hourly rate if they let me work remotely. Which is always possible. None of them care about the discount.
In the case of my clients most decision makers are around pension-age. The CEO at the last company I worked at didn't know what the possibilities of a VPN where until the pandemic hit. They didn't have the bandwidth capacity to let people work from home, because they had refused to pay a few thousand bucks for a company to lay fiber to the office a few years prior while the road was opened up. "Our internet connection is fine."
This was a tech company building equipment for physics experiments.
Business leaders literally have a hard time imagining the possibilities of the internet in 2020. It's still 1970 for a lot of people.
You hit it on the head. This is exactly what is happening. This is why people job flip every 2 years to increase their salary. Getting good at negotiation is critical if you are job searching.
However not every skillset is tied to local markets. My own job is fairly niche and the hiring pool is on a national level. If I moved to a low COL area my employer would have no leverage to reduce my compensation because they couldn't replace my skillset at that price. But that means the converse is also true. If I moved to a high COL area I would be laughed out of the room if I asked for more money. They could easily replace me for the current price regardless of where I chose to live.
That's not quite it. In SF/Seattle, you'll have either high-paying opportunities you can take instead if you're in software.
Plenty of people who aren't in software live in SF/Seattle and accept very low pay despite the high COL.
Remote workers are easy to replace because you can go all around the world to find someone to do the work. Why pay COL to someone in Mississippi when you can pay much less for someone in India?
I can think of some reasons:
timezone,
because you're looking for someone who can do the job well. That's not "someone in India" at the very least that's someone qualified enough in India (definitely not the same hourly rate),
language/accent/cultural awareness/ease of communication/market awareness (I'm saying this as a non-American non-native English speaker),
availability of high quality tools in house/lab that the Indian counterpart can't get his hands on,
And so on.
PS: the low COL world is larger than India. There are options such as (Eastern) Europe that are full of highly educated tech people without jobs and... well.. the rest of the world? Why always India?
I sometimes wonder if I worked for a company that was fixated on cost-of-living-based salaries, and I decided to move up to Aspen (high CoL, but low demand for software engineers) if I would get a commensurate increase in pay. I'm guessing probably not. ;)
This seems to be true insofar as companies can’t collude, either implicitly or explicitly, to suppress remote wages.
If someone wants to spend part of their compensation on living in a nice area, fine. But if someone else would rather take that compensation and live in a lower CoL area then let them.
Regardless, there's always going to be a premium on in-person talent.
Obviously SV companies offer high salaries because they want to attract people to work on-location, which means they'd have to live nearby, in a high-CoL area. If the job was made remote with the same salary offer, there would be so many candidates, that it would make sense to lower the salary offer, like in any supply-demand problem...
It's been my experience that if you don't offer higher salaries to folks living in high cost areas, they simply won't come work for you.
My guess is that over time as remote work becomes more common, the cost of living differentials between places (at least in the US) will start to flatten, though it may take quite some time.
But for remote work, ie work that can be done anywhere at the discretion of the employee, why should there be any connection?
As it happens, this would create an incentive for employees to move to cheaper locations, and thus alleviate pressure on the housing market in the most expensive locales, and raise salaries in cheaper parts of the world.
Arbitrage tends to reduce differences/inequalities, in this specific case as well as in general.
Obviously not, and if you don't do it in that scenario, you don't do it in any scenario.
For reference, we're entirely distributed, no offices.
What will be the effect on the local economy and society, when a junior programmer right out of university will earn more than critical services to society?
So no, they shouldn't adjust downwards for that family of reasons either.
I can definitely _see_ how one could make that argument. In some cases there is absolutely value that comes from in-person interaction. I'd argue it's far less than the salary difference between someone in Little Rock, AR and the Bay Area, though.
If an employer wants to make the case that there's value to in-person interaction, I don't think that's particularly outlandish, and it forces them to put a number on how much they value those interactions, which can then be benchmarked and tested.
So let's say salary didn't get tied to physical location. What's then stopping employers from moving headquarters to Bangladesh and then announcing everyone gets a pay cut? What happens with taxes and the social services funded by those taxes if suddenly everyone's incomes are dictated by how cheap a salary baseline a company can find worldwide?
