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?
98 comments
[ 3.2 ms ] story [ 155 ms ] threadShould 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?
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.
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?
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.
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?
This is hyperbole, right?
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
How do you know what value the companies would assign to those factors?
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
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".
>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).
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...
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.
There’s no good reason to hire from HCOL areas over others now so there’s no real reason for companies to pay extra.
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.
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.
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.
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.
So no, they shouldn't adjust downwards for that family of reasons either.
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.
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?
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.
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.
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.
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'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.
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.
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?
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.
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.
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.
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.
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.
Not quite accurate. Proximity and access to other intellectuals, creatives, professionals, etc; as well as any personal differentials in happiness all have an impact on their ideas and labor.
That's (afaik) part of why people congregate in offices and universities (to give two examples).
Although - just as remote work results in "proximity and access" meaning something different now for offices, same goes for remote socializing.
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.
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?
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.