Compensation Trajectory: Sure, I can relocate from [HCOL city] to [LCOL city] and come out ahead today after factoring taxes, home prices, etc. What happens in the long term? Will I have a harder time getting promoted because of lower visibility? Will my annual raises and stock refreshes be lower than my counterparts who did not relocate? In tech-dense areas like the Bay Area, I can switch jobs and negotiate a substantial salary increase. Will LCOL areas allow me to substantially increase my salary when I switch jobs?
Home Prices: Folks often cite cheaper housing as a reason for leaving HCOL areas. I generally agree with that. But housing is an investment, not necessarily an expense. You might be paying seven figures for a small townhouse in the Bay Area. However, you'll get your money back when you sell your home in the future (assuming a sufficiently long time horizon and the ability to wait out dips in the housing market). Like any other investment, there are risks associated and ROI is not guaranteed, but my point is that spending $1M on a house is not the same as spending $1M on a luxury car.
Purchasing Power: Earning more money in a HCOL city (relative to earning less in a LCOL city) goes a long way once you leave your local economy. Want to send your kids to a private university? Most tech employees won't qualify for financial aid regardless of where they live. In that case, tuition for [private university] is the same regardless of whether you live in San Francisco or rural Oklahoma.
Historically, nationwide, housing is not an investment. The average house in the US appreciates at approximately the rate of inflation, perhaps a bit better. And you always need somewhere to live; unlike stock or a business investment, you can't sell your house without needing to buy or rent another one. Your money should be put elsewhere for investment purposes. There are certainly some hot markets where this isn't true, however.
> But housing is an investment, not necessarily an expense.
This attitude is exactly why HCOL cities are HCOL cities, and why said cities have been pushing their low-income residents further and further into the suburbs (or into entirely different metropolitan areas!).
The sooner we can do away with this attitude of land being something to hoard instead of something to be used, the sooner we can start actually addressing things like income inequality. And in the process, doing away with this attitude will almost certainly put a massive dent in the NIMBYism that plagues a lot of these same HCOL cities.
Hah, that's an interesting point. How exactly do you expect to get people to change their attitude?
I don't own a home and I've spent a nontrivial amount of my net worth paying rent in HCOL areas, including the Bay Area. Renters want prices to go down. Homeowners want prices to go up. And the world is round.
Perhaps some legislation and removal of zoning restrictions would help.
> How exactly do you expect to get people to change their attitude?
That is indeed the question. The people who stand to gain from a HCOL area being HCOL are almost certainly not going to do so on their own. Which brings us to...
> Perhaps some legislation and removal of zoning restrictions would help.
Perhaps. And luckily, renters typically outnumber landlords in these areas, so you'd think that'd be a slam dunk, but then said areas end up with milquetoast approaches like rent control instead of actually addressing the issue of land value speculation driving up rent.
My preferred solution would be to pull a Henry George and institute a land value tax, with the revenues going directly into a UBI program. This would readily stifle the idea of "investing" in land (since it'd be a waste of money to pay LVT on land you ain't using), while not stifling any incentives to develop on that land (since only the land itself would be taxed, rather than the improvements on it).
And then yeah, zoning restrictions need to get chopped down by quite a bit.
The problem in my mind is that while homes are investments they’re not great investments (they’re rather illiquid, they’re not diversified, they’re multipurposed when a domicile and that makes valuation and decisions messy). They carry a lot of benefits too though, so it’s a worthwhile asset, but having to put a larger % of your wealth into that asset would be suboptimal. In my experience the delta on home prices (and then down payments) is in excess of the salary deltas but however that math breaks down individually seems like the right thing to focus on.
Oh yeah and then after that you can choose where to live for whatever reasons work for you :-)
My understanding is that you can "liquidate" by taking out a home equity line of credit or by doing a cash out refinance. Both of those options only work if your home has appreciated in value.
I'm not particularly knowledgable about housing so I could be wrong here - but if another 2008/2009 happens, you can just keep the house and wait for prices to recover. There are some assumptions baked in:
- Either you don't plan on moving or you can cover a substantial amount of your mortgage from rental income if you do move.
- You're not overleveraged. If you lose your job or take a pay cut due to a recession, you can still continue making mortgage payments on your house without risk of foreclosure.