Now, we all know what you're thinking. Obviously what you want is to work for FAANG and make FAANG salaries, but live somewhere cheap to end up with more money in your pocket. However, you need to realize that in order for this to work, it needs to be an exception to the rule. If the default is that everyone gets to do it, then you can bet companies will get in on the loopholes and screw you over big time.
So, should a remote employee's salary be tied to their physical location? Yes, they should (and they are). But not because it's better for everyone, but because the world isn't fair and you are proposing that you want a world where you can take advantage of its unfairness.
Who gets what share of that surplus value from the transaction is a negotiation. Arguments about what's fair and other normative statements are definitely an effective way to influence those negotiations.
If an employee does something to earn a company a lot more money, they're not automatically entitled to that additional income, but they have a lot more room to negotiate their compensation. The same goes for assumed changes in an employee's reserve price.
Even from a purely self-serving perspective, it is worth considering that offending employees or colleagues is liable to change morale and output before they leave. Additionally, the rising acceptance of remote work doesn't just mean that there are new considerations about living expenses, it means that companies aren't just competing with local companies for talent. That star employee who has just moved to a cabin in the woods could very well have more options in 2020 than they did in 2019.
Try it. Maybe they'll stick around. Maybe they'll stick around and be disgruntled. Maybe they'll leave and find another job that isn't trying to cut their pay
Just let it happen and see what the attractor becomes for this large, dynamical system.
Company A that keeps paying SF level pay competing against Company B that lowers its payroll costs might be at a disadvantage if it can’t price products low enough to compete with company B.
Of course that depends how interchangeable products from company A and B are, but obviously for things like clothing, plastic products, and electronics, US companies could not afford to be competitive while paying US wages.
So far, software companies have been spared this international competition due to the lack of similar quality products from elsewhere, but that doesn’t need to be true forever.
I think the problem with this stance is that "this large, dynamical system" actually determines whether people have food to eat. Playing experiments with the labour market is extremely unethical in my opinion.
If a company wants to attract talent in an area with a lot of competition it has to raise its salary offers. And rent goes up in the same way.
So no, it's fair (in some sense) to offer people different salaries based on their location (when work was on site) but that's part of the personal negotiations that take their other options (or lack there of) into account, but it's not some kind of automatic compensation you can demand or expect and with remote work its becoming more and more irrelevant.
One way to define it is, "Do employees like it?"
If you accept the premise that markets are good at finding optimal prices where "optimal" means "greatest aggregate satisfaction of all participants", and you believe that the job market is relatively efficient, then it means you can trust the job market to answer your "should" question for you.
(It's OK to not accept these premises, of course, or to partially accept them. Personally, I think the job market is somewhat efficient. There are lots of both buyers and sellers. There is a fair amount of information available to all participants. However, switching costs are pretty high, which artificially disincentivizes job hopping.)
You might assume that employees would not like it because they'll get paid less in a cheaper area. But employees in more expensive areas will get paid correspondingly more. And, if your goal is to maximize total happiness across all employees, you'll probably find that yes, it makes sense for salary to vary based on cost of living.
Another definition is "Is it good for society?" In other words, what incentives does this choice create, and do we like the consequences of incentivizing that?
Salaries that do not take cost of living into account are essentially pay raises for living some place cheaper and pay cuts for living some place more expensive. That incentivizes people to move to cheaper areas.
That could be a good thing for the US. Ever since our ag industry automated and our manufacturing industry moved overseas, we have lost most of the forces pulling people towards smaller cities. The result is an increasing concentration in a few metro areas not designed to handle that population. This in turn creates a bunch of knock-on effects: greater homelessness, greater economic sorting where people rarely interact with people outside of their economic level, and increasingly painful commutes for lower income people.
An incentive to mitigate that and encourage Americans to move out of the big cities could be a good thing.
Let's take that latter point as an example. Health care plans differ per state and you are usually better off having your health care plan be from the state you are living in. At all the companies I've worked at, the plan is usually from the state where they have their HQ and subsequently, most employees. If you live in a branch office, that means your plan isn't as useful to you (this actually factored into comparing similar offers to me recently).
Now an employee moving knows the risk and how this will affect their coverage. For a company to adjust their salary based on where they live, how will they take this into account? Are they going to do a per-state/per-city level analysis of say, how their provider network coverage differs? Then pay you more if your coverage is worse off?
