There are many different thoughts around the "right way" to do compensation adjustments in a remote-first world, but 4 years feels like way to long to have to deal with an SF->local pay discrepancy existing within teams.
If someone was to join Brex in 2022, it would feel very weird to learn that their peer on the same team, in the same geographic region, is still getting their SF based comp package, but hasn't lived there in 2 years.
I don't necessarily disagree with it, but I don't know what aspects of the issue companies are actually looking at to decide that geo-based pay is the way to go.
I run a remote-first, remote-only company and we pay everyone based on experience and merit. Not location. If you want to stretch $150k in San Francisco go for it. Good luck having to live with 3 other roommates.
However, if you want to take that same $150k and live like a king in the middle of Kansas that's an option as well. Adjusting someones pay simply because they're logging onto their computer from a different location is perplexingly stupid in a world where people can work from wherever.
Good thing I have neither a board or a CFO.
But to respond directly, I think you're down playing how much of an advantage over paying (as you've put it) can be for acquiring great talent. Great companies are built by great people. Paying them well for the work they're doing regardless of where they live shouldn't be a controversial opinion.
In a post-covid, SaaS based world I just don't see how location matters at all. If I'm in Omaha Nebraska I pay the same amount for an item on Amazon as someone living in downtown San Francisco. The internet flattens.
If you want to reduce your candidate pool by 70 or 80%, by all means, go for it, but there's a clear market reason why folks are paid geographically.
Cripes, US$150k is good money in London and that's a considerably higher cost location than rural Kansas.
One thing it does not flatten is time zone. When two team members have 11 hours difference, their ability to collaborate is very limited. It's reasonable to discount the pay of employees who are too far in time. Alternatively, avoid hiring people outside of +/- 4 hours from the mean (unless they are the best in the world in something).
From a cashflow perspective a lot of "remote first" companies just use cost of living adjustments because, well, it's cheaper and employees are happy to oblige. This the dirty little secret.
Here's the reality - the profitability of a tech company is directly related to the amount of total cost of running the business (duh) and human resources is typically one of the largest (usually at least 40% of the overall revenue on avg in my experience). If the same engineer is working remotely from NY versus Kansas City, their output doesn't change as a result of where they live, so profitability only changes if the company renegotiates their package (their revenue contribution stays constant, so only cost changes the profitability measure).
The only reason the salary is higher in NYC to begin with is that the increase in demand for living in places like NYC is much higher than KC, which is directly correlated (on average) to the quality of talent.
The assumption that top talent is coming from top tier cities has been challenged for the last decade and is only accelerating because of COVID.
My prediction is that there is going to be a convergence of salary values that are location agnostic. The only thing stopping this convergence is information asymmetry (e.g. companies know remote employees are happy to oblige to lower salaries because they lack negotiating acumen/power). This will change.
The alternative, which sounds like a relic, is offer your 150K and a reasonable upward CoL adjustment certain areas. Small enough that someone from a low CoL place wouldn't want to move, but high enough to keep your company competitive in high CoL places. If you have enough labor supply, you many not have an issue, but if you are having trouble finding skilled people and assume that skilled people are unevenly distributed in high-CoL places, it's a reasonable path to go down.
But what happens when your competitors realize this as well? Now you can no longer get the same level of talent in Iowa for $130K, soon it’s $150k, then it goes up again. You aren’t paying for work, you are competing for talent.
I think the market ends up being bifurcated, where working locally in-office gets a premium when it’s worth a premium, but remote pays the same no matter where you are outside of time zone issues.
For many employees without children and especially those who are single, moving areas is not a dealbreaker. For those who save a lot, really you just end up incentivizing them to move to expensive areas.
It's basically based on the model of thinking of "we should pay this employee the minimum it takes for them to work for us" rather than "we should pay this employee what it takes for working for us to be worth it to them"
It makes more sense to lock someone's CTC (cost to company) if they're remote and then let them live anywhere. This allows them to fully realize the remote benefit of being able to live wherever they want. Especially if other companies stick to the old model of adjusting pay based on COL, this makes working remotely in a low COL a better offer at no price difference to the company for someone who is willing to move whichever place is most economically efficient for them.
It also leaves the company open to gaming. If I know I can make significantly more than my peers just by having an address on the bay area I could find a way to get an address while living somewhere else.
How much you are paid depends on how much they have to pay you before you decide to quit. The lowest pay you’ll accept before you decide to quit is based on what you think you can get if you quit. That’s heavily influenced by geography. As geography and job markets become uncoupled compensation will become more uniform regionally and then globally.
Essentially you're minimizing cost by paying the lowest possible local rate, but isn't it just as valid for someone else to maximize quality by paying a competitive rate for the most expensive locale?
Presumably both would be pushed to a middle (location independent) wage because the company minimizing price will (presumably) have issues hiring all bottom-of-the barrel employees, while the company optimizing for quality will have issues paying top dollar when it only provides marginal gains over a high-average wage.
As some other CEOs have chimed in, I'll say that my relatively small startup (6 people, but growing) just pays people what they're valued at, regardless of location or business expenses. I budgeted for those salaries - if someone moved to a cheaper area I wouldn't cut their salaries because their location hasn't changed anything for me. Everyone makes enough to live in the bay area comfortably, which means they'll be just fine elsewhere.
If it's only about the first reason then management will cut salaries as deep as possible, if it's only about the second then they'll keep salaries at the same level and just change the job description. I suspect for most companies final pay scales depend on the weighting of two reasons. A lot of companies will try to have their cake and eat it too with location-based pay, but that approach will neuter the benefits of opening up for remote work, and its efficacy will only degrade further over time.
If I'm hiring a remote team globally, then you are competing against people I can hire anywhere. A great engineer in Brazil could cost...I don't know...$45,000. An engineer with the same exact skill set who lives in California might be $160,000 and one in Chicago might be $110,000.
If an employer paid $160,000 for every employee then they aren't using their capital very efficiently when they could have saved $115,000 on the employee in Brazil and potentially hired two more people for the team.
That said, I think the whole recruitment/interviewing phase of the whole tech world is geared towards local employees and not sure if it can all be moved remote first at any time.
What sucks though is if you started at the same time as another employee in SF, but you are in the SLC office and are stuck on a lower relative pay band for 4 years.
If they linearly interpolated the drop across the next 26*4 biweekly paychecks, would that be better.. or worse?
As well, I don't think that the early employees, who are already golden-handcuff-d (based on the growth in their valuation), are likely to be leaving Brex based solely on their salaries being adjusted if they explicitly choose to move.
Honestly, I think the actual adjustment is likely to be a moot point, at least in the short term. Based on my experience chatting with people at Brex 18-ish months ago, my impression was that everyone there was very much in the "SF-or-bust" camp. Not only did it feel like they were very against remote, it felt like they were against people who didn't explicitly want to move to SF. I suspect that a majority of their staff that is already in SF is not going to permanently move out of the city in the next year or so. In 4 years? Who knows, but it's kind of why this 4-year window feels odd.
In case you are unaware, Brex's business model is to lend money to startups. The kicker is they lend money to startups that banks and investors won't touch. They advertise themselves as a tech company but in reality they are closer to a high risk VC firm.
Brex feels like an attempt to gamble with someone else's money. They raised a ton of capital and now they are going to use it to invest in high risk startups.
They built a lot of the underlining infra for their Brex Cash product.
> use it to invest in high risk startups
Don't they require you to pay back the balance at the end of every month? And you're not aloud to go over a percentage of whats in your bank account. These restrictions limit the risk.
With that in mind, we decided to have office hubs in the major cities (starting with SF, NY, SLC, and Vancouver), where employees can work whenever they want. Our office hubs will also be important for those who miss the daily physical interactions and in-person collaboration of an office.
