Ask HN: Should a remote employee’s salary be tied to their physical location?

At a practical level, the industry will pay you the least amount of money for which you will accept the offer.

In SF/Seattle, if they do not add the COL multiplier, your wages are low enough, that you might reject the offer. On the other hand, it is quite unlikely for a person to able to find another competitive offer, even if their salary is significantly lower than their colleague who make less.

At an ideological level, this poses a much bigger question. Are employees paid a proportional amount to the value they bring to their organization ?

I would say no. I do not believe every talented European is 40% as capable as the average developer in the US. I do not believe that the same software engineer that made $10k in India, suddenly brings 10x as much value due to a 1 year masters, once they move to the US.

Everything points towards companies historically paying employees not the salary they deserve, but the salary they will accept. As long as remote employees continue accepting these lower salaries, they will continue to be paid lower salaries.

It is a chicken and egg problem, in that sense.

I think the relationship of geography to salary is going to be dictated by the biggest factors in all pricing -- supply and demand. Cost of living adjustments are really just a proxy for acknowledging that a prospective remote worker in Des Moines will have fewer local opportunities (lower demand) than a similar worker in New York, and so will be in a less favorable negotiating position. If remote work continues to grow (thus making demand between geos more similar), the differences between locations will begin to diminish, of course.

I sometimes wonder if I worked for a company that was fixated on cost-of-living-based salaries, and I decided to move up to Aspen (high CoL, but low demand for software engineers) if I would get a commensurate increase in pay. I'm guessing probably not. ;)

No. Scaling income with CoL is just subsidizing the housing costs of people who want to live in more desirable locations.

If someone wants to spend part of their compensation on living in a nice area, fine. But if someone else would rather take that compensation and live in a lower CoL area then let them.

I don't think it's a matter of "should", it's a question of what an employee is willing to accept and what a company is willing to pay.

It's been my experience that if you don't offer higher salaries to folks living in high cost areas, they simply won't come work for you.

My guess is that over time as remote work becomes more common, the cost of living differentials between places (at least in the US) will start to flatten, though it may take quite some time.

No, it should be (and basically is) based on the distribution of salaries available to that employee in the market she or he has access to. This means locally available jobs, as well as remote ones within a couple timezones/with compatible language/culture. In the US, as the pool of remote jobs gets larger I expect salaries to normalize to somewhere between "bay area" and "rural midwest".

Not really, unless the company chooses the location, or requires people in different locations. For example, the foreign ministry or supranational organisations need people in every country they run consulates/embassies/offices; airlines or export oriented businesses might need people in different locations - they should be paid depending on the local cost of living (and depending on that, the employer might choose to send more or fewer people there).

But for remote work, ie work that can be done anywhere at the discretion of the employee, why should there be any connection?

As it happens, this would create an incentive for employees to move to cheaper locations, and thus alleviate pressure on the housing market in the most expensive locales, and raise salaries in cheaper parts of the world.

Arbitrage tends to reduce differences/inequalities, in this specific case as well as in general.

No. For us, an easy litmus test is "if one of our people had to move home to care for a sick parent, would we want to reduce their pay by $50k?"

Obviously not, and if you don't do it in that scenario, you don't do it in any scenario.

For reference, we're entirely distributed, no offices.

Would the company pay more if you moved into a better place (bigger house, nicer neighbourhood with better schools, etc.) that happens to be more expensive to live in? I very much think not.

So no, they shouldn't adjust downwards for that family of reasons either.

I see the point of taxes being raised, so that's fair, but really I'd expect that, before taxes and other required benefits and deductions, the salary being offered should be the same. I can't see how one could reasonably rationalize that one worker is delivering less value to the company simply because they live somewhere different than the other.

No offense, but your question is loaded. To see why, think about it this way: say you work for a company in Bangladesh and want to live in San Francisco. Should you be paid a Bangladesh salary? Not looking so appealing anymore, right?

So let's say salary didn't get tied to physical location. What's then stopping employers from moving headquarters to Bangladesh and then announcing everyone gets a pay cut? What happens with taxes and the social services funded by those taxes if suddenly everyone's incomes are dictated by how cheap a salary baseline a company can find worldwide?

