How to decide if location-agnostic pay is right for you

Over the last 18 months, we’ve seen companies rapidly shifting to remote work, adjusting pay for relