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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.
- Remote by David Heinemeir Hanson and Jason Fried
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.
I am writing this for the new job-seekers. It's a tough market out there but you should still expect "equal pay for equal work" at whatever remote company you work for in the future. Most of us will probably not get it anytime soon but I believe that there's value in setting expectations.
Tough questions against Cost Of Living (COL) based adjustments
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.
Below I present some tough questions that you can ask your employer who has adopted this practice.
#1. Opening the doors to discrimination at work
If you don't live in the highest wage city of the world, you might have a peer at the company who lives in a more expensive city than you. Are you ready to be treated as a second-class employee just because of the geography that you live in?
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'?
When your manager has the final say, isn't it possible that they distribute work so that a low-risk, low-impact project is assigned to you while your "more expensive" peers get assigned the high-risk, high impact one?
HR at your COL company: "We have a policy that says we won't discriminate based on the employee's location."
That's all well and good but what about the silent bias.
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?
#2. Differences in Government spending across countries
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.
In India, the government spent about 1,700 US dollars per head (adjusted based on Purchasing Power Parity) in the year 2015; while in countries such as Norway, that figure was over 30,000 US dollars (adjusted based on PPP) and in USA it was over 21,000 USD.
This lack of government spending is ultimately passed on to the citizens who need to pay for these benefits with their own money, thus reflecting it in their costs of living.
An impotent public schooling system means that employees need to send their children to expensive private schools. A broken public hospital infracture means that people need to avail the expensive private hospitals for their healthcare. And a lot of these private enterprises are not above profiteering in times of crises.
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?
#3. Relocations get complicated, at best and outright unfair, at worst
What happens if I relocate to a lower paid region? Will I be compensated differently?
Companies like GitLab are pretty transparent about this. "Yes, you take a pay cut."
But what happens if I was living in a cheap city and decide to move to a more expensive one?
I asked the CEO of Gitlab. Here's what he replied -
Coming from India, I know for a fact that a lot of people in lower-income countries will jump at this opportunity.
What happens if I choose to be a digital nomad changing cities every couple of months?
What if I choose to get an official address in some expensive city while I actually live in the suburbs?
#4: Loose definition of "Cost of Living"
The most common arguement against "equal pay for equal work" for remote employees is the difference in housing prices across cities/countries.
So, how do you define the "Cost of Living"?
Is it just the housing prices? And groceries? Restaurant bills, maybe?
That seems incomplete. It is only a small percentage of a lot of people's actual costs of living.
What about living with an elderly parent?
What about living a single life vs. being married? For that matter, how about having a stay-at-home spouse vs. having a spouse in a high-paying job?
What about the number of kids one has?
Number of dogs? Cats?
What's included in "Cost of Living"?
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?
Other tough questions
Who dictates the proportion in which I should be spending my money?
Electronic devices from big brands are priced the same regardless of whether they are sold in the USA or Brazil. A Macbook would cost you the same every city of the world (except for the import duties that people outside the USA probably need to bear).
So, what if I choose to spend just 10% of my income on housing expenses and 30% surrounding myself with the latest tech gadgets from the world? And maybe another 40% investing in NASDAQ stocks?
It sure doesn't make sense to have a 100% of my salary reduced based on just 10% of my expenses.
Where does the leadership in the company live?
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.
How do you account for the costs of reduced opportunities that employees, who don't live in primary talent markets, incur?
People who don't live in the tech hubs of the world might have to bear costs in terms of reduced networking advantages and lesser alternate job opportunities.
Unless a company is ready to give satisfactory answers to all such questions, it should default to equal pay for equal work.
People doing the same jobs and providing the same value should be paid the same.
It is simple. It is fair.
A COL employer: "But it's unreal!"
Actually, no. A lot of remote companies are doing this already:
Tough questions against "equal pay for equal work" and my answers to them
There are some really tough questions on the other side as well. I have been thinking about them for a while now. I'll take a stab at composing a reply to them.
"Isn't it against market economics to pay people, living in different cities of the world, the same money?"
No, it is not. On the contrary, I believe that equal pay for equal work is the default market state.
In fact, we already see it in a lot of places -
- Freelancers have been living this way for a long time now. Create a name for yourself and work for clients in the US from a beach in Bali.
- When you start a company, your customers pay you money regardless of where you live (unless your product's value is market-specific).
- Writing a book, teaching an online course, paid newsletters and other forms of passive income don't earn the creator a subsidised income based on the city that she lives in.
