Remote First at Brex(medium.com)
medium.com
Remote First at Brex
https://medium.com/building-brex/remote-first-at-brex-1252cb30e347
98 comments
Can someone explain the rationale behind geographically based pay in remote-first companies?
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 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 think it all comes down to competition.
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.
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.
> Can someone explain the rationale behind geographically based pay in remote-first companies?
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.
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.
There's a name for that kind of thinking, but I can't recall what it is.
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.
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.
Game theory
I meant the thinking that tries to minimize cost and aims for "how much they have to pay you before you decide to quit".
Profit maximization. You make the point that companies can choose to hire employees that aren’t the bottom of the barrel but then you’re selling a different product to those who really are squeezing every penny. CostCo and Walmart are both successful superstores but one sells many more products, in smaller minimum purchases, and hires lower quality employees while paying less. These kinds of differentiation factors lead to what’s called oligopolistic competition[1]. They’re not in separate markets but they’re it selling the same product either.
[1] https://www.monash.edu/business/marketing/marketing-dictiona...
[1] https://www.monash.edu/business/marketing/marketing-dictiona...
It's a relic, and a bad one.
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.
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.
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It's basically signalling that the company doesn't value employee output.
Maybe someday all tech employers will be remote-first and pay will be the same everywhere. But if you don’t compete with Bay Area offers now, you filter out everyone who relocated to the Bay Area to benefit their career.
That's my point. Your baseline should be bay area numbers. Don't change that number simply because the person you're hiring lives somewhere else.
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.
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.
Thank you for this. I don't understand why people have such a hard time thinking this way. Many people are very elastic and flexible about where they live (especially when it's 'anywhere in the US') and as someone with a job in the bay area, I don't understand why I should take a pay cut to move somewhere cheaper to do the same job. The employer ends up incentivizing me to stay in the most expensive area that also happens to be the easiest place to get a competing offer... makes no sense
And hey, if you had started at Brex prior to Sept 1st, you wouldn't even have to game the system. But your coworkers _would_ (and would also likely be at risk of being terminated for cause if they got caught, not to mention state-tax issues).
If your company has your address in the wrong state (and withholds there) you can still correct it when you file your taxes for a full refund in the state you didn't actually reside. Though you'd maybe be penalized in the proper state for underwithholding unless you manually paid quarterly estimates in that state as well.
I don't see it as a relic, or a bad one. Some people can't just up and move to a cheaper location for a job they don't know they'll have in a year's time. How do you decide what to pay? Paying based on "experience and merit" needs to be anchored on something, so you just end up either massively over-paying someone in a location that's cheap, or massively under-paying someone in an expensive area. If you want to pay everyone like they live in Zurich, then more power to you but doesn't seem sensible from a business management standpoint and the person in North Carolina would probably be over the moon at half that. Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense
> Any company with shareholders is accountable first to them (for good or bad) and I'm not sure your board or CFO would agree that paying peak makes sense
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.
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.
I understand the ideal of it, but the main reason why it doesn't work is simple supply and demand. Your employment opportunity will seem compelling for folks that live in LCOL areas, or folks trying to escape HCOL. But for the 5x as many programmers that live in HCOL areas, your pay isn't competitive.
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.
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.
Where are you sourcing your stat from? It's hard believe that the millions of developers in China, India, SE Asia, East Europe, etc. are outnumbered by people in New York and San Francisco.
Cripes, US$150k is good money in London and that's a considerably higher cost location than rural Kansas.
Cripes, US$150k is good money in London and that's a considerably higher cost location than rural Kansas.
Usually remote means US only for US based remote companies.
This is the reality, it’s supply and demand, not “fairness”
I agree that the internet flattens distance. Thank you for paying employees like it's 2020, not 2000.
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).
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).
I generally agree with you, but I do struggle with the amount of risk taken by paying the top end salaries. Great companies are made by great people, yes, but great salaries are made by all kinds of people.
Then do you have to pay US salaries at all?
I agree with this.
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.
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.
Agreed. We're also building a remote-first, remote-only company and after much discussion landed on uniform salaries, regardless of geography in the U.S.
FWIW 150k is plenty to live comfortably, without a roommate, in SF. SF is expensive but not that expensive. Even a 4k 1br (rounding way up, especially these days where you can get a 1br for < 3k) would be 48k/year, and assuming half your money goes to taxes, you could swing it while still putting money away.