So, companies pay what they can to compete for talent in the market. This meant that in high-competition markets like SV, the price (for engineering talent) was very high.
If now the market dynamics have shifted by not limiting supply to the SV area, then you would SV companies to pay LESS for the same engineering talent. So, if you argue that people should be paid the same no matter where they live, then you should also be prepared for salaries for many engineers to fall.
This policy protects you, even if you do work at a SF place.
Lets say, in theory, you move to some place cheaper, and that place starts becoming more expensive. Likewise, SF becomes cheaper over time (or, the company just moves HQ to somewhere cheap). By doing location based pay, your pay continues to go up, in line with your local area cost of living. Otherwise, if you were still getting paid based on SF cost of living, you would be loosing money every year. Eventually forcing you to move, which, you might not be able to do because of family, house, etc.
Second, its ethical. "Salary" represents a quality of life, i.e. Purchasing power, not a raw number of dollars. If you were paid SF wages while you lived in a third world country, you could very well be the richest man in the country. This does not make sense. Nor is it ethical, think of the raw damage you could do to that economy. For a more common scenario, do you really feel that a mediocre software dev working for a SF company should be paid more than the local best ER doctor?
Many professions simply cant be done "remote"
Third, it makes all companies "equal". In a "remote first" company, the location of the HQ shouldn't matter. Maybe, not even exist. Most companies are actually "Delaware companies". Should they pay delaware salaries?
And lastly, its just economics. The reason salaries are so high in SF is because no one wants to live in SF, because cost of living is so high. Its supply and demand. The cost of finding good talent in SF is astronomically high. As soon as you go "world wide", then you can attract great talent at a cheaper price. AKA, if you are going to demand a SF salary, they can certainly find someone cheaper and better (fire your ass). Frankly, _still_ getting paid a SF salary while in SF at a remote company is just incredibly generous of the company. At remote first companies, salaries will have a downward force. Over time, you will get paid less working remote.
Let's fast-forward 5 years and assume many companies have taken on this model and are now remote first. COL adjustments will have occurred, and COL is a very reasonable proxy to "desirability of living location", because as you mention these cities are based on supply and demand. When there's a high demand, COL goes up and as such so do the salaries of the folks living there.
So now employees are basically at a junction where they can live wherever they want. However, their employer will cover the expenses of living somewhere better (if we take this high COL = desirable line of thinking). So employees will go to these places, effectively costing the employer money!
The fundamental outcome of this change is employers are offering a giant "live somewhere expensive" stipend that can only be cashed if you choose to live somewhere expensive. It's just odd. I know for a fact if I was at one of these companies I'd move to wherever I could get the most money, because I think COL often overrates how expensive cities are.
Without saying anything disparaging I do not imagine it is a pleasant place to work.
I feel like this was a rite of passage for an era of Brazilians.
I got paid Bay Area salary but lived in the Sierra Nevadas to the East, 30 minutes from Lake Tahoe.
Offering remote and paying people based on what they're worth to the company: Part of the solution! (The problem being: Structural deficits in certain regions yield lack of adequately-compensated employment opportunities for the highly-skilled. This makes the highly-skilled relocate. This makes it difficult to overcome structural difficulties).
Offering remote and paying people based on where they are: Part of the problem!
You grew up in a wealthy neighborhood and decide to live close to family? Here is a pay package at X.
You grew up in a poverty-stricken area in a poor state, and need to live close to home to support your family? Well the cost-of-living there is 60% cheaper, so here is a pay package at X*(1-0.6).
People who have the ability to move most likely still will, because it is economically viable.
People who have family obligations and grew up in less affluent areas will be the ones getting the short end of the "location-adjusted-comp" stick.
Pay everyone $200k or $100k (essentially stop hiring in high cost location)?
Until the markets/remote salaries align, you kind of have to pay based salaries the people are able/need to receive in their respected market.