Now, we all know what you're thinking. Obviously what you want is to work for FAANG and make FAANG salaries, but live somewhere cheap to end up with more money in your pocket. However, you need to realize that in order for this to work, it needs to be an exception to the rule. If the default is that everyone gets to do it, then you can bet companies will get in on the loopholes and screw you over big time.

So, should a remote employee's salary be tied to their physical location? Yes, they should (and they are). But not because it's better for everyone, but because the world isn't fair and you are proposing that you want a world where you can take advantage of its unfairness.

In a well functioning labor market, employee should earn more than the minimum they would accept to do the job and employers should pay less than the employee is making the firm.

Who gets what share of that surplus value from the transaction is a negotiation. Arguments about what's fair and other normative statements are definitely an effective way to influence those negotiations.

If an employee does something to earn a company a lot more money, they're not automatically entitled to that additional income, but they have a lot more room to negotiate their compensation. The same goes for assumed changes in an employee's reserve price.

Even from a purely self-serving perspective, it is worth considering that offending employees or colleagues is liable to change morale and output before they leave. Additionally, the rising acceptance of remote work doesn't just mean that there are new considerations about living expenses, it means that companies aren't just competing with local companies for talent. That star employee who has just moved to a cabin in the woods could very well have more options in 2020 than they did in 2019.

I don't think anyone knows the right answer.

Try it. Maybe they'll stick around. Maybe they'll stick around and be disgruntled. Maybe they'll leave and find another job that isn't trying to cut their pay

Just let it happen and see what the attractor becomes for this large, dynamical system.

It already is. If it’s legal to give you a pay cut cuz you’re not coming to the office anymore it’ll get done. If they can force it on you because you have no choice they will. Remember business don’t exist to be fair. They exist to make money. This is not evil.

Higher salaries are not compensations for higher CoL but rather both are a result of more demand to live in a certain area (partially because of there being many jobs but that's unrealated).

If a company wants to attract talent in an area with a lot of competition it has to raise its salary offers. And rent goes up in the same way.

So no, it's fair (in some sense) to offer people different salaries based on their location (when work was on site) but that's part of the personal negotiations that take their other options (or lack there of) into account, but it's not some kind of automatic compensation you can demand or expect and with remote work its becoming more and more irrelevant.

"Should" is one of those words that means less and less the more you look at it.

One way to define it is, "Do employees like it?"

If you accept the premise that markets are good at finding optimal prices where "optimal" means "greatest aggregate satisfaction of all participants", and you believe that the job market is relatively efficient, then it means you can trust the job market to answer your "should" question for you.

(It's OK to not accept these premises, of course, or to partially accept them. Personally, I think the job market is somewhat efficient. There are lots of both buyers and sellers. There is a fair amount of information available to all participants. However, switching costs are pretty high, which artificially disincentivizes job hopping.)

You might assume that employees would not like it because they'll get paid less in a cheaper area. But employees in more expensive areas will get paid correspondingly more. And, if your goal is to maximize total happiness across all employees, you'll probably find that yes, it makes sense for salary to vary based on cost of living.

Another definition is "Is it good for society?" In other words, what incentives does this choice create, and do we like the consequences of incentivizing that?

Salaries that do not take cost of living into account are essentially pay raises for living some place cheaper and pay cuts for living some place more expensive. That incentivizes people to move to cheaper areas.

That could be a good thing for the US. Ever since our ag industry automated and our manufacturing industry moved overseas, we have lost most of the forces pulling people towards smaller cities. The result is an increasing concentration in a few metro areas not designed to handle that population. This in turn creates a bunch of knock-on effects: greater homelessness, greater economic sorting where people rarely interact with people outside of their economic level, and increasingly painful commutes for lower income people.

An incentive to mitigate that and encourage Americans to move out of the big cities could be a good thing.

The question feels too open ended in the sense that there is no baseline premise on how the adjustment is being made. Cost of living varies greatly, can change at different rates, and if you're talking about the US, there are some aspects of your pay that aren't directly reflected in your salary - health benefits.

