Friends,

So I’ve become a little infatuated with cute owl videos on instagram. Who hasn’t though amirite?

But my infatuation is now extending to me going to an owl flight adventure this weekend, where cute owls will land on my arm and I get to gawk at them. I’ll make sure to include pics of said cute owls in next week’s edition.

In the meantime, get ready for a bit of a longer read than usual, because this one’s a doozy.

Location based pay is a topic I could spend many hours and many more thousands of words discussing. Alas, I’ve kept this as succinct as possible, although it may not feel like it.

So grab your favourite beverage, strap in, and let’s talk about whether people doing the same job in different locations should be paid the same.

Enjoy this week’s edition 🦉✌

Matt

In case you’re new here (or just missed it) here’s the past three editions of the FNDN Series:

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Know a startup Head of People looking for answers 🙋 why not forward this to them for some instant karma? ✨

Just because you’re doing the same job as someone else in a different country, doesn’t mean you should be paid the same salary.

There. I said it.

The discussion around equal pay for equal work — in a world where jobs can increasingly be done from anywhere — has raged on for a while. And it was of course accelerated enormously by COVID (which I almost miss talking about because I’m so tired of talking about AI).

The discussion ultimately boils down to this:

Should someone be paid a salary that is benchmarked to where they live, or should everyone be paid the same?

Everyone has an opinion, and in my experience those opinions tend to fall along social lines, which I’m going to label ‘the haves’ and ‘the have-nots’.

‘The haves’ believe that the going rate for a role should be lower, meaning they can capitalise on ‘arbitrage’ (a fancy shmancy word for buying the same skills/capability for less somewhere else) and capture the upside (i.e. increased profits).

‘The have-nots’ believe that employees are entitled to be paid the same as their peers doing the same job a few thousand kilometres away, and that it’s morally unacceptable for a company to hire people in a cheaper geography, for less.

I’m here to tell you that they’re both wrong.

Because much like the remote vs in-office debate, everyone is focused on the wrong issue.

Remember that one?

Everyone was so set on convincing others that their way was right. 

(It was also a period of endless polls on LinkedIn, surveying how many ‘days in the office’ — ranging from 0-5 — was the right number of days. Ahh… simpler times.)

Not seeing the forest for the trees, many didn’t realise the real issue was actually flexibility — and the ability for people to choose to work in a way that was right for them/their team, and ultimately, their company. Not which binary work structure we should all be forced to adopt. 

Flexibility was the thing that was going to ensure: more women/marginalised groups could remain in the workforce, higher performance by letting people do their best work when/where they’re at their best, oh… and enable simple life efficiencies like going to the bank during working hours, which is the only time they’re open (who’s idea was that btw?).

While I think the remote vs in office debate has largely settled (PS it looks like everybody lost), the same affliction continued to affect the debate on ‘location agnostic pay’ (which is what I’ll now use to refer to ‘same pay for same work, no matter the location’ — because it’s a mouthful).

I was inspired to write this piece by a post from Buffer employee, Arek.

Buffer, for those who don’t know, led the way on pay transparency — and are now at a point where they make all employee salaries transparent, both inside and outside the company. Here they are.

They are also taking strides to ensure that two people doing the same job will be paid the same, no matter where they live.

I want to start by applauding Buffer's efforts here. 👏👏👏

I think it’s incredible that a company chooses a position to pay a single salary, regardless of whether they’re in San Francisco or Zimbabwe. It is truly an impressive statement on pay equity on a global scale.

My problem, though, is the assertion that this is the way all companies should operate.

Star Wars fans will know that only a Sith deals in absolutes. And as discussed with the RTO/remote debate, absolutes are rarely the best for everyone.

But while I’m not a fan of ‘everyone must adopt location agnostic pay’, I’m no proponent of blindly paying the market rate, either.

My argument — very HR of me — is that it depends on the context of the business and the individual, and so we’re going to explore a basic framework you can implement to help you make the right decision for your business. Whether it be at either end of the spectrum or somewhere in between.

The reason these two extremes (presented by ‘the haves’ and ‘the have-nots’) are unhelpful, is that they impose a rigid view on companies and individuals, without taking into account the full spectrum of drivers for a decision like this.

Here’s a few arguments against both sides to help illustrate.

“You shouldn’t hire someone in <insert cheaper country> if you can’t afford to pay them the same as your employees in <insert HQ country>”, is the thrust of the argument here.

