Tough questions you can ask the HR of a remote company that offers you reduced Cost of Living (COL) based salaries
|Nityesh Agarwal||Jul 11|| 1|
Almost all the knowledge jobs have become work-from-home in this sudden pandemic. Societies, companies, employees and job-seekers - all have been caught in this sudden shift in the way of working.
Big companies like Twitter, Shopify and Facebook have announced that they are adopting remote work for good. It's inevitable that this will pave the path for other companies to follow suit.
But along with this they might also make location-based compensation the norm.
Pedro dos Santos @pedrovalesantos@dhh Scary that Zuck along with the announcement said that salaries will be adjusted if people relocate. Hopefully that doesn't become the norm.
Cost of Living (COL) based compensation: Remote companies often offer “competitive salaries” based on the “Cost of Living” in the employee’s local market. To understand what this means, imagine a remote company with 2 engineers who do similar work - one lives in California and the other in Panama. According to this philosophy, the company will pay the Panama engineer less salary than it pays the California engineer even though they have equal responsibilities.
I strongly believe that this is wrong. It disrespects the age-old slogan of “Equal pay for equal work”.
Companies can obviously save easy money using COL-based compensation scheme. Which is why their hiring departments have been trained over months, if not years, to defend it.
This puts YOU at a disadvantage as a future employee.
I’ve been doing some research on this subject for the last few weeks. And, I have come up with a list of tough questions that you can ask your future employer who offers you a reduced salary and cites the COL philosophy.
I compiled them into an article that you can find on my website —
This newsletter contains 12 tough questions against COL-based compensation. Along with this, I’m going to tell you what inspired me to ask these questions so that you may go deep into them if you want to.
Tough questions against COL-based compensation:
Question: How will you know that all the lousy work doesn't get passed on to you because it is justified in terms of 'returns on investment'? Will you be okay if the coolest projects were assigned to your peer just because he lives in an expensive city?
Question: Even if there’s an HR Policy against it, how can you be sure that your extremely well-meaning manager wasn't thinking about it when they assign you a project that you don't like? Wouldn't they be making a wise decision that is justified in terms of returns of investment? Can you be sure that they won't?
Basecamp is a company that has been fully remote for more than 15 years now. They pay everyone at their company in the 90th percentile, or top 10%, of the San Francisco market rates, regardless of their role or where they live.
They have also written a playbook on how remote companies can function. It’s called Remote: Office Not Required. I read it before I joined my first remote job 6 months ago.
Here’s an excerpt from it:
Your star designer out in the sticks is just as valuable (maybe more so) to the team as those working from the big-city home office. Make sure she feels that way.
By the same token, as a remote worker, you shouldn’t let employers get away with paying you less just because you live in a cheaper city. “Equal pay for equal work” might be a dusty slogan, but it works for a reason. If with regard to compensation you accept being treated as a second-class worker based on location, you’re opening the door to being treated poorly on other matters as well.
“Other matters” is important here. It can include the work that you do in your entire career!
Why you should dive deeper into this:
It amazes me to see how ahead-of-the-curve Basecamp’s founders have been regarding remote compensation. Check out their remote compensation article to understand how they handle other areas of compensation like bonus, raise, insurance and some juicy benefits!
Their book - Remote - is a must-read if you are transitioning to working remotely. Basecamp guys have been at it successfully for more than a decade and they shared their secret recipe in this book.
Question: How does cost of living based compensation take into account the differences in government spending accross countries? Shouldn't the employees be compensated for this difference?
Inspiration: Government Spending, Our World in Data
Public spending enables governments to produce and purchase goods and services, in order to fulfil their objectives – such as the provision of public goods or the redistribution of resources - like social protection, education and healthcare.
Recent data on public spending reveals substantial cross-country heterogeneity. Relative to low-income countries, government expenditure in high-income countries tends to be much larger (both in per capita terms, and as share of GDP), and it also tends to be more focused on social protection.
Large public spending means better public school infrastructure, better hospitals and lucrative social protection schemes like the following:
If you want to pay people to create an equal standard of living for all your employees, why not compensate them for the very significant differences in government spending too?
Question: What happens if I relocate to a lower paid region? Will I be compensated differently?
Question: What happens if I was living in a cheap city and decide to move to a more expensive one?
Question: What happens if I choose to be a digital nomad changing cities every couple of months?
Question: What if I choose to get an official address in some expensive city while I actually live in the suburbs?
Inspiration: My tweet exchange with CTO of Basecamp and CEO of GitLab
I replied to DHH’s tweet about Facebook that I included above -
And DHH retweeted it (!) -
Nityesh @nityeshaga@dhh @gitlab "Please note, it is the company's discretion to offer you a contract in your new location." LOL 😂 @dhh do you think this clause would come in handy when GitLab lays off employees who move to a more expensive city and ask for a comparable pay raise? https://t.co/f5Pplh6p51 https://t.co/0GGSbd0WUk
And then I got a public explanation from CEO and founder of Gitlab -
(Frankly speaking, these were my greatest moments of using Twitter. :p)
Question: What's included in "Cost of Living"?
Question: More importantly, who defines it? Should it be the employee who is actually incurring these costs? Or should it be the employer who is paying the employee?
Inspiration: The following tweet thread -
Other tough questions:
Q: Who dictates the proportion in which I should be spending my money?
Inspiration: A Macbook costs the same throughout the world. The same NASDAQ stocks are priced the same on a global market. It doesn’t make sense to have my entire salary reduced based on cost of living if I want to spend it buying such globally priced items.
Q: Where does the leadership in the company live?
Inspiration: This article from the CEO of Help Scout. Leadership in companies that offer COL based compensation, often live and work in high-wage markets but they might feel differently if they were subject to lower pay for the same work.
Q: How do you account for the costs of reduced opportunities that employees, who don't live in primary talent markets, incur?
Unless a company is ready to give satisfactory answers to all such questions, it should default to “equal pay for equal work”.
Traditionally, large American or European companies have outsourced labour to cheaper markets in South-East Asia to cut costs. Countries like China, India, Bangaladesh and Indonesia have become the hub for cheap manufacturing and cheap software engineering.
Remote companies that try to go with COL-based compensation are simultaneously trying to hire from a global candidate pool and reap the benefits of outsourcing.
They are trying to have their cake and eat it too.
Put simply, you should only accept the reduced pay if you are comfortable with being treated as outsourced labour by your company.
There are tough questions against “equal pay for equal work” in remote settings too. I have addressed them in my article and tried to give some thoughtful answers to them.
I have also speculated on how remote compensation and remote work will play out in the future, in my article.
I won’t talk about them in this newsletter because it has already become too long. You should check out my complete article to read more —
Finally, please share this article with your friends and family because it might just help them negotiate a better compensation deal with the HR of their remote company.
Most of us will probably not get truly equal pay anytime soon but I believe that there's value in setting expectations.
That’s all from me for now!