1. The Fundamental Message Is Terrible.
I'm not going to build up here and just go with what I think is the biggest concern. When a company adjusts pay based on a remote employee's location, what they explicitly saying is that "Your compensation is not based solely on the value you bring to the company." Think about that for a second. Two employees who generate the same value for the company, are paid different rates, simple because of where they are.
"But wait Sam! They just want employees to have the same quality of life!" Well...
2. The "Quality of Life" Argument is also BS.
You can't enforce an equal quality of life by scaling pay, because cost of living is a function of quality of life. Places like San Francisco and Miami are more expensive because demand is higher. Demand is higher because people think they are better places to live.
Does anyone honestly think that a studio apartment in Palo Alto is the same quality of life as a studio apartment in Sheldon, Iowa? There are so many factors at work here they go beyond living space (cost of rent is one of the most popular inputs to cost of living pay calculators). That apartment in the bay area has great weather, it's above a fun little Thai fusion dive bar, and within walking (or public transport) distance to some of the worlds largest tech conferences and meetups. Meanwhile, an employee in Iowa has to drive an hour for a P.F. Chang's and has to wake up 5am to shovel his driveway 5 months out of the year to get his kid to school. That's why he gets four bedrooms and a boat (which again, he can only use half of the year).
3. It's Legally Dangerous.
Diversity and inclusion are one of the top (if not THE top) priorities for many tech companies and rightly so. It goes without saying that none of these companies would ever dream of scaling pay based on race. But it's well understood that zip code is a proxy for race. It wouldn't be hard for a civil rights attorney to overlay a map of racial distribution with a map of cost of living and see what lines up. This represents a HUGE HR risk.
Does any company really want to try explain to an employee that he makes less than his peer who happened to inherit a home in an affluent city from a grandparent that the pay difference isn't a consequence of privilege?
4. It's Game-able
Humans are smart. Post office boxes are real things. Many people live full time out of campers, or hop from AirBnB to AirBnB. Now it's HR responsibility to check up on employees constantly, "I see you have a lot of photos from Utah on your facebook... do you really live in Soma?"
5. It Goes Against The Essence of Remote Working, In The Most Greedy Way.
The entire point of remote work, or remote first companies (like GitLab, who scale pay based on cost of living.) is that where you are doesn't matter... Except it suddenly does when it can save the company some money. Note that many of these Silicon valley startups and tech giants have founders and C-level executives who just happen to live in these high cost of living places.
6. "It shouldn't just be about the money!"
It's been said by some that employees who are focused solely on the monetary compensation aren't a good fit, and they should care about the work they do and the people they work with and the company culture they're a part of.
All true, but that doesn't mean employees that like their job, colleagues, and company deserve to get paid any less than employees that are just in it for the money.
7. It can punish people who are already disadvantaged.
Consider two engineers at the same level in an organization, one a single male who lives in a small apartment in the center of a bustling metropolis. One, a recently divorced mother of two who finds her self unable to afford her downtown condo. She needs to move to a more affordable place and not just for housing, there's things like childcare to consider as well. She finds a small town with great schools and affordable housing, and what is the outcome of a cost of living "Fair to all employees" system? She gets a pay-cut on top of the all the new hardships she has to deal with.
The whole reason people move to lower cost of living areas is to make their money go farther, and this isn't always a personal choice, sometimes it's out of necessity.
8. These pay differences compound.
It's very easy to say "Rent costs twice as much in city B, so employees in City B make twice as much" and think that's even. But so many parts of a standard compensation package are based on this base salary. Bonus calculations are often a percentage of base salary. 401k or IRA contributions are a percentage of base salary. Raises (which compound annually) are almost always done by percentage.
Top comments (68)
This! So much this! But it not only affects remote workers within the US, it also affects international remote workers.
I live in Mexico City, where developer salaries are really low. It is the worst when a company wants to hire a remote worker from here, and offers only to pay based on cost of living, or local market rates.
