Cost of Living vs Cost of Labor in the post-COVID compensation world

sofih·Dec 04, 2020

Posted in:Advice Compensation Diversity, Equity & Inclusion

Hello everyone, I'm writing to see if anyone else is struggling with the same issue I am. I am a managing director of a boutique digital agency based in Washington, DC. We used to have employees only in the DMV region but since COVID, we've gone permanently remote. We'll have coworking memberships for employees post-COVID, but we will never be entirely oriented around an office (or office culture) again. While this has opened up great hiring opportunities, it has left one huge question: should I be basing compensation on cost of labor, cost of living, or some combination of both? I want to be a good actor in the (historically sometimes predatory) field (even if we are a tiny tiny player in a big ecosystem), so I want to keep equity and transparency in mind, but I know have employees in so many different markets that salary expectations are all over the map. Is anyone else thinking about how remote companies should handle this? For context, we rarely hire in SF or NYC because we just can't compete with cost of living there, but we have people in Sacramento, Washington, DC, Louisville, Atlanta, and parts of New Jersey. We're not a tech start-up or a "tech company" so it's not quite apples-to-apples with many here (the agency world is a billion years behind and also increased comp for me may mean increased rates which I have to weigh very carefully), but I'd love to hear the rationale behind how people have addressed this issue if anyone is willing to share. Also open to book recs, podcast recs, etc.! Thank you in advance!

HannahBaldovino·Dec 04, 2020

Hi Sofi, from what I've seen cost of living is definitely a factor. I've seen companies adjust salaries accordingly when people have decided to move out of an expensive city. For example living in Silicon Valley and then the employee decided to move out to Nevada since we're all mostly remote and there was an expectation that the salary would be reduced and in accordance with the area. That's just what I've seen, I wonder if others have seen differently.

teresaman·Dec 05, 2020

There was a phenomenal thread about it here with lots of diverse opinions: https://elpha.com/posts/cogzfi67/should-employers-vary-salaries-for-remote-employees-by-location

Isla·Dec 05, 2020

For whatever my opinion is worth (I'm not a C-level/founder/etc.) I would suggest basing your salary around the location of the head office, even if it's remote. If someone is looking for a job to improve their situation in life, then getting "Washington D.C." pay in Kansas City can be life-changing. Conversely, what's to stop a candidate who you hire from, say, New York, to moving to a cheaper cost of living location and pocketing the difference?

Iynna·Dec 05, 2020

I just came here to say that your opinion is always worth it Isla (C level or not)!

amandajude·Dec 05, 2020

Was thinking the same thing:)

Demetria120·Dec 05, 2020

A couple of issues: (1) do you want to have to keep changing people's salaries when they move? what if they move frequently? (2) I would leave a company that reduced my pay if I chose to live in a lower cost of living area. Why? Because I might later need to take a job in a higher cost of living area and they will attempt to base my salary on whatever is my current salary, often regardless of COL. I've sometimes been asked on applications to provide my salary for each role and it's important for salary negotiations that it's always increasing. It shouldn't be that way, but it is. So, I would not accept any perceived step backwards.

amandajude·Dec 05, 2020

It’s pretty tough to stay focused on work when your salary is subject to change often. Sounds like a stressor for the employee for sure. What hit to have to move back home to take care of an aging parent and then take a pay cut on top of it

ellenflanagan·Dec 05, 2020

I have to say that @sofih, you give me hope for human race and I want to applaud you and the ELPHA platform for even having these conversations so that you can make a fair and equitable decision. Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has. MM

Nelida24·Dec 06, 2020

Hi Sofi. Recently bumped into Cultivate People a startup working compensation. Their platform may be helpful.

ninabaliga·Dec 07, 2020

I think Buffer handles this in a really interesting way. 1) They make all their salaries public (which I think every company should be doing if we really want tackle lack of equity in the workforce). 2) They are transparent about how they calculate it (both through cost of living and through levels in the organization).3) They are regularly reevaluating this structure to find pitfalls and benefits, and communicate clearly to their employees on the "hows" and "whys" of all these decisions. They have done remote first for many years (so have enough experience and historical data to understand what remote companies means for people). https://buffer.com/resources/salary-formula-changes-2019/https://buffer.com/salary/