This is because we, as consumers, pay for the value that we get regardless of the gender, age or geography of the individual providing the value.
So, free markets pay equally for equal work, unless the work’s intrinsic value is dependent on geography (like a local news media).
And it makes sense. Physically accessing the internet from a different location has no effect on the value that you can create.
"Wouldn't this cause lots of jobs to go out of the US?"
I'll quote Blair Reeves here:
"If there are people elsewhere who can do a given job perfectly well for less compensation expense, it obviously makes business sense to let them. I can clearly understand why this would freak out a Facebook engineer making half a million a year in Menlo Park."
"After all, folks in Hyderabad and Kiev and Lagos are just as smart too and could do most of these jobs. Literally since the 1990s, we’ve heard dark warnings that the software development industry was on the verge of offshoring all engineering roles. (Seriously, this was considered a big problem in the late 90s.) But not only has it 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 think there’s something about building products aimed largely at American audiences and companies that makes American employees valuable."
All of this being said, I do believe that this time, the fear might not be misplaced. I see it as a real threat to the US and Silicon Valley, in particular.
But I also believe that this will be a net good for everyone in the long term. There's potential for a lot value in this future if you consider how this will increase the competition between cities, countries and governments.
Competitive, and not monopolistic, markets, produce the best outcomes for all consumers. If you subscribe to this belief, then an increased competition between the governments can only result in an increase in standard of living of everyone in the world.
Quoting Stratechery's Ben Thompson here:
[sic] "... this idea of the more that tech spreads out and is less San Francisco-centric, the more there’s driving competition between cities and between politicians and spreading the influence, I think we have a very positive sort of impact. Why can San Francisco be so poorly run? Well, all these tech companies are there. Well, there’s no competition. They’re not going anywhere. And so there’s just a general state of annoyance with each other and no actual change."
Future of remote work, perhaps?
“Long term,” said Matt Mullenweg, “I think market forces and the mobility of talent will force employers to stop discriminating on the basis of geography for geographically agnostic roles.” He thinks that for “moral and competitive reasons, companies will move toward globally fair compensation over time with roles that can be done from anywhere.”
How Automattic pays its remote employees across different geographies, Techcrunch
Compensation that does not depend upon the city that you choose to work in - will soon become a defining factor for a remote company's ability to attract talent in a global market. Best employees will flock to competitors that do not discriminate against them because of their choice of living.
In the (not so distant?) future, I suspect that remote work will become the norm for all knowledge workers. There will be a global shift in the way we manage human capital in the economy.
Now is the time for remote companies to get a leg up on this imminent future by adopting a non-discriminatory compensation policy.
Not every company will be able to afford to offer Silicon Valley market rates, just like not every company can afford to be in Silicon Valley today. Their compensation will be standardised and aligned to a particular tier:
- Tier-1 market (SV) rate offers top 10%
Example - Basecamp. Basecamp's founders (quoted at the beginning of this article) were probably the first proponents of "equal work, equal pay" in the context of remote work. 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.
- Tier-2 market (NY, Boston) rate - top 10-25%
Example - Help Scout. It has accepted that it's not financially viable for it to compete for talent in the Silicon Valley region. Thus, it aligns its employee compensation with second-tier markets like Boston, New York and Seattle.
- Tier-n market (India) rate offers the outsourcing rates
There will be other market tiers that standardise their pay to a particular location to capture the talent over there. The last tiers will capture the cheapest labour markets.
The most talented employees will want to work for Tier-1 companies, just as ambitious tech people around the world want to go to Silicon Valley today. Ability to work remotely will simply lower the barrier of entry for people to be able to realize their full-potential.
A great engineer from a Tier-5 market in Nigeria will be able to move up to a Tier-2 aligning company without comprising on her family, friends, house or city!
For the most part, I can read the same things and learn from the same people as a 22-year old in San Francisco might. With the adoption of remote work, I can use that knowledge to access the same opportunities too!
The Internet democratized access to information. Now, remote work can democratise the access to opportunities.
Thus, it is my strongest belief that remote working is an amazing and necessary complement to the equalizing force that is the Internet! <3
It'll be a better world with more opportunities and equal pay for equal work!
Adding a quick reminder at the end -
Do share this article with your friends, family and peers who are working remotely. It is highly likely that their employer is doing COL-based compensation or is thinking about it. Tough questions like these will help set the right expectations and help them negotiate their offers better.