Caveat: There are probably some areas where housing prices never fully recovered after the 2008 financial crisis. But there also areas like the SF Bay Area, where the housing market is doing well even in the midst of wildfires, a pandemic, and tech employees fleeing the area in U-Haul trucks. As with all investments, nothing is guaranteed. For what it's worth, your run of the mill index fund would have taken a huge hit in 2008 as well. It wasn't just the housing market.
Doesn't this just make it a little too obvious that the company is more interested in paying you as little as they can get away with rather than paying you for the value you bring. The employee equivalent of this is accepting the wage they're offering and then optimizing to do as little work of value to the company as possible.
it wasn't obvious that the market doesn't run on labour theory of value? Of course a company is going to pay you as little as you're willing to sell your labour for. That's why the exact same dinner costs less in Brunswick Georgia than it does in Palo Alto
Maybe not at Stripe, but a lot of big tech employees (especially at Google and Facebook) would get substantial paycuts if they got paid for the value they brought to the company rather than the market price ("as little as they can get away with").
the average FAANG engineer does a shockingly small amount of work that has any impact on revenue
The average FAANG engineer is partially being compensated for NOT working at a competitor- i.e. the best talent is also the biggest threat and if there isn't a salary cap then the NY Yankees are sometimes going to sign redundant players just to keep them from improving competitive teams.
This arguments fails on so many dimensions that it must just be a meme. I’ll use Google as the example. For it to work Google has to be able to monopolise the buying of talent.
Most damning, the premise itself is self defeating. Somehow Google is picking the most talented people (delivering far in excess of say $1M marginal returns), yet somehow it is paying well below that to steal that talent and furthermore Google is then wasting that talent (employee delivering value below their pay+overhead). To assume Google chooses to waste talent merely to achieve some low value outcome (damaging a competitor by $1 doesn’t magically enhance Google’s returns by $1 so the factors are way out here) seems to assume the Google is somehow acting against their best financial interests. I don’t think Google is as poorly run as that.
Also:
1. Occam’s razor: Could it be that a Google is actually getting good value by paying very high salaries?
Yes. The average revenue per person for Google is about 160G$ / 115kiloemployees = 1M4 per employee. I do note that using an average is silly because the value distribution is not flat, but neither is the employee salary distribution flat. But the figure is so large, average does say something useful for back-of-envelope calcs.
2. Can Google monopolise by buying power alone?
No. Other companies have similarly high returns per employee (Apple is 260G$/160kiloemployees, Netflix is 20G$/20kiloemployees) so for Google to outbid them, it needs to outbid above the marginal revenue per employee, which clearly is well above a 600k$ salary.
3. Can Google corner the market for talent by restricting supply?
No. We know that there are plenty of talented developers because Google isn’t the only company making over $1M revenue per employee. Google employs about 115000 people. Let’s say 50000 of those were “overpaid“ to remove them from the competitors. If the total pool of equivalent talent were as small as 250000, then Google couldn’t monopolise talent. Yet other companies with high revenues per employee have a sum total of employees higher than 250000. Furthermore Google’s returns per effective employee become ~$2.8M/employee, so Google can obviously afford to pay $1M for talent it really wants!
Your sports analogy fails because sports are designed to be zero-sum where there can be only one winner, so the best player can capture more of the winnings.
Current employees are not the only revenue generators within a company, especially in a high margin monopoly business. Most of the value in Google was created over a decade ago when they achieved market dominance so revenue per employee is an unhelpful metric in their case.
I don't disagree with your other points, just the first.
However making the argument that the marginal gain from an employee has to exceed the marginal cost is much more difficult, so using an average is just a fair proxy for making the point.
My assumption is that Google are smart enough to know extremely well their marginal gain, which must be an upper bound of what they would rationally pay for an employee (salary plus overhead plus opportunity cost plus variance).
Anyone that thinks a Google is employing people at a loss to cause damage to other businesses is a double plus badthinker IMHO.
Key word was 'partial'- in no way do I believe that they want valuable employees completely sidelined- just that if they are paying slightly above market and are carrying slightly more employees than they really need, it ends up being neutral or a net benefit to Google to do so.
That seems like a weasel-word, and “partial” was not the gist of your comment, and I have seen similar comments to yours like it is a meme.
Your implication is that the pool of talent is limited and that there is some sort of zero-sum game being played.
The pool of talent is clearly not limited and there are multiple indications of that e.g. a rockstar developer would be employed at rockstar prices of millions (or signed on at millions as per your sports analogy).