I know of a lot of developers from Mexico that work remotely for US or European companies that do pay well (I'm lucky enough to be in that group), but there are also a lot of companies that get away with paying very little, just because it is a higher salary than what they would get in the local market.
For reference, a Ruby on Rails developer would get between $800, and $2000 per month depending on experience, and the company. Foreign companies could get away with paying just a bit above that.
But when you hear a developer in the US, with very similar education, experience, and skills makes 4 or even 6 times that amount, and the cost of living is only 1.5 times higher, you immediately feel undervalued.
I understand the need to adjust salary a bit to local market, but getting greedy and wanting to exploit a market that is still very undervalued, is just wrong.
I am glad that there are companies like Basecamp that pay all their remote workers based on Bay Area salaries (even the international ones). They set an amazing example.
And others like Buffer have a publicly accessible salary calculator, so you can see how your potential salary could look like. They still apply reductions based on where you live, but these reductions are not that high (it could be better, though).
My point is, if you are an international remote worker, know what your work is worth and fight for the salary you deserve.
Feeling your pain over here. Last year I worked for three months with an European startup, they paid me around 300 euros per month. It was a Java project, involving Spring, microservices and the whole shebang. 300 euros it's a lot of money in my country but they won't get an European or American developer to get out of bed for that amount. I knew it, they knew it, I needed the money, end of story.
I know that feel. And your are lucky for working in a foreign company. I live in Yucatan, and the average salary here is not more than 600 usd / month. I luckyly work remote too, but for a local agency in Mexico City.
I think the cost of living in Bay Area or worst in San Francisco is not just 1.5 time the one of mexico. Education is very expensive as well as real estate. If you come working alone with 2 childs and sell you home in mexico for one in SF, you'll see it isn't just 1.5 time more.
Oh, I was never talking about SF, when I mentioned the 1.5 times increase in cost of living. I was talking about Smalltown, USA. @sam_ferree mentions Iowa, as an example. I'm doing the same.
Salaries in the Bay Area are crazy high, because cost of living is also crazy high. That was never in question.
You are thinking about this wrongly. Employees are not paid by how much value they add to the company. Employees are paid by how rare their skills are in the marketplace, and also how in-demand their skills are. If your skills are rare and in-demand, you get paid well. You get paid badly if your skills are abundant in the marketplace or not in-demand.
So if the job can be done remotely, existing on-premises and remote employees are competing with everyone in the world who can do that job - they are competing on skills and price. And obviously someone who is in somewhere cheaper to live can still afford to take a job at $75,000 whereas someone who is in San Fran might want to be paid $100,000 for (because they have higher living costs).
You are forgetting the job market IS A market. Companies will pay the minimum that they can get away with.
I'm not saying I agree or like it. But you have to see that the world is one big marketplace for employees if your job can be done remotely. Take to the streets and demonstrate, unionise, protest if you want.
But don't think about it wrongly - you aren't paid according to your value to the company, you are paid according to the minimum the company can get away with to get the skills they need.
I assure you friend, you'll find quite hard to find a bigger fan of free enterprise capitalism than me. I understand completely what's going on here, but that doesn't mean I don't recognize the difference between what a company can do and what a company should do
My point is not to start some revolution whereby this practice is made illegal, I want to raise awareness that this practice is not a "Fair to all employees" system, it is a "Save the company money wherever we can" system, and the appropriate way to fix this is to let remote workers know the shouldn't just tacitly accept it.
Honestly if a company like GitLab came forward and said "Yes, we pay people less where we can to save money" I'm all out of complaints. It's this facade of "fairness" that I find extremely disingenuous an utterly indefensible.
Point taken - the company should be honest about their motivations when introducing a change to cost of living pay schemes and not call it "fair to all employees" and it is right to call them out on this. I stand corrected!
I love this comment thread so much, because of the respect for each other's opinions and kindness in communication! There are so many sites where "don't read the comments" is great advice, and I'm so so glad that The Practical Dev isn't one of them!
I worked for GitLab for 2 and half years. I joined as the 9th employee, and that is exactly what they do. The way their salary calculator works has nothing to do about fairness. It is about how much money can we save by hiring this person in this country. They even have "Compensation Specialists" whose sole purpose is to handle these situations.
They will never say it is that way. They hide a lot of bad culture underneath that whole "we are super open" facade.
Let's be honest we all do it. People buy from china/brazil whatever because of the price. They go in vacations in cheap places/coutries (or even retire there). If you discuss with them they'll say they don't want child labor, people without vacation or social security and so on, that they want to protect local work but they are the first to try to get the most of their money regardless.
An enterprise is exactly the same. There no reason why they should be more ethical than the rest of us. And we can't ask them to be when our own behavior mean that if they don't do it they go bankrupt.
See my response to your previous comment.
Shopping around for the lowest price, and a company policy that says "Screw people who live in poor communities" are not the same thing.
But the policy doesn't say it. You say it. They don't So that the whole difference.
Exactly the same if you buy cheap from country that don't provide decent working conditions. You don't say it, but you do it.
GitLab wrote a whole article that says it:
about.gitlab.com/handbook/people-o...
it's this EXPLICIT policy, I'm against. Not voluntary market negotiations that result in unequal pay.
github is just one actor inside what you call voluntary market negociations.
I mean there no such thing as getting what you want. Both parties have to agree and if they do not, there no contract, if they agree there a contract. But that doesn't mean the company can force people to work for them or that on the contrary they are forced to provide a given level of compensation (outside of local regulation rules).
I work in India, where salaries are very low compared to USA or Europe.
I am just pointing out about the line pertaining to going to cheaper vacations, the truth at least for me is, some of the vacations might end up taking more than half of my yearly salary, which might not even end up as a month for a dev located in USA.
Companies adjust salaries based on what they can negotiate. If remote workers feel the benefit is so valuable, they may tend to settle for less pay.
I've been consulting for 20+ years, and much of it has been remote work. When I frame rates, I always offer onsite. But I put the base rate as remote. Then I charge an "onsite premium". As companies are naturally cost minimizing, they will hesitate to use those onsite days. It's all about the framing.
One time years ago I had a customer, which was based on the west coast. I'm in New York. But they had some on-premise work, and some was in the midwest, which I was really loathe to travel to. I reached out to a colleague of mine and asked him what to do. He said quote a ridiculous amount of money. They'll say no, problem solved. Then they said yes! LOL. At those rates, I was willing to travel to wisconsin. :)
Moral of the story, it is about negotiating. There is a similar dynamic at play among colleagues. Sometimes salaries are published anonymously, and there is a big stink because people realize they aren't all making the same pay for the same jobs. That's again about negotiating. If a hiring manager can get away with paying one person less than another for a similar role, they will of course do this.
Cost minimizing. It's a natural capitalist behavior. Now how to start acting like a business of one?!?
I get free markets, I love free markets. But, From other replies: āShopping around for the lowest price, and a company policy that says "Screw people who live in poor communities" are not the same thing.ā
Did the employer ask where the person lives? It's like when asked what your past salary is? Never show your poker hand.
It is always about negotiating. Some people's approach is, I'll just share my whole story, and everyone will be fair. It just doesn't work that way.
Even if you didnāt have to put it on like 15 HR forms, some companies like GitLab even make you tell them when you move...
To your point, see #4 āItās game-ableā
Use a pobox. Corps do it with delaware companies. Negotiating salaries is absolutely a game of poker. And a high stakes one at that.
For me I work 5-10 projects per year, so in 20 years I've worked 150-200. So I have a lot of opportunities to experiment. If you work 3-5 jobs in 20 years, you have less chance to test the market. So it's even more important to get it right. It's like locking in interest rates, it's worth your time to get .2 or .3 points because you hold that rate for so long.
I've seen friends get 1-2 offers and then just take the first one they like. To me that's crazy. Imagine selling your house and you take the first offer. You would then wonder, maybe the price was too low! So too with salaries. If you wait for 10 offers, one of them will be 10-20% higher. It's just a numbers game.
