Having just moved from dirt cheap Atlanta to Sillycon Valley for a new job, compensation has been on my mind. I finagled a compensation “raise” but by the time the roughly 80% cost of living adjustment and cash/stock balance is taken into consideration, it’s a definite cut in my liquidity.
How much should compensation be tied to someone’s location?
It hinges on one trait of the company: Are the majority of their employees centered around relatively few physical offices? If so, location is a necessary component to the compensation formula. If the company is remote-first or remote friendly, pay should be based on position and experience alone and normalized around a n-th percentile (first)world-wide cost of living.
Why should compensation sometimes be dependent of location? Many top tier tech companies are headquartered in notoriously expensive megacities like San Francisco, New York or London. They also desire top tier talent locally in those cities to work in those headquarters and have to compete with smaller companies that may be very remote friendly. How can they incentivize people to give up the remote lifestyle and live in an expensive city to work on-site on larger projects? Compensate enough to allow a consistent quality of life for that role. That number is going to vary widely from India to Europe to the US, if someone in India made a minimal Bay Area salary they would be considered quite wealthy and have massive spending power while if they moved to Zurich they’d be poor. If the cost of living in San Francisco and New York weren’t so absurdly much higher than other US cities country-by-country compensation would be feasible in these cases and relatively simple to roll out.
On the other hand, if you are running a small software shop that is remote-first, employees in San Francisco should be making the same amount as ones in Bangalore. They are likely providing equal value, the employee in SF is definitely not worth the likely 9999% higher market rate. The developer in San Francisco can move if she wants to buy a plot of land and live cheaply, or she can continue to enjoy city living and excellent weather for a price. Likewise, (barring visa questions) the developer in India could move to the valley if they want to escape the crowds of Bangalore. As long as the business is ok with employees living absolutely wherever they want, this model works.
Our industry needs to move to compensating employees equally no matter where they live (or who they are) with the exception of what I will call focus cities: High cost but high-value tech cities that have been determined by leadership to require a physical office. In these cases, an annually adjusted multiplier should be applied to every position at the company in that focus city with it known that if an employee moves it will be removed. Most cities should not need these, the few that come to mind are San Francisco, New York, London and Zurich.
Also, seriously, can we just build more housing in San Francisco already?