Pay adjusted to location is an unearned bonus for people living in expensive areas. People arguing for non-location-adjusted comp want wages to race to the bottom, allowing the people living in the poorest areas to earn that money, which makes sense from a social justice point of view but is going to really suck for the people who have gotten used to earning $200K entry level in San Francisco.
at first, yes, but wouldn't CoL eventually come down if everyone were earning a nationally based income?
In my opinion that is different that companies doing large-scale adjustments within a country, where social services, taxes (for the most part) and general cost of goods is the same.
I'm not sure we will ever be able to treat different countries as a single market, but I do think that a single country (or hell, even state) should be able to be treated as a market.
Think $120k in Washington or Florida with no state income tax and lower COL. you’d pay maybe 25% tax. In San Francisco, $200k comp to adjust for higher COL will push you into higher federal tax bracket plus 10-12% state income tax. Now you’re paying more than 40% in taxes.
25% vs 40% is a significant difference.
Local taxes also greatly affect the cost of goods and services. 9.5% sales tax in SFBA vs 0% sales tax in Oregon.
25% vs 49.5% — two extremes, but that the reality in the US.
Not to mention gasoline taxes in CA — highest in the nation, they directly affect the cost of gas that we pay as consumers.
Ridiculous is what I call the situation where wealth creation done by tech companies and tech workers ends up in the pockets of Bay Area landlords instead of in the pockets of the people who take the risks and do the work.
Ridiculous is what I call the situation where other geographies invest heavily in getting their young people top-notch education (like in Europe), and instead of earning a return on that investment for themselves see their young people relocate to the Bay Area and contribute to the tax base there.
Ridiculous is what I call the situation where you're a top-notch tech professional and in order to earn money commensurate with your value you have to go through the hardships of the immigrant situation and be part of a culture / economic system that you may not like, subject yourself to political leadership that you may not approve of etc.
Shall I continue?
The good news is that the market will eventually sort this out: Some remote companies will be doing geographical adjustments to pay. Some will not.
The best workers in low-COL areas will end up with the companies not making adjustments. So making adjustments will leave you stuck with the worse workers. So you will end up getting what you pay for: If you pay little you will get low-quality work even in low-COL areas.
People in high-COL areas will figure out that there's an opportunity to have more disposable income by relocating away from high-COL areas and taking remote jobs with companies not making adjustments. The only people who can't do that is the people whose work is so low-quality that they actually can't compete internationally so that their high-COL postcode actually is their only viable argument when it comes to negotiating high compensation. So paying higher compensation to people in high-COL areas will become detached from the narrative that those also happen to be the best people. It will come to mean nothing more and nothing less than making donations to those poor needy Silicon Valley landlords, and I doubt that this is a cause that many tech companies will be getting behind, as opposed to using their money to do actual tech.
That said, this might change if remote work becomes a lot more common, and we might see a big flattening of salaries. Bad for SF real estate prices (and for high earners in those companies in general), since people in those HCOL markets will suddenly be competing a lot more directly with workers from elsewhere, modulo language skills, ease of scheduling, cultural fit, etc.
Basically companies base their compensation bands on the 50-90th percentile what the market is. People are also anchored their previous compensation, it's hard to get people to accept drastically lower compensation even if you think they are overpaid in their current job.
So it all comes down to finding a compensation that both parties are willing to engage in at (the market). The market is still not fully liquid, uniform or not all talent is the same so the pay differs in different markets.
You could obviously game this too by saying to pay what people are they are "worth" but you just happen value SF experience more than other experience, essentially.
To think that anything else would happen, like the ludicrous "Bay Area salary" becoming the global standard offer, is like thinking that anyone would hire a house painter who quotes twice the market price to paint your house, by explaining that he lives in a 6-bedroom posh waterfront condo and also maintains a country house.
Once we're past COVID, a lot of companies are going to stick with remote first and making the planning of off-sites easy seems like a must need service.