Let’s look at a few scenarios where that doesn’t make sense.

Say a founder started a company in New York (where they’re from), and also ironically one of the highest cost locations in the world from a salary standpoint. Are they now obliged to pay all employees — regardless of location — at that same market rate as what they would if they hired in New York?

Is this requirement not a location penalty of its own? Forcing companies to pay top dollar by virtue of where they happened to live when they started. Ouch.

Should someone in New York have to move to a lower cost location to start a business? What if they can’t afford to move?

Probably not, because then we’d just be penalising entrepreneurialism.

If a business depends on location arbitrage to afford talent in order to operate, should it not be allowed to do that for the sake of its contribution to the economy and ability to provide employment to that person?

If someone is working in India, earning $40k USD, and a company wants to pay them $60k USD, even if their peers in the US are paid $100k, isn’t that a net positive for all parties?

Saying a company must adopt location agnostic pay is unfair to companies.

“Why shouldn’t we just pay what is normal for that country?”

“What obligation do we have to pay more if others don’t?”

“If someone is prepared to work for that salary, who are we to interfere with that?”

I could go on, but these tend to be the main points I hear in support of location based compensation.

To that, my argument is both a moral one, and an empirical one.

Firstly, if their choice is ‘no job’ or ‘job that barely pays them enough to live’, what kind of choice is that?

Also, what kind of employer do you want to be? One that rhymes with Shmikey?

Ok, I’m stepping down from my soap box. Now let’s talk about the practical business implications of not exploiting the lower salary just because it’s normal.

Storytime:

A company I worked for was US HQ’d, but globally remote. We hired someone in Indonesia in the IT team. 

Our approach for countries like Indonesia (characterised as an emerging economy) was to pay 90th percentile. What that looked like in this example, was that the candidate asked for a salary of ~$20k USD, and we offered them ~$35k USD. Almost double.

I can’t begin to explain the kind of impact this had on that person. They were stunned at the fact we a) valued them so highly, and b) didn’t do what every other company does and go “hey I could pocket $15k here”.

That salary enabled them to do things that they'd never been able to afford before — not extravagant things mind you — like childcare, healthcare and being able to take better care of their family. It didn't just improve their life, but also their families.

And guess who benefited most from it? The company did.

Now this person was twice as dedicated as they were for any old job, their loyalty was guaranteed, their focus, dedication, time and attention were given more fully to their job. And they excelled.

And sure this is an anecdote, but I bring receipts too.

So the question I would ask my company is this. If you could afford to pay someone a livable salary (that is one that goes beyond meeting their most basic needs, sometimes referred to as a thriving salary), why wouldn’t you? 

Paying someone a wage that allows them to focus fully and completely on their role, without worry of feeding themselves, putting a roof over their head, or if they can afford some kind of leisure, is evidently going to cultivate a more highly performing employee.

What we’ve talked about so far boils down to two things:

We can characterise both as a spectrum:

If a salary is both unaffordable and an employee couldn’t realistically live off it, we’re unlikely to hire here, so it’s best we discount places like this.

If a salary is affordable, but exploits low salary norms, we’re unlikely to see the benefits/outcomes we’re hoping for as a company.

If a salary is unaffordable but the person would be thriving on it, we need to consider how to minimise or mitigate our hiring in these regions.

And, finally, if we’re paying salaries that are both affordable and enable an employee to thrive, everybody is happy. This should be where we focus the bulk of our hiring and retention efforts.

Just as the real issue with remote work was never "how many days" but rather flexibility, the real issue with location pay isn't "same or different" — it's whether your approach is commercially viable and defensible.

Can you explain to any employee, anywhere, why you pay what you pay, and have that answer be rooted in something beyond "because we can" or "because we have to"?

That's the bar. And now let’s walk through a framework to help you clear it.

I’m going to start with an example for illustrative purposes. Say I’m a small startup in Sydney, Australia, and I want to start hiring internationally. 

Let’s walk through the steps to determine our approach to global pay.

This is the constraint most people skip because it feels crass. But it's the starting point, and pretending it's not only kicks the can down the road.

If you can afford location agnostic pay, great. I think you should do it. It simplifies everything, it's a genuine talent brand differentiator (Buffer is proof), and you remove a whole class of difficult conversations from your plate.

Let’s use our small Sydney startup example.