It's not a relic, it's a way to price labor effectively. You're not paying for work, you're paying for the candidate to choose you over a competitor. If you're competing against local Bay Area or high CoL companies that are local, you will have a lower offer and will likely lose out on talent. That's OK as a strategy, but you may just be selecting out of low-CoL areas and limiting your pool of labor.
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.
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.
If you have to pay $200k to get talented engineers in the Bay Area, and find out you can get equally talented people in the Midwest to work remotely for you for $130K, obviously it makes sense to set waters geographically.
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.
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.
It doesn't seem that effective to me, because it makes some assumptions about employees' willingness to move or engage in location arbitrage.
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.
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.
The fact is that having an employee in New York City, in the average case, is worth more than having an employee in Mongolia. They can talk to a customer more easily, given that your customers are more likely to be English-speaking Yankees fans in the Eastern Time Zone than Mongolian speakers in Ulaanbataar. They can go to an event more easily, since there are more conventions in NYC than Mongolia. They can fly to the company retreat more quickly and more cheaply. They can culturally align a product/brochure/email to a target customer more easily than their counterpart because the target customer is most likely to be in a high cost of living area (that's why they're high cost of living... lots of people with lots of money to spend on salaries or SaaS applications). If you need to read a bunch of English text, such as reading through a competitor's annual report or developer documentation, the New Yorker will likely be able to do so more quickly. They are more likely to understand "rich people" references that target customers make, like "I was at the regatta last weekend so I missed your call." There is an advantage to global diversitt for a company serving a global audience, but there are also a lot of reasons to, software engineering skills being equal, prefer the New York employee.
James Clark, open source programmer and standards expert, lives in Thailand https://en.wikipedia.org/wiki/James_Clark_(programmer) he can probably speak adequately with English speaking Yankees fans - although time zone might be a problem.
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.
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.
It’s easiest to understand when you realize that the company is not going remote to pay SF salaries everywhere, they’re going remote to pay rock bottom salaries everywhere. Geographic pay is a temporary patch to give extra to people in SF while they wait for SF engineers to decamp to the boonies or be replaced by people who do.
Lowering salary costs is one reason. The other potential reason is to vastly increase the talent pool.
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 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 you were already bought into and budgeting for 4 years of an employee at price X, it seems opportunistic and irrational to then try to cut them to price Y due to an unexpected factor.
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.
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.
The biggest question is how you determine 'what they are valued at', given that you would get drastically different numbers in different markets.
Can someone explain the rationale behind geographically based pay in remote-first companies?
Profit.
Profit.
My guess is this. Many companies are thinking about geo-readjustment. The true primary reason is that they want to lower their costs, given that a significant portion of their employees reside in high cost of living location (Bay Area, Seattle, or any European capital). However, my bet is that this is going to pan out poorly in the next couple of years and the scheme will need to be abandoned or thought over. First, there are plenty of people who will want to live in San Francisco, New York or London even when they are no longer required to do so for work. This means that their high cost of living stays with them. This means they can only accept job offers that support it. Another thing may turn out to be true. When employees are informed that their salary will be lowered when they move to another location, this may not sit well with them. So they may not move or they will have a strong sense of resentment. Basically in 1-2 years, we'll realize that what works in theory creates too many unnecessary problems and is not the way to go forward.
I would just consider it a perk of having started at the company earlier, like having more vested stock.
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.
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.
Sounds like a way to incentivise new employees to move to the highest COL locations ASAP, to take advantage of the salary bump for things such as 401k contributions, any matching 401k company contributions, and Social Security earnings calculations.
If they were to scale the adjustment by 25% until Sep 2022, 50% until Sep 2023, 75% until Sep 2024, and then 100% thereafter, that would create a bunch of pay drops and they would probably be more likely to lose employees at those dates.
If they linearly interpolated the drop across the next 26*4 biweekly paychecks, would that be better.. or worse?
If they linearly interpolated the drop across the next 26*4 biweekly paychecks, would that be better.. or worse?
I don't know if it's better or worse. As I said, there are many ways to think about it. I do think that explicitly creating 2 different classes of employees probably wouldn't even make it to my short list.