THIS!!!! I'm so glad you mentioned the race/zip code thing.
Also:
My cost of living isn't just where I live. It's my student loans. It's paying off the high interest debt I went into while learning to code, attending a bootcamp in NYC, and looking for a job for 7 months. It's coming from a lower income family, helping my mom pay the rent, and being the go-to person for emergencies, given that I'm the highest earner in my family by far.
Someone else's cost of living might involve having kids, or a health problem/disability, or taking care of an elder.
Just pay people what they're worth!
Omg THIS!!!
There's a reason military personnel who are at their 20yr mark try to ensure that they retire while stationed someplace like DC.
While I can understand a degree of distance-sensitive salary-scaling, it really only seems justifiable if the company is paying for everything involved in the inevitable "mothership" trips. Even there, it only makes sense if the aggregated mothership trip-costs exceed the delta in raw pay.
When you factor in (now) traditional retirement planning, it really becomes bogus. "Ok, you cut my salary because I moved, but now, in order to max my 401(k), I need to set aside 15% of that reduced salary vice the 9% of my salary when I was in the more expensive market."
Plus, how many companies that do location-aware compensation will scale it upwards if the job is notionally located in a market that is 80% the cost-of-living of where the candidate actually lives?
It's truly shocking to me how all these great points can be made, and companies still do this and insist it's "Fair to all employees"
Personally, I've never heard of company that does location based pay that isn't based in the Bay Area, so I don't even know where to check to see if I can find a company that will upscale your pay.
If the government counts as a company, they most definitely do. Though, in fairness, they do scale in both directions.
There have been a few that I've encountered - but never worked for - that toyed with location-scaled salaries. However they were pretty much all located in high labor-cost markets. And they pretty much all tried to use it as a method of reducing salaries of the remote workers.
I don't really think it's unfair. Of course given that any employee is allowed to relocate anywhere else and have their salaries re-adjusted.
Saying everybody is allowed to relocate is just another BS that goes along with these sick capitalist premises. I can think of multiple scenarios when someone just can't move out, most importantly including family.
Can we avoid defining location as some binary between "Expensive Metropolis of Awesomeness" and "Cheap Craphole of Nothingness"? There are a whole range of places to live that are not cornfields but have a lot of culture and great COL. For example, I'm in Lafayette, Louisiana. We have a populate a bit over 125k. We've had fiber as an internet option for a few years now and I've currently got a gig up and down. We have great culture, great food, a university in the city with a great comp sci department. And nope - I don't live in a swamp.
He is hitting the "flyover country" concept a bit too hard while still making a good point.
As a fellow remote employee, I feel ya. However, pay is often first and foremost determined by market rates. What could you get paid by other companies if you worked locally? That's the market rate for you.
Granted, nothing says a company has to follow that logic, but it kinda makes sense from a fiscal responsibility point of view.
Further, I think (and maybe more so hope) that our industry is waking up that people don't need to be local more and more. That will make the market rates more global, or at least national, so employers will have to compete across the board, not just based on locality.
And lastly, if you feel you are underpaid, go get another offer to prove it. I never met a company (who valued the employee) that is not willing to increase based on real market evidence they are paying too little. Unless they just can't afford it, of course. You could also just bring it up as a concern, first. Sometimes employees don't realize that just making their concerns known can change things.
I'm about as pro-free enterprise capitalism as they come. I have zero problem with private, consensual salary negotiations that result in unequal pay.
I have zero complaints if a company says something like "We like this person, and want to hire them. We have to be responsible with our capital, so here is an offer we think is fair that we also think they will accept"
It's quite another thing to say "This is what your skills are normally worth to us, and some of our engineers at your level who enjoy the wonderful city of San Jose get paid that. You however, live near poor people, for reasons we don't know or even care about, and we want to make sure you fit in with your neighbors, in the name of fairness." which is what a strict COL based pay policy says.
I agree with you, if COL adjustment is the company rationale. If your company is telling you that, then yep, they're off base. I would suspect they are just articulating the situation poorly.
