Equal pay for equal work – globally

The pandemic has changed attitudes towards work in many or most parts of the world. The experts are now debating why this is but, as the battle for talent rages, more and more employers are having to reconsider the terms of their relationships with employees.

For white-collar workers, companies are coming around to the idea of working “hybrid” (part office, part remote). Some are going beyond this to become fully remote-friendly or even remote-first or remote-only. “We’re happy for you to work from anywhere” is increasingly a lure that companies can use to attract top talent.

For companies willing to let employees work non-commutable distances from an office, the next question is: Do you pay differently based on the geographic location of the employee?

Historically, companies with offices in multiple countries have had different pay scales by country or region. This has given the employer a cost advantage: “We can hire a bunch of engineers in India to do the same work for a lot less salary cost.” Many companies with multiple offices across the US also pay differently depending on which US office you are attached to. Up to now, we have all accepted this as normal.

But… should it be normal? What is the logic of paying someone less because they happen to be living in Place B rather than Place A?

I can see two possible arguments from the company’s point of view:

  1. Living expenses are lower in Place B, so you don’t need as much money to enjoy the same lifestyle as in Place A. In this case, the subtext is that your salary reflects the lifestyle your employer believes you deserve to have, regardless of where you are living. (Ahem. Why should my employer have an opinion about my lifestyle?)
  2. The labor market rate for the role is lower in Place B – you won’t be able to find a higher-paid job there, so an employer can risk paying you less than in Place A, where there is more competition for your skills.

The problem with both of these arguments is that they assume that the value of an employee to a company is correlated with where the employee lives.

This is held to be true even when an employee is working for a multinational company whose benefits from the employee’s labor do not depend on where that labor is performed. As an example: a highly skilled performance engineer is able to save his employer millions by finding computing performance wins that lead to lower cloud computing bills. He can do this from anywhere in the world (probably working on servers spread around the world), and the cloud bill is not going to change based on where he is living.

Similarly, when I arrived in Sydney I was doing the exact same product marketing role for AWS that I had been doing from San Jose, working with the exact same team (most of them in Seattle). Yet I took a 20% pay cut “based on your level and role in the Sydney market.” The actual work I performed wasn’t suddenly worth 20% less than it had been – my new salary simply represented what AWS thought it could get away with paying me in Sydney. 

Their logic was not flawed – most similar jobs I’ve been pitched so far by Sydney companies would pay much less than the equivalent AWS role. But that doesn’t change the bad taste in my mouth over the wage cut. Why would I want to keep working just as hard as before, for less money? (I also hit the well-known Amazon four-year cliff, which would have seen my salary fall precipitously next year and again the year after, in addition to this year’s pay cut. Not surprising that I asked myself why I should continue in that job, and decided that I shouldn’t.)

My conclusion is that companies will pay as little as they can get away with for a given individual and role, and geography is simply another bullshit excuse they use to pay less. This is wrong: “Equal pay for equal work” should apply in this sense, too.

The argument from proximity

In the change from office to remote work, some managers may feel that an employee is worth less to them if that employee is not on tap in the same physical location, immediately available for ad hoc brainstorming and casual chats, to quickly answer questions, etc. This is a fair argument to make, but it’s not the argument we’re actually hearing. This logic has not usually applied in cases where working far from company HQ nonetheless means working in a company office somewhere. Sun Microsystems, for example, had offices all over the world, whose teams managed to work together effectively in spite of time zone differences and physical distance. For a manager to say now: “You are worth less to me because I can’t see you every day” feels punitive and smacks of managerial insecurity.

Relative cost of living

To set salaries in various locations, companies use salary data bought from third party “experts.” I have a strong hunch that this data does not include cost of living. If it did, the experts should recommend higher salaries for equivalent roles in Sydney, where the cost of living is higher than in San Jose, according to the calculators/indexes I can find (and looking at our own household budget). 

However, salaries in Australia are generally lower than in the US, so employers (both local and multinational) calculate that they can pay less for the same jobs. This has caused some Aussies to leave Australia for years or permanently, creating a brain drain that the country seeks to reverse with special visas for high-value workers. I’d be curious to see some data on how well this program is going – the visa isn’t going to permanently reverse brain drain if, once here, people can’t get jobs that pay what they feel themselves to be worth. (As long as the visas are granted mostly to people from lower-wage countries, employers will continue to get away with paying lower salaries for the same work, but I know that Silicon Valley folks are applying as well.)

Increasingly, employers are competing for talent not just with local employers, but with global players. In this scenario, the market rate for a given job role will tend to equalize across geographies. The first companies that figure this out and start paying on globally competitive scales are likely to snap up – and keep – the best talent, worldwide.

Thanks to Linda McIver for suggesting the title!

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