Facebook’s remote-work pay cuts are going to get complicated

Zuck is talking about localized compensation — here’s what that means.

May 28, 2020

You may have heard about the big catch in Mark Zuckerberg’s remote-work announcement last week: Facebook employees who move away from Silicon Valley might be in for a salary cut.

The company will adjust its pay according to an employee’s new hometown.

After all, $10 in Rock Springs, Wyoming will get you a few more drip coffees than $10 in West Hollywood.

Sound tricky? It is

There’s some precedent for Facebook’s approach. Take the minimum wage: In general, companies only have to pay the minimum wage where an employee works — so your accountant in Iowa City is paid the local minimum, not NYC’s.

But TechCrunch outlined a few potential problems with the “pay the local rate” model. A city’s cost of living can fluctuate quickly — as any Miami resident will tell you — and keeping up is not easy.

Let’s say you’re a company based in Chicago with a huge remote workforce. You could:

  1. Base salaries on your HQ’s location. Everyone gets paid Chicago rates no matter where they live.
  2. Localize the salaries. This is Facebook’s approach: Adjust employee pay according to the local cost of living.
  3. Use national averages. Pay everyone according to a country’s trends, regardless of where they live.

There are loopholes in all of these approaches. WordPress’s parent company, Automattic, doesn’t factor in location when it pays its global workforce — but with national currencies in constant flux, it’s tough to get the equivalencies right.

Just a little off the top, please

Tech workers might be able to stomach a small loss if it means fulfilling their dreams of strapping on a cowboy hat and becoming a ranch hand. According to one poll, 35% of Bay Area tech workers said they’d move out even with a salary reduction.

But there are limits: Of the workers OK with a pay cut, only 6 percent said they’d accept a reduction above 30 percent.

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