I'm just speaking as a long-time hiring manager of many locations around the world. You hire at the local market rate.
Most companies I've worked for don't pay based on "value"; they pay based on what X role is paid in Y market. It really is supply-demand economics. This is why offshoring "works" (if I may use that term loosely).
I wonder what you, as a hiring manager, would say what my rate would be. (Not a challenge or anything, just as a thought exercise)
The position is Senior Ruby Developer for a company based in Colorado. They are looking for someone with 4 years experience with Ruby and anything Rails related.
I have 5 years experience with Ruby, and I have been a Senior Dev for 1.5 years. I studied CS in Germany, worked for GitLab for 2.5 years.
I live in Mexico City. What would be your first offer?
(I wonder how close, or not, you come to what Iām actually getting paid right now at my current job)
Hi Patricio, if I were hiring in Mexico City, I'd do my best to research prevailing market rates there. Barring anything else, job listings are not a bad place to start. In the U.S., there are research companies who find out directly from companies' HR how much they pay for X role. They collate this by various factors, including area, and some companies (one I have worked for) pay for this information--because it is more reliable than job listings and public salary surveys (which are also not terrible sources).
I have never hired in Mexico City, so I couldn't say what your role is worth. Sorry. If you're honestly wondering, you could do the research. Another good source is recruiters because they are placing people and get a commission, so they know what the going rates are in their areas usually.
P.S. I say "I" above, only in the context of working as a hiring manager for a company who did not have some other pay philosophy. I know there are definitely companies that pay the same no matter where you live, for instance. As we move towards more remote work, I think the notion of market rates expand to be more national/global, which is good for us.
P.P.S. I've also seen the inverse, where a company pays based on what they, regardless of market, think it is worth to them. What I saw then was it was below market, so for us, I think market-based pay (for the foreseeable future) works in our favor, over the idea of value-based pay.
I've done my research on this already. In my initial comment you can see the rates that I have come across. (between $800 and $2000 per month depending on experience).
After I left GitLab, I looked for a local job. While negotiating I had to be pretty aggressive to get an offer that is for less than half of what I make today. Both positions were very similar, Senior Ruby Dev, with similar experience necessary.
An acquaintance of mine is a recruiter (DonChambitas for those in the region). He works with a lot of companies and knows the market extremely well, not only in Mexico City, but in the entire country. He has worked with big companies as well as start ups. The overall pattern is that the market here in Mexico pays way too little for what the work is actually worth.
For the Spanish speakers here, you can see a survey performed by Software Guru magazine about tech salaries for 2017 here: sg.com.mx/buzz/reporte-salarios-y-...
This is only exacerbated by the fact that some of these companies (listed above like iTexico) are near-shore companies. This means that they do outsourcing work for US companies. They charge their customers regular US rates per developer, but then only pay the people doing the actual work lousy salaries and they make an obscene profit on that.
They are selling your work for what it's actually worth, but you are only getting market rates. This is why I hate the idea of basing salaries on local market rates.
Sorry, I did not see your other post.
FWIW, I don't think that's fair--particularly the imbalance between near-shoring rates vs. your local rates. It's odd, because it seems like the main reason to off/near shore is to save $$, so if they charge US rates, not sure why companies here would use them.
Anyhow, for the record, I would much prefer the same-rate-regardless-of-locale approach. My comments here are only to provide rationale for why companies don't do that, and why they're not likely to, until/if remote work becomes more of a norm (and thus the regional market becomes less of a thing).
And in general, I think developers, no matter where they live, are undervalued for what they do. It is one of the most highly-skilled, volatile-knowledge jobs in the world. But we're all up against market forces that work against being paid by value.
The near-shoring companies do charge a bit less, but the difference is negligible, specially compared to what the developer ends up getting. The major attraction factor these companies have is that they can supply you with experienced developers, located in your timezone that speak good english. So you can go from a team of 5 to a team of 25 in just a week, without having to vet the candidates yourself. That is why they can charge pretty close to what the 20 extra developers would cost them in net salary (they save in acquisition costs, training, hiring, etc. so the deal is still pretty sweet for them).