If Google were to take a talented person out of the pool, the loss to the competitors is the marginal difference in talent to the next lower talented person.
Put simply, the variation in measurement of talent is large, and training can make huge differences to talent levels. Your premise can’t work without some sort of perfect oracle.
That isn’t to say it doesn’t happen at some microscopic level, or that it doesn’t happen with some particular individuals... Edited: there are just too many sensible reasons why I think it couldn’t happen systematically.
Sure, if you treat and account for engineering like a cost center. The reason big tech companies are so successful are precisely because they treat engineering like a profit center. Though sales may be the organization actually bringing in revenue, without a product, they wouldn’t have anything.
Well of course you need a product. What I'm saying is that the median engineer at Big Tech does very little to influence it in any meaningful way(at least that was my experience, and people I know who have worked at Google/Facebook)
A tremendous amount of value was created by the early engineers of course and they still have top performers shipping new things. But as somebody who worked at one of these companies early in my career well after its monopoly was established, I felt like I was just given busy work to do.
This doesn't line up with my mental logic. If the companies are paying X amount, they have to be getting at least that much value back, or they wouldn't have that position.
Now sometimes after a new CEO or an acquisition you do see some internal shuffle and some positions deemed redundant are removed, but that's rare, and generally the positions are transfered from one less profiting category of the company to another.
So from my point of view, you could argue that the employees are worth ("value of company" / "number of employees") - "value of patents" - "value of brand recognition" - "value of production equipment".
I would bet that, especially at FANNGS, that equation would result on a much higher compensation per employee then what is currently given.
The reason people arn't being paid that amount though I believe is due to investors having the option to invest in someone else.
As an investor (an employer is an investor into an employees career). You always take a bigger cut of the value of what you invest in, and you're allowed that leverage because you tend to have the option to not invest in some particular X, and have a plethora of alternatives you could invest in as well.
Thus as en employee we tend to be paid market rate, instead of by value, because there are other possible employees who could provide similar value that be willing to undercut you.
If companies go full remote, it could mean that there are even more options for employers to hire someone who could provide the same value and is willing to undercut you, for example if they have a much lower cost of living, they might be happy with a lot less money.
My bet will be that if remote dev work becomes the norm in the industry, you'll see compensations level off, Bay Area compensations will go down as employer can hire from cheaper places, and places that currently had low compensations will increase, because local companies will now have to compete for talent with big companies like FANNG.
> If the companies are paying X amount, they have to be getting at least that much value back, or they wouldn't have that position.
Tech companies are in the business of creating new products. Hell its practically the name. All companies use technology, technology companies are ones that create new technology as a core aspect of what they do.
Predicting what new thing will be valued by the market and what won’t is a very hard and unsolved problem.
So just like the VCs that funded them, tech companies adopt a throw shit at the wall and see what sticks approach.
They can do that because the scale of users that can use your work is enormous. Getting it right in software can make up for a lot more of getting it wrong than in most industries.
“the average FAANG engineer does a shockingly small amount of work that has any impact on revenue”
In stark contrast to the average pre-ipo company engineer who has rarely discussed this “revenue” business and certainly not its even more shy friend, “profit”
Tech companies aren't charitable foundations designed to help developers. They're businesses. They aim to maximise profit. If they can lower wage costs of course they'll do it.
I suspect this is just the beginning of the move away from the Bay Area. Give it twenty years and small offices and remote workers distributed across the country will be very normal. Wages (and Bay Area house prices) will reflect that.
Too obvious? It can’t be more obvious enough. I’m sick of this weird phenomenon where people talk like it was maybe some other way. See: hn and every thread that touches on pay.
Might as well say it’s a little too obvious that shoes go on feet.
I'm not sure what exactly you are critiquing here.
>Doesn't this just make it a little too obvious that the company is more interested in paying you as little as they can get away with rather than paying you for the value you bring. You are payed your replacement cost. If you bring more value, you are harder to replace. It has nothing to do with total value, if this was the case, no company would ever make a profit.
Is there anyone who thinks that a company pays employees $1 more than they have to? I haven't met anyone who thought otherwise. Afterall, they aren't a charity.