Assume we can afford to hire at the local rate based on our headcount plan, but we want to hire globally because we believe it can meaningfully widen our talent pool to more/better talent.

By adopting this rate for anywhere in the world, we can afford to hire locally, and we can afford to hire anywhere down range of Sydney. By this I mean any other country where the benchmark is lower.

But if the answer is "we can't afford to pay everyone the same," the honest next step is to define what you can afford — and make sure it's principled, not just cheap.

Which brings us to the next question.

If you're not paying the same everywhere, you need a minimum standard. A line you will not go under, regardless of what the local market says.

This is where the Indonesia example earlier can go from an anecdote to a design principle.

Remember, we paid that person ~$35k USD when they asked for ~$20k. Not for charity. It was a decision to pay a salary that allowed them to thrive, not just survive. And the company was the biggest beneficiary.

Your floor should be built on the same logic. Rather than "what can we get away with" think "what does it cost for this person to live without financial stress in their location?".

What can this look like in practice for our Sydney example:

If we're hiring globally, choosing to pay no less than 75th percentile (or higher) for the local market will ensure you're not inadvertently capitalising on unreasonable wages for where people live. If you're a globally remote org with limited access to data, grouping countries by similar economic profiles can be a simple way to stretch a benchmark without pricing every market individually.

Let's say our Sydney company decides to hire in the Philippines. The first move is to understand the local benchmark — but the second, and more important move, is to document what a thriving wage actually looks like in that market. That means a salary that covers housing, food, transport, childcare, healthcare, and leisure — not just the bare minimum someone might ordinarily expect to survive on.

Companies doing this benefit from the arbitrage and from ensuring their people are paid a salary that enables them to be successful.

If Step 1 told you that you can't afford location agnostic pay, and Step 2 told you what your floor needs to be, then Step 3 is where you get honest about the other end of the spectrum: what's the most expensive market you can sustainably hire in?

Your HQ location (or wherever the bulk of your team sits) is probably your anchor market — the one your comp model is built around. That's your ceiling. Anywhere more expensive than that should be off limits unless you have a specific, funded reason to be there.

That sounds obvious, but in practice it almost never happens. A founder sees a great VP of Engineering in New York, gets excited, and suddenly you're paying US rates for one role while everyone else is benchmarked to Sydney. Now you've got a comp model with a hole in it and a conversation you can't win when someone notices.

So get ahead of it. Be explicit about where you won't hire:

And revisit this as you grow. A company at Series A and a company at Series C have very different answers to this question. Where you hire should evolve as your ability to pay does. Markets that were off limits at 40 people might be perfectly sustainable at 200.

The point is: don't let geography creep happen by accident. Every country you add to your footprint is a compensation decision, whether you treat it like one or not.

This is the final test. The "does this actually hold together" check.

If you can't articulate your approach simply and equally confidently to a candidate in Manila as an employee in Melbourne, you don't have a compensation philosophy, you have a cost spreadsheet.

I met someone a couple of months ago who posed a global pay problem to me like this:

We have a team in Australia and we have a team in the US. The US team is paid way more than the Aus team because of the benchmark, but often managers are based in Aus while their employees are based in the US, and are paid more than them.

I’m worried that pay transparency is going to cause us some uncomfortable conversations. How do we explain this?

I asked a few questions, one being “why are you predicting this will be a problem?”. As we discussed further, I (incorrectly) made the assumption that a talking point might be around affordability. If the company can’t afford to pay the same rates in the US as in Aus, then it seems like a commercially sensible decision not to.

Then this person told me that, on the contrary, they were very well funded, and their margins (once profitable) were likely to be very high.

So my question back to them was this: if your cash position is such that it's immediately obvious to your people that the business could afford to pay consistently across geographies — and the viability of the organisation isn't threatened by doing so — what's your reason for not doing it?

I see this exactly the same as the printer test on pay transparency: if you accidentally print off everyone’s salaries and they become public and it causes you embarrassment, your approach to salaries is wrong.

The debate around location agnostic pay isn't going away. But the loudest voices are the ones at the extremes — and neither of them is useful to you as a Head of People trying to make a real decision, for a real company, with a real budget.

What is useful is having a principled answer. One that acknowledges your constraints, protects your people from being underpaid into disengagement, draws a line on the geographies that would break your model, and can be explained in plain language to anyone who asks.

Paying someone differently based on where they live isn't inherently wrong. Doing it without principles, without a floor, or without a defensible rationale is.

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