Location Agnostic Pay: The Future of Remote Work
Imagine the following scenario. You’re the CEO of a well-funded start up and you want to hire the best possible talent. You believe in remote work and are happy to consider candidates across multiple timezones. After receiving a couple hundred applicants and interviewing dozens of excellent tech professionals, you extend an offer to 2 individuals.
The first one happens to live in New York and the second one in El Salvador. Both have similar levels of experience and their roles will be very similar. Since you’re familiar with the US market, you decide to offer a salary of 150k + stock options to the candidate in NY. On the other hand, you don’t really know much about market rates in Central America. After a little research, you settle on an offer of 70k for the Salvadoran candidate. You’re happy since you’ve saved a lot of money from your hiring budget and both candidates end up accepting their offers.
The months go by and it turns out that the candidate that resides in El Salvador is actually a better performer than their peer in NY. Both are doing well at their jobs but the New Yorker rarely seems to go the extra mile and lacks the initiative and drive that are necessary at a young start up. After 1 year, the New Yorker leaves for another company. 6 months later, the Salvadoran employee, feeling undervalued due to the pay disparity despite their higher performance, also starts to look elsewhere. They are quickly snapped up by a competitor who recognises their talent and offers them a salary on par with the New York market rates, acknowledging the concept of location-agnostic pay.
Location is not correlated to competence or skill
This scenario is completely fictional but I know it will strike a chord with many tech professionals who happen to live in low cost of living locations. The days of “offshoring” in the hopes of saving a bit of money from hiring budgets are over. Competent tech professionals can ultimately get paid top salaries no matter where they live. Location is not correlated to competence or skill. The CEO’s idea was well intentioned but short-sighted. Enter location-agnostic pay.
What is location-agnostic pay?
This is the concept that people should get paid based on the value they bring to an organization, independently of where they live. Many companies that are advertised in this topsalaries.tech follow this compensation policy (e.g. RevenueCat, Gumroad or Basecamp). Others might adjust their pay based on a cost of living factor but still pay top of the market rates to all their employees (you can see this for example at Buffer’s transparent salaries page).
In the day and age of remote work, I believe this is the way to go forward for all successful companies. In the words of Help Scout CEO, Nick Francis:
“If an employee working from Argentina, Ukraine, or South Africa is making a killing relative to the person delivering the exact same business value from New York City, it’s not the business’ concern — just as what they spend on an apartment is not our concern”
Despite the recent waves of tech layoffs and the complex state of remote work in 2024, I predict more and more companies will slowly adopt these practices.
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