I'm not a risk taker, but I'd be willing to bet that most debates won't take something like this into account. However, this and many other factors matter a lot in determining what is considered "fair" compensation for a given area. If the premise of what a fair adjustment is cannot be established, then I believe that this isn't even a debate because the hypothetical reduces to, "what excuse can we use to cut someone's pay?"
In the predictive sense, if a company can hire a remote employee to do a job for $X per year, or a different remote employee to do the job equally well for $0.9X per year, the rational economic choice is to prefer the lower paid employee.
In the normative sense, the employee is selling their ideas and labor. Those things don’t change in value when they move, at least not within the same time zone. So, if you’re selling your labor and ideas in one location vs another in the same time zone, you “should” get the same no matter what.
We all know which of these scenarios actually happens in real life, and it’s because the power disparity between employee and employer is so skewed in favor of the employer. And, as I’ve alluded to, time zone can change things, because having an employee whose normal work hours allow them to respond to incidents that would be happening in the middle of the night can be valuable. Conversely, if a company depends on synchronous communication, having work shifts overlap is valuable.
If not then it is a cargo-culted antipattern because of the deadly words "That is always the way it was done." You would fundamentally wind up squandering money and talent by overpaying high CoL without the benefits of the location and losing comparable talents from a low CoL by showing them you don't value them.
The more important question is this: suppose we live in a world where all remote employees make essentially the same. Why wouldn't an employer simply choose to pay the absolute bottom rate salary for an employee living in the absolute cheapest possible location and not pay more for people living in significantly more expensive locales?
It can also be very enlightening to look at the US Government GS Pay schedule, which sets a base salary at specific employment levels, then has a page of secondary schedules with "locality pay differences" depending on location. For example, a USG in NYC makes about 34% more than the base salary for living in Podunk, Mississippi.
It is counter-intuitive, but I actually think everyone benefits from super high salaries in coastal cities, as it makes the benchmark rather high and thus even non-coastal employees benefit from a high expectation of a ‘proper’ salary. In other words, I’d FAANG were paying devs $50,000 a year in SF, there’d be zero chance that a dev in Iowa or Missouri would be making anywhere close to that.
There’s no good reason to hire from HCOL areas over others now so there’s no real reason for companies to pay extra.
I agree that work and location will be decoupled for information workers, because the modern world is going that way. Its just something we'll have to adapt to.
That's why I said "essentially". :) Compared to the alternative where salaries are location independent, it functions as a change in salary.
> Given folks can live where they like
Switching costs for moving are relatively low for young, healthy, childless renters, but are much higher for many others. Not wanting to move away from family (who may also be providing free childcare for you), not wanting to move away from close friends (who studies repeatedly show are critical for mental health), not wanting to disrupt your child's or partner's education, needing to find a buyer for your old house, finding a new house to buy, being underwater on your loan, not wanting to change doctors while in the middle of a long-term or chronic illness, having a hobby or passion that is highly location dependent, etc.
Moving is hard. Anyone who thinks it isn't likely hasn't put down roots enough to realize the benefits that accrue from not moving.
Look at collectible cars or houses high demand areas. People are going to pay above asking price.
I think the same is true of very talented individuals. I was seeing compensation figures of 1M+ for C++ developers that can design high speed trading systems last year. I think AI researchers are able command higher compensation due to the lack of supply.
I'm guessing he's L3? SWE L3 averages 180K in Google.
My friend at Google is SWE L5 (which averages 350k), but he's at closer to 400K because Google's stock price appreciated considerably since he joined.
> Google India on the other hand make close to $50K/yr
Regardless, $50K in India is actually quite high. Many, many large US tech companies are happy to pay peanuts. The average for a large tech company is probably between around $10K/yr to $20k/yr USD, which in my opinion is horrifically abysmal. (Not to mention, I know of companies that hire people in India's neighbor Pakistan, and they are paying them around $400 USD per month, i.e. less than $5K/yr.)
The numbers are frankly quite absurdly low.
Living where you can't afford/don't have a job is not any kind of excuse for not moving. Some of the others - sure I'd like to be near family, but not if I'm going broke.
Strawmen for why-not-to-move are interesting but not statistically so. Most folks can move, especially the younger. There are far more younger folks than old ones.