The Argument for Location-Based Salaries Is Falling Apart

Faced with unfair pay disparities, tech workers are finding ways to game the system.
Open wallet with 50 euro bill inside
Photograph: Paul Linse/Getty Images

Isaac, a social media team lead at a sports tech startup, is looking to hire a senior social media manager to join his team. The problem is that he lives in Berlin, earns $63,000 a year, and manages 10 direct reports, while this new London-based person would earn exactly the same without the management responsibilities.

“I told my boss I thought it was ridiculous,” says Isaac (not his real name; some names in this article have been changed to protect anonymity). “His suggestion was not to open the position in London, but the talent pool is much stronger there, and I know I can get the quality of person I need.” Isaac knew the salary bands would differ, but it was only because of the company’s location compensation policy.

When he approached HR to query the location weighting and joked that it would make sense for him to apply for the role himself, they suggested he should. “I’d have less responsibility with managing and would earn the same salary,” says Isaac, “but that would mean moving back to the UK, and I don’t want that.”

Location-based pay has long been the norm in the tech industry, with many companies benchmarking based on competitive market rates advertised in each city, country, or region, rather than on living costs in the area, as is sometimes assumed. However, as remote hiring becomes more widespread, the fairness of location-based salaries is being called into question.

Amid an increasingly intense fight for talent, several companies have taken steps to become location-agnostic. In 2020, Reddit abolished geographic pay zones for US employees, instead tying salary ranges to high-cost areas like New York and San Francisco, irrespective of where someone lives. In the autumn of 2021, online real-estate marketplace Zillow announced it would no longer cut pay for staff who move from its key operating areas, and the cloud software business Okta announced a similar approach in March.

A crisis in the concept of pay bands first began with the pandemic in 2020, as more tech workers left urban areas to feel safer, benefiting from more affordable real estate and room to work, as well as proximity to family. A mid-March survey by Upwork found that since 2020, 2.4 percent of Americans moved as a result of remote work, but almost four times that number—9.3 percent, or almost 19 million—are planning to move. Companies like Meta and Twitter responded by cutting the remuneration for those who move to less expensive locations, while Google slashed salaries by up to 25 percent for workers who chose to work from home permanently.

While it’s particularly galling for a manager like Isaac to discover they’re earning the same or less than their more junior reports simply due to where they live, pay discrepancy issues exist across the board. According to 2021 aggregated data from the HR analytics platform Charthop, employees in the same roles experience location-based pay differences ranging from 3 percent among entry-level associates up to 90 percent for software engineering roles. For example, a software engineer in India would expect to earn 7,000,000 rupees ($9,175) per year, while the same position in San Francisco would be paid at least that much each month, according to data collected by Glassdoor.

Faced with unequal pay for equal work, some are gaming the system. During the pandemic, Stas Dovidenko, a Moscow-based visual and product designer at Sberbank, was told he could move anywhere in Russia for three months to lower his living costs. Several, including Stas, crossed the border to Tbilisi in Georgia, where living costs are 26 percent lower than in Moscow.

Now that the pandemic is ostensibly over, so is the opportunity for Sberbank employees to reduce their living costs. “I was only working from Tbilisi for two weeks, but some stayed longer and kept earning their Moscow salary,” says Stas. “If you want to move officially, the paycheck will be lower, but if you trick them and just move by yourself, nothing will happen.” Workers based in Russian cities like St. Petersburg, Kaliningrad, or Yekaterinburg earn half what those in the same position in Moscow earn. With just a quick call each morning to connect with his distributed team, Stas believes it would be relatively easy to pass off living in one city, when really you work from another.

He’s now looking to leave Russia and is applying for jobs at Silicon Valley tech firms in the UK and US. “My recruiter told me that Google has an internal policy that prohibits hiring people from the Ukraine and Russia,” says Stas. “I don’t know how much chance I have with other companies and all the immigration issues, but I want both a higher salary and somewhere I can build a life with my wife and child for the next 10 years.”

Lack of transparency around employee’s locations cuts both ways. “With a fully remote setup, it’s easier for companies to take the focus away from their location-based pay discrepancies, because workers are less aware of where colleagues are joining from—you could work with someone for six months assuming they’re in the same city as you,” says Joe, a former employee at Shopify, who was with the company when it moved to full remote working in May 2020. “There were always rumblings about pay inequity for various reasons, but Shopify was able to allay that because employee shares were doing so well, and therefore base salary didn’t matter as much,” he says.

“All the information we got about salaries was by asking around, because discussion was very much discouraged,” he explains. Although Joe never found out how his salary in Montreal compared to positions in Toronto and the US, he says he worked with a senior product designer in Seattle who was making $180,000, while that role in Canada was earning $120,000 Canadian ($96,000 USD).

Shared internal spreadsheets and sites like Blind, where global tech workers can compare salaries anonymously, increase awareness, but the lack of transparency makes flagging location pay discrepancies very difficult. With distributed teams and obfuscated metrics for determining salaries, employees struggle to know whether they’re being underpaid—and how much they might lose if they relocate.

It’s no more straightforward for remote freelancers, who have always had to deal with the perceived value of their location when negotiating rates for every single contract. At the start of her career in 2012, graphic designer Nina Geometrieva worked as a freelancer and remembers how potential clients would often say her prices “were too high for someone who lived in Macedonia” and demand a drop in price. “This was a big red flag,” she says.

In January, Geometrieva left a senior product designer role at Google Maps in Tokyo to join Instagram in New York, seeing her salary more than double—even though technically it’s a remote working position. “As much as I’d like to believe I magically became twice as good as a designer, it’s just the location, because New York offers one of the top product designer salaries on the market,” she says. “As the world continues to adjust to remote work, location-based salaries will become meaningless—I don’t know whether companies will stick with them, but it’s clear workers are willing to vote with their feet.”

Rita Trehan, founder and CEO of business transformation consultancy Dare Worldwide, pegs the notion that different locations deserve different salary bands to the late ’90s and early 2000s, when companies outsourced low-cost manufacturing to Eastern Europe and China and software development and customer contact centers to India.

“It’s contributed to a belief that compensation should be cheaper in certain markets, and it’s a myth companies should stay attuned to,” she says. “Companies shouldn’t be making judgment calls on salaries based on where people live, particularly as that may not be a personal choice, but might relate to socio-economic status and a whole other host of reasons.”

In mid-February, Buffer, a social media management platform for brands, consolidated its salary formula from three to two cost-of-living bands: Global and High. Most of the team is paid in the Global band, and a few in the most expensive cities, such as San Francisco, London, and Zurich, are paid in the High band. “Fifty-five of our 85 teammates saw an annual salary increase, which on average was $10,000,” explains Jenny Terry, director of business operations. Buffer has been remote since its launch in 2010 and began sharing salaries of all employees online in 2013.

“The ultimate goal is eliminating the location component altogether,” explains Terry. “But moving everyone up to the High band would cost Buffer about $1 million, and we want to be able to withstand the budget implications, so it will be a phased approach to get there.”

Updated 5/4/2022 06:00 ET: This piece has been updated to reflect that while salary cuts in the past, there were no pay cuts in the most recent consolidation.


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