Why You Shouldn’t Pay Remote Workers Based on Where They Live
I’ve been a vocal proponent of remote work for pretty much all of my career in technology — which, as it happens, started off in a fully remote gig. My belief all along has been that the distributed working model is a fundamentally disruptive technology whose clear advantages will inevitably win out.
Last week, Facebook broke open a long-running controversy over remote compensation with its announcement about letting (some) employees live wherever they want. At stake is the question of how to pay remote employees “fairly.” This hits right at the core of some basic issues that make equitable compensation such a common struggle for companies.
If it takes cutting wages to pry more tech jobs out of San Francisco or New York City so they can become available everywhere else, then so be it. Even after a 20% pay cut, folks in Winston-Salem or Jacksonville or Little Rock will probably still find the starting salary of a product marketing manager at Facebook to be competitive. The more employers we have competing over workers’ wages, the better. Expanded opportunity is always a net positive.
The business justification for employees needing to be in a major metro is collapsing.
But even with the benefit of expanded opportunity to look forward to, cost of living adjustments (COLAs) are still a deeply unfair and bad practice. People doing the same jobs and providing the same value should be paid the same. Here’s why.
What happens when employers become location agnostic?
Until very recently, going fully remote simply was not an option for most people. If you wanted to work at Company X, you often had to be based at an office in some large metropolitan area. That was the deal.
Yet in every software company I’ve worked for, almost everyone’s job could be — and sometimes was — done perfectly well remotely. Yes, all of them: product, engineering, design, ops, marketing, and more. Even skeptics of remote work know this, deep down. And right now, we are seeing a real-life proof of concept for this fact that everyone has quietly known for a long time. Remote teams work just fine. The doubters have been conclusively proven wrong.
They Led the Cult of Remote Work. Now We’re All Members.
It only took a pandemic for us to live in Jason Fried and David Heinemeier Hansson’s remote work fantasy
In other words, the business justification for employees needing to be in a major metro is collapsing. There are many who may nevertheless want to live in cities like New York — but their doing so is not critical, or indeed even connected, to the company’s success. Code does not care where it’s written. Neither do user stories, design mockups, or seller enablement decks. If it works in Tempe, it’ll work in Menlo Park, too. (There are, of course, some employees who may actually have a business-related reason to live in a certain geographic region. In particular, I’m thinking of direct client-facing roles, like sales or customer success. There are some exceptions to this rule.)
The flip side of “why do employees in cheaper areas need as much money” becomes “why does the company need people in San Francisco?”
If the basic rationale for COLA-based compensation is that employees in high-cost metros need more to be made whole, what happens when employers no longer have a preference for location? The flip side of “why do employees in cheaper areas need as much money” becomes “why does the company need people in San Francisco?”
This question of what people “need” to afford their particular lifestyle comes up frequently when talking about employees living in particularly cheap or expensive areas. This is the wrong way of approaching the question, because it’s fraught with unavoidably personal choices. If someone in San Francisco wants to spend a large chunk of their income on living there, then that’s their choice. But if a remote employee in San Francisco does the same work as their colleague in Little Rock, one person’s choice shouldn’t be rewarded while the other is penalized. What if the Little Rock employee has a child and is caring for an elderly parent and the San Francisco employee is single and unattached? If the question is “need,” why are those circumstances not deemed relevant?
In short, making COLA adjustments inevitably makes assumptions, mostly inappropriate, about what individuals “should” do with their money and deems living in a big city to be a worthy choice and other decisions to be less so. COLAs are unavoidably a subsidy to someone and a penalty to another based on personal lifestyle choices. Wanting to live in a desirable, high-cost metro should not create a business obligation for your employer. Where you live is and has always been a choice reduced to consumption — only that choice is drawn in sharper contrast now.
Labor supply and demand at internet scale
The most common argument for using COLAs is that they’re required due to labor supply and demand. Namely, the market-clearing wage varies across different regions, so companies should pay based on local norms. This is the basic approach taken by such fully distributed companies like GitLab, which helpfully makes its compensation formula fully transparent.
The problem with this approach comes from the definition of “labor supply.” For an HQ-bound company, that labor pool is something like a 20-mile radius. For a remote company, however, it becomes “the internet.” From both sides’ perspectives, the candidate in Fort Wayne is not “competing” with just those in their local area; they’re also competing with candidates in Memphis and Spokane and Shreveport.
If they are providing the same value to the company, I think the right thing to do is to pay them the same wage. Paying radically lower wages for offshored teams amounts to penalizing people based on where they were born.
Some people will see in this model a “race to the bottom.” I do not — I see it as an expanding opportunity. If there are people elsewhere who can do a given job perfectly well for less compensation, it obviously makes business sense to hire them. I can clearly understand why this would freak out a Facebook engineer making $500,000 a year in Menlo Park. Given the rarified talent required at most remote companies, whatever they wind up paying the person in Bangor or Reno who takes that job will still likely receive a competitive, upper-middle-class income.
There’s a slippery slope counterargument here that, taken to its logical conclusion, going fully remote means that good tech jobs will disappear from the United States entirely and go overseas. After all, folks in Hyderabad and Kiev and Lagos are just as smart and could do most of these jobs. Since the 1990s, we’ve heard dark warnings that the software development industry was on the verge of offshoring all engineering roles. Not only has that not happened, but demand for U.S. engineers and other knowledge workers has grown considerably. I think this will continue to be the case. I believe there’s something about building products aimed largely toward American consumers and companies that makes American employees valuable. For the purposes of remote hiring, national boundaries are meaningfully less porous than state ones, mostly for regulatory and tax issues.
When it comes to compensation, a lot of Americans would say of course it doesn’t make sense to pay a remote worker in Bangalore the same as a product designer in Palo Alto. But in this, I sense a lot of self-interested thinking — the remote worker would probably agree with me. Indeed, if they are providing the same value to the company, I think the right thing to do is to pay them the same wage. Paying radically lower wages for offshored teams amounts to penalizing people based on where they were born, which is even less defensible than doing so because of their lifestyle choices.
The future of remote work is here
Where there is a defensible business justification for requiring an employee’s location, the employer should pay them a local wage. But if not, then the labor pool has just gotten much wider and deeper than ever before.
There will be winners and losers as this disruption shakes out over the next several months and probably years. But to the extent that a handful of giant coastal metro cities’ stranglehold on lucrative tech company jobs is broken, our society — and the tech industry — will be better for it. Remote work is better for companies and teams. It’s better for employees, families, and communities. Not everyone loves remote working, but not everyone likes working in an office, either.
Remote work isn’t going to crash down on us like a tidal wave. For the foreseeable future, most companies will still be hesitant about it. I am optimistic, but only guardedly so, about how the Covid-19 crisis will accelerate the future of distributed work. I could be wrong, but I think this will advance in small steps, not giant leaps. All I know is I wouldn’t want to be holding a long-term commercial real estate lease on a Silicon Valley office park right now.
A version of this post was originally published on BlairReeves.me.