Let's take that latter point as an example. Health care plans differ per state and you are usually better off having your health care plan be from the state you are living in. At all the companies I've worked at, the plan is usually from the state where they have their HQ and subsequently, most employees. If you live in a branch office, that means your plan isn't as useful to you (this actually factored into comparing similar offers to me recently).

Now an employee moving knows the risk and how this will affect their coverage. For a company to adjust their salary based on where they live, how will they take this into account? Are they going to do a per-state/per-city level analysis of say, how their provider network coverage differs? Then pay you more if your coverage is worse off?

I'm not a risk taker, but I'd be willing to bet that most debates won't take something like this into account. However, this and many other factors matter a lot in determining what is considered "fair" compensation for a given area. If the premise of what a fair adjustment is cannot be established, then I believe that this isn't even a debate because the hypothetical reduces to, "what excuse can we use to cut someone's pay?"

First, what do you mean by “should”?

In the predictive sense, if a company can hire a remote employee to do a job for $X per year, or a different remote employee to do the job equally well for $0.9X per year, the rational economic choice is to prefer the lower paid employee.

In the normative sense, the employee is selling their ideas and labor. Those things don’t change in value when they move, at least not within the same time zone. So, if you’re selling your labor and ideas in one location vs another in the same time zone, you “should” get the same no matter what.

We all know which of these scenarios actually happens in real life, and it’s because the power disparity between employee and employer is so skewed in favor of the employer. And, as I’ve alluded to, time zone can change things, because having an employee whose normal work hours allow them to respond to incidents that would be happening in the middle of the night can be valuable. Conversely, if a company depends on synchronous communication, having work shifts overlap is valuable.

During hiring, it makes lots of sense. A Kansas candidate could certainly accept a lower-paying job than an SF one. It makes less sense when you move while already employed, since the cost of re-hiring would greatly exceed the delta they might save. I guess it becomes a question then of are you willing to put your job on the line and demand the identical salary.

Only if it’s reviewed for cost of living adjustments each year IMHO. In Texas, DFW used to be cheap. It’s on par with Austin now.

If the salary is already negotiated, it'd be extremely demoralizing for the company to force the employee to take less. A company that's willing to pay less because one lives somewhere else after one has proven oneself is a company that has the least engaged, most demoralized employees possible. The productivity lost is undoubtedly many times higher than what was saved in COL adjustments. It's amazing how brain dead most companies are, so focused on intermediate goals to the major detriment of the entire company's progress. This is one prime example. Another is not giving yearly raises, at least to adjust for inflation. Or lowering benefits. If the benefits are still good, people will stick around and put in the minimum.

Is the location or nationality relevant to the job location? Maybe it has some different overhead, regulations, better access to customers, internet access/lower latency which could affect the actual value of the employee depending on location. when it matters then it may make sense to care about it enough to pay a premium for high CoL if it is linked to something you want or a lower rate if other features make them less desirable.

If not then it is a cargo-culted antipattern because of the deadly words "That is always the way it was done." You would fundamentally wind up squandering money and talent by overpaying high CoL without the benefits of the location and losing comparable talents from a low CoL by showing them you don't value them.

Whenever this topic gets brought up, it invariably is seeking big-city pay in small-town locations.

The more important question is this: suppose we live in a world where all remote employees make essentially the same. Why wouldn't an employer simply choose to pay the absolute bottom rate salary for an employee living in the absolute cheapest possible location and not pay more for people living in significantly more expensive locales?

It can also be very enlightening to look at the US Government GS Pay schedule, which sets a base salary at specific employment levels, then has a page of secondary schedules with "locality pay differences" depending on location. For example, a USG in NYC makes about 34% more than the base salary for living in Podunk, Mississippi.

The thing is, salaries are only high because they are based on geography. The extreme cost of living in SF and NYC contributes to the high salaries in the respective cities. If the COL were lower there, the salaries would never have become so high.

It is counter-intuitive, but I actually think everyone benefits from super high salaries in coastal cities, as it makes the benchmark rather high and thus even non-coastal employees benefit from a high expectation of a ‘proper’ salary. In other words, I’d FAANG were paying devs $50,000 a year in SF, there’d be zero chance that a dev in Iowa or Missouri would be making anywhere close to that.