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.
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.
Sounds like a great way to guarantee losing most of the people relocating when 2024 hits.
Is this because of contracts including stock options? Harder to dial those back?
Brex laid off a significant portion of their staff earlier this year. It sounds like they are trying to save more money by getting rid of their expensive office space in Manhattan and SF
https://techcrunch.com/2020/05/29/brex-the-credit-card-for-s...
https://techcrunch.com/2020/05/29/brex-the-credit-card-for-s...
Make sense.. offices are not being used while staff is as productive (probably not as happy though? but that's case by case) at home. A lot of offices may go bankrupt in the coming years, even when this whole thing is over.
Its just interesting to see all these layoffs and cost cutting measures right after they raised a ton of money.
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.
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.
At this current time that doesn't feel like a sound business model.. but I could be wrong. It also seems that they won't need so many people? The VC firms I know are all capital heavy and very light on staff.
They were able to raise money from investors selling themselves as a tech company. Now that they have the money, they dont need the engineers anymore which explains the layoffs and downsizing.
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.
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.
> selling themselves as a tech company
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.
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.
Every bank builds their own infrastructure, yet I've never heard a bank advertise themselves as a tech company...
Capital One does, to my knowledge.
Is that actually true? I thought it was the other way around, and they only "lend" money to companies that have millions od dollars in VC investment already in the bank.
Not at all surprising, raising a ton of money usually gets that investor onto your board who probably now wants you to cut unnecessary spending.
I'm not sure remote first is actually cheaper when you factor in off-sites and WFH stipends. From the article:
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.
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.
Companies don't pay employees based on "what they're worth to the company". Just like with other goods and services, the market dictates the price.
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.
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.
It will take years for markets to even out. Think SV vs rural Alabama. Paying market rate for the talent is table stakes. And I do agree, there will be less incentive to pay SV rates, so engineers living in SV will have to work even harder to demonstrate in the interviews that they are worth the money. Interesting times are coming.
I remember interviewing here and being bummed when they were 110% strictly no remote. Not surprised to see the about face here based on current events, but based on my experience it is a little surprising.
Without saying anything disparaging I do not imagine it is a pleasant place to work.
Without saying anything disparaging I do not imagine it is a pleasant place to work.
I disagree. I think its actually correct to adjust based on location. Everyone is only looking at it from a "I am smart by living somewhere cheaper, dont doc my pay", but not seeing it the other way around as well. If you worked at a company based out of, say, detroit, but lived in SF, you would demand SF income, because otherwise you wouldn't be able to afford a living.
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.
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.
I think it just sets up some pretty weird incentives for employees, especially when you consider that cost-of-living calculators are often wrong. I don't think this model will work in the future.
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.
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.
Whats to follow is completely anecdotal. I had a job at a decent/high salary in an expensive city. I moved and took a pay cut, to about an average salary in a much cheaper city. I feel significantly "richer" then before.
I think the "more money is always better" is simply false. Its ultimately about how much money you make _after_ rent/mortgage. where rent should be equalized for equivalent housing. My $300k 5 bedroom house would be > 2mil in SF. A 2x or even 3x salary doesn't even begin to bridge the gap.
I blame FB for setting this bad precedent. Now that they've set the standard for remote compensation every company now has cover to adjust compensation using some flawed cost of living calculator.
I disagree. I think its actually correct to adjust based on location. Everyone is only looking at it from a "I am smart by living somewhere cheaper, dont doc my pay", but not seeing it the other way around as well. If you worked at a company based out of, say, detroit, but lived in SF, you would demand SF income, because otherwise you wouldn't be able to afford a living.
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.
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.
The other viewpoint is that you provide the same value to your company whether you work in SF or in Kansas City (assuming WFH in both places). So basically you are saying "Hey, if I move to a cheaper place, please take 40% of my compensation and give it out to the C-Suite and shareholders, since I have no other options in my new city". I guess that is the reality of capitalism, and why ownership/equity is so important.
this is already messed up though.
Salary _does not equal the value you provide the company_. It represents the cost to extract the value. A quality senior engineer provides 3-7x the value of a junior, but only gets paid 30-40% more.
I worked for an all-remote tech company before Covid. Their pay was based on large regions (e.g. the whole state of California as a region). This allowed you to do something like move to a cheap part of Utah but get paid a Salt Lake City salary.