>The employee equivalent of this is accepting the wage they're offering and then optimizing to do as little work of value to the company as possible
I also haven't met anyone who goes above and beyond out of some sense charity. I know people who work hard because they enjoy their work, or think they will get more pay, but not simply for the sake of the company value.
I don’t get why where I live is any of their business. Why on earth does it matter what it costs for me to live the life I want? All that should matter is what they need to pay me to compete with other companies who want to hire me too.
If the act of paying remote people differently based on where they remote from is successful then it means the free market isn’t working right and engineers for these jobs are commoditized.
If you live in SF, your job market includes non-remote SF jobs. If you live in Idaho, it doesn’t. Therefore your market wage is lower in Idaho even if you are doing the same work. Seems pretty clear-cut to me.
I think the reason is because cost of living adjustments were built into the salaries being offered. It would have been smarter for companies to offer jobs as X + Cost of Living Adjustment = Y. Instead, they just offered a salary of Y. I also think part of it has to do with an expectation of higher productivity when working out of an office or headquarters.
In the context of a 100% remote company, 'where I live' feels like it's none of the company's business. The parallel is a non-remote company paying you less to commute from Oakland than San Francisco.
Tying pay to location makes sense in the short-term as the industry transitions, but I don't see these policies holding over the longer-term.
Cost of living adjustments are nothing new, so I'm not sure why people seem surprised by them. If a person moves somewhere with lower taxes or housing costs, they'll easily come out even after a 10-15% pay cut. Also it sounds like only salary is affected, so it's an even smaller percentage of total comp.
I think if you are making 200k a year (which you almost certainly are at Stripe) you probably aren't in a position to complain about salary. I don't have much sympathy for someone complaining that instead of making an absurd amount of money in an expensive area, they are now making a slightly less absurd amount of money in a cheap area.
This is the kind of thinking that keeps us focused on the middle income portion of the company - the 200k/year earners deserve it! - rather than the extreme wealth end. And it’s not a justification for cutting anyway, when the value produced by the employee is unchanged.
This is real strange to me especially, since at my company I believe all of SFBA and NYC is +15% TC, but the rest of the country from Madison to Tempe to Boston are all the same TC band.
Companies with HQ in Oakland do tend to pay less. For a company with HQ in SF, I think they consider the employee pays for the Oakland savings with a worse commute, and since the employee is willing to work in SF they have to compete with SF salaries.
It's weird that nobody talks about what it means when you relocate. For Stripe it might not be an issue, but large companies probably have people in all different locations. This means that if you relocate to a place where someone else is already working, is it fair if someone moved there and is now being paid much more than you?
Also, what about if you had all women at a location and a man relocates there and gets to keep their higher salary. I think the women would feel that this is not okay either. This applies to any other protected categories where legal issues can come up.
There are other considerations when talking about salary, and whether people can keep higher salaries when they relocate from a place where there is high competition for employees and a high average salary to a place with lower competition for employees and lower average salaries.
Even though this is the same thing as pay cut, it makes more sense to me when described as: company pays you averaged living expenses + extra depending on position. It's in company's interest that you live in a low cost area. It's in your interest to make sure the "extra per position" doesn't go down when you move. As long as both sides are happy here, I don't see an issue.
Compensation Trajectory: Sure, I can relocate from [HCOL city] to [LCOL city] and come out ahead today after factoring taxes, home prices, etc. What happens in the long term? Will I have a harder time getting promoted because of lower visibility? Will my annual raises and stock refreshes be lower than my counterparts who did not relocate? In tech-dense areas like the Bay Area, I can switch jobs and negotiate a substantial salary increase. Will LCOL areas allow me to substantially increase my salary when I switch jobs?
Home Prices: Folks often cite cheaper housing as a reason for leaving HCOL areas. I generally agree with that. But housing is an investment, not necessarily an expense. You might be paying seven figures for a small townhouse in the Bay Area. However, you'll get your money back when you sell your home in the future (assuming a sufficiently long time horizon and the ability to wait out dips in the housing market). Like any other investment, there are risks associated and ROI is not guaranteed, but my point is that spending $1M on a house is not the same as spending $1M on a luxury car.
Purchasing Power: Earning more money in a HCOL city (relative to earning less in a LCOL city) goes a long way once you leave your local economy. Want to send your kids to a private university? Most tech employees won't qualify for financial aid regardless of where they live. In that case, tuition for [private university] is the same regardless of whether you live in San Francisco or rural Oklahoma.