In my opinion one should be paid a rate commensurate with what you produce for your employer. If you choose to live in a remote location where your salary goes further, you should be able to enjoy that outcome. It should be no surprise any adult that employers will pay the least they can. When they do that, employees vote with their feet. Good employers count the cost of turnover and generally pay what is required to keep their productive employees. Large systemic changes upset the "normal case". My friends (and their managers) left at the company from which I retired took pay or hour reductions to get through the covid-19 issue. Nobody liked it, but there were few options at the time.

No that makes no sense. The only reason it used to be that way is because companies had to pay a living wage for employees that lived near their offices.

There’s no good reason to hire from HCOL areas over others now so there’s no real reason for companies to pay extra.

Only if their physical location is a condition of employment.

If they avoid calling it a proximity bonus and call it an on-call bonus, legal may have some footing to pass on to HR. Though this is only an issue for existing operations.

If its an 8 hour workday, being able to make hypothetical emergency briefings at the office within 2 hours with no/short notice may be worth a 25% salary hike.

Its the new remote first companies that will exclusively hire for skill and balance the equation once the next wave gains more traction.

No. If a person moves from a 4-5 bedroom house to a studio apartment their cost of living will come down even if living in the same city. They are paid for the work not where they live. Software development salaries will probably overall now face downward pressure as because of remote work more people will be willing to accept lower salaries if their cost of living is lower

In my company, we only have a few U.S.-based regions that more or less amount to SF, NYC, and the rest of the U.S. for salary adjustment. There is a base rate that stays the same regardless of location and then there is a market adjustment for those special cases. In my experience, the base salary is high enough where you could comfortably live in 90+% of the country and feel good about your comp.

Of course, there are two correct answers: those employees able to negotiate away their location having any relevance to their pay, and those who due to hierarchy position or lack of negotiating skills have their pay pro-rated against their location and potentially a giant host of additional factors beyond the employee's control. The course of action is clear: learn to negotiate.

They should be the same, because they provide the same value to the company.

Also, there are trade-offs to where one lives.

I probably don't need to list the up and downsides of urban living to this audience, but living in a rural area, you:

- Definitely can't get by without a vehicle, if you live some distance from a city

- Fuel for that vehicle

- Goods and services tend to cost more

- Less convenient access to museums, parks, gyms, etc.

- Often more money is needed to maintain real estate.

Why on Earth should a company pay someone who lives in SF a higher wage just because they choose to live in a million dollar shack?

Yes, and it should also be tied to their spouse's income, their sex, gender, age, and skin color, to keep things fair. Perhaps their sibling's/ancestor's income too. Make sure you account for all these factors to keep things equal.

But if you're not able to account for all these factors, why not determine what an employee at a given level is worth to the company, and pay that amount to anybody who can successfully communicate & do the work, regardless of their circumstances or physical attributes?

Paying people extra for living in HCOL areas is a great way to further fuck up the housing markets of expensive cities

Should someone be paid more if they move to an area with a higher cost of living, even if they started in an area where they were making a lower salary?

If I move from nowhere, KS to NYC or SF, should my salary quadruple (or more)?

Hmm, if so, how hard would it be to game the system and only make it look like you moved to an area with a high CoL?

Does your company base it's product price on cost or value when selling?

Should employees be thought of differently?

My answer is No, they should not have to take a pay cut based on location.

Another thought, if you do cut their salary, what does that do to loyalty and retention? Will you be paying more in the end to replace good people?

Also, should employees' salaries be tied to their position on the org chart, should high and low salary ratios fall within a bounded range, and should employees all get some portion of ownership of the companies they work for?

I think the real question, if a company can hire someone cheaper that can do the job just as well as the more expensive employee, why should the company keep them? I believe this has already been answered by the market.

Salary comparison base on $ seems non sense. How about making comparison with local usefull goods: kg of rice, litter of potable water, number of m2 you can mensualy rent...

What if we invert this.

Assume the company pays the same irrespective of location.

Should an employee in SF or NY have a lower standard of living compared to an engineer who lives in a low COL area?

Nope. Cost of Living (CoL) will always out pace/pivot faster than HR could accommodate.