100% remote work in exchange for 15% pay cut: Boston-based tech company 💵
Does a pay cut to work 100% remotely make sense given unequal costs of living? What are some possible workarounds in such situations?
For tech companies, remote work has now become a natural choice. We have seen remote work work at a large-scale through 2020 and the transition is much easier for tech firms.
The question, however, is how you execute it. Companies are trying their own variant to see what works best. The most popular is the hybrid model where you still expect employees to come to office a fixed number of days in a week.
But the most intriguing aspect is how all of this will affect the pay. Earlier, things were simpler - you worked at the local office for a company and were paid based on the local market rate. Of course you can argue that this isn't fair - the same engineer working in Google India gets 1/10th of the salary of an SF engineer. But with remote working, this pay discrimination is becoming more apparent.
Lose It, boston-based tech company, recently announced that they are moving to a hybrid model where employees have to come into the office only 2 days a week. On top of that, they also gave the option to work remotely 100% of the time if employees take a 15% pay cut. The assumption here is that people will move away from Boston and settle in less expensive cities or towns.
Lose It is of course not the first company to offer such a pay cut. Last year, VMWare and Facebook also publicly announced they will cut pay in case people move away from their current location.
For Lose It, 10-15% of employees are actually going ahead willing to take the pay cut and opt for permanent remote.
Does a pay cut make sense?
Lose It's CEO says that the pay cut is essential since if they hire an engineer from Houston and have another one working from Boston, it won't be fair to pay both of them the same salary. Why? Because the cost of living in Boston is much higher (60%+) than Houston.
Honestly, that's a poor excuse for salary cuts. Where a person lives is his/her personal choice. If someone opts to move away from expensive cities, they should be rewarded for the move and not penalised. Plus a permanent remote employee has multiple additional costs including work setup, utility bills etc. as I'd written about some months ago.
So it actually is just about saving costs for the company. By offering a 15% lower salary to a tier-2/tier-3 city employee, you're now able to hire/retain talent at lower costs.
What's the solution?
So is global pay the right away to go about compensating employees? Yes and No.
Global pay is ideal. Companies should aim for that. But not all businesses can support SF rates. So you should ideally pay what you can afford, but do so uniformly across all hires at the same level.
When I built the remoteness calculator to compare remote companies, this is one of the major distinguishing factors I included. Take a look here!