Thank you for the insights š
That makes 2 of us š
Become a freelancer and charge what you are worth based on things like supply and demand and your abilities. It's less risky for the companies buying your services and you'll be able to charge exactly what you are worth in the market, which will be typically a lot more than your salaried colleagues get for essentially the same work. On top of that you get this weird dynamic where external contractors tend to have a lot of authority relative to employees. And best of all your only relation with HR is making them pay your invoices.
If you are thinking about job security, be aware that in many places things are not that secure. My understanding in especially the US is that your employer can end your job at will for pretty much any reason at any time with little or no risk. So if you are doing work for an employer that does not properly value what you are doing, maybe it is time to reconsider that relation.
I typically charge a lot more for showing up on remote sites. It's inconvenient for me and travel + hotels + restaurants just cost money. So if the customer wants me on site, that will cost them. It kind of reverses the logic of working remotely. If my customers believe that they can get a better deal from somebody else, I encourage them to take it. No hard feelings. The reality is that many companies prefer to have people on site; which forces them to hire locally, which in some areas is beyond ridiculously expensive.
Even in places that don't have at-will lots will treat it like it is. Be aware of your rights.
It only add additional reasons as to contract and to trust those who are trustworthy on the employment front. Do your due diligence.
I also like your comment to not take it personal. I try my best not to as it's business. We all try to work together for the best outcomes and sometimes the correct answer or best answer is moving on company or employee or contractor or contract or what have you.
The fact that humans game all systems is so overlooked. We are so hardwired to optimize that we always find the equilibrium.
I suppose it is worth noting that employees can game a value based compensation system by creating more value...
I think, to make this argument, you need to offer a solution to the inverse: If a company is based in Iowa, and you live in SF, then I assume you don't want them to pay everyone Iowa rates, because you couldn't afford your rent. What should they do about that? Seems to me the answer is: cost of living adjustment.
Companies in he Midwest already do this and I have no problem with it. Remember one of my points is that SF is so expensive because people consider it a better place to live. People living their value the cities amenities over the affordability of say, Iowa.
I think companies should pay people what they think the candidate will accept, that the company thinks is a responsible use of their companies capital. If that means employees in the Midwest are willing to accept less, then thatās those employees choice. I donāt think companies should have an explicit policy that discriminates by zip code.
A bit confused, are you saying that companies in the midwest already pay midwest prices regardless of where you live, or that they already offer cost of living adjustment?
Pay their local rates. I dislike the term "Cost of living adjustment", since it implies some people need more money to be compensated equally (See above. a studio in Palo Alto and a studio in Kanses are not the same quality of life. SF is a very desirable place to live for a practically uncountable number of reasons. That's why a guy surrounded by corn, paid equally gets 4 bedrooms and a boat. Part of why I think companies that pay CoL invite a coastal urban monoculture.)
For a while, I think it was basecamp, paid Chicago rates no matter where the employee was located. If it was basecamp, they now pay SF rates globally, despite not having a single employee in the bay area.
I think you would be very hard to find a midwest based company, that paid bay area rates for a remote developer.
There are some companies that have offices in the midwest, but HQ'd in coastal urban locations, and they tend to pay more than a local company would pay, but that's not entirely the same as remote work.
My whole thing (since I know it seems contradictory at times): Companies are going to (and have the right to) offer whatever they think is best use of their capital. Employees are going to accept whatever they feel is worth their time. If a company knows it can pay a rural engineer less than one in Cupertino, and they offer less because of that, that's just the reality of supply and demand....
However, I'm calling BS on an explicit policy of "You live next to poor people, and we want you to fit in." Even when a company like GitLab admits it's all about saving them money (Their official document on pay says something to the effect of "all things equal, we will pick the candidate living in the lower pay area") Then I'm still calling BS on that company culture, which is hiring the people because they're the right price, not because they're right fit.