I got paid Bay Area salary but lived in the Sierra Nevadas to the East, 30 minutes from Lake Tahoe.
I got paid Bay Area salary but lived in the Sierra Nevadas to the East, 30 minutes from Lake Tahoe.
That is how employment has always worked. Facebook did not invent market-based pay.
Many companies were already doing that before FB and before Covid.
> Henrique used to play an online game called Ragnarök
I feel like this was a rite of passage for an era of Brazilians.
I feel like this was a rite of passage for an era of Brazilians.
In my day Polaks and Brazilians played Tibia.
There are some good pro's and con's to this strategy, but given market forces I can imagine the future where everyone "works" from the same address in the Bay Area, while being based elsewhere. Maybe I am hoping to see this as a hack :)
You laugh but that already happens where “former” Bay Area employees relocate to a cheaper region but maintain a Bay Area address for their cost of living adjustment.
For a remote company to adjust pay to employee's geography: so not cool.
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!
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!
I also suspect, but don't have evidence to back it up, that it will also further contribute to socioeconomic divides.
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.
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.
Seems like there is a pretty strong market force here where it is much easier to recruit employees in cheaper cost of living cities by beating that offer.
So how do you imagine hiring people with similar experience/skill level SF if they base salary offers are $200k and Europe people are happy with $100k since their rent/mortgage/livingcost is about 5-10x less?
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 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.
Yeah, essentially stop hiring ordinary skill in high cost locations. Why would you? Why would you pay $200K to someone in San Francisco for work that can be done for $100K in Alabama? Unless the person in San Francisco is higher skill, in which case they will be hired at a higher level/comp package, which has nothing to do with geography.
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.
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.
> 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?
at first, yes, but wouldn't CoL eventually come down if everyone were earning a nationally based income?
You're discussing "markets" across countries, which had much more reason for adjustments to be made. Social services, taxes, and healthcare are all different. There is not necessarily free movement between countries, and large goods that most people purchase in their lives (cars, education, healthcare) have very different costs.
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.
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.
Taxes and cost of goods vary widely across markets within the US. Not to mention that progressive scale shifts more tax burden to people living in high cost of living (COL) locations.
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.
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.
Taxes are calculated on the bracket though. So not the whole amount.
...the argument I was trying to make was: remote work with no geographical adjustment of pay could be a force for good in the world economy to bring about a non-ridiculous market equilibrium.
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.
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.
Some really compelling points here, nice
If an employee is worth $200k to your company in SF, why are they not worth $200k to your company in Europe?
Because, at least for the moment, it's unlikely that any company is going to offer that European $200k. It's about BATNA, not perceived fairness.
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.
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.
Right, it's about BATNA, but it stands to reason that especially in a time of ubiquitous remote work, offering remote workers salary parity will attract the highest talent from all regions, thereby providing a competitive advantage.
There isn't an objective measure available what an employee is worth to a company, especially at the hiring stage, especially in startups. If engineer lvl4 with the criteria you're hiring, is paid x in y market at z stage of the company then you pretty pay bit more or less depending how good you think they are compared to the average.
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.
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.
An employee is only worth the minimum it takes to keep them employed. Where is the competition that is paying them $200K in Europe?
I agree with this in principle because the outcome of non-adjusted pay will be a "race to the bottom" on wages, which will get more wages to people in poorer areas that helps them lift those areas out of poverty, while basically making New Yorkers unhireable as remote workers unless they possess extraordinary skill.
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.
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.
I would resign immediately if my employer tried that.
This seems like a big deal. More and more companies are transitioning to Remote First....
This isn't really related at all, but I've always considered "Brex" to be a strange name considering https://en.wikipedia.org/wiki/Bre-X
I expect a lot less thought (and research) goes into most startup names than you'd think.
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A service that does planning and execution of off-site meetups for remote companies is a great business idea. Essentially, travel agency/event planning for remote first companies.
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.
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.
I know that InVision (InVision app.com, a remote-first company) has an entire team dedicated to planning their yearly offsite. I can imagine many other companies choosing to hire a company to help plan offsites. Great idea :-)
There are lots and lots of corporate event planning companies out there. We used to use them a bunch even when we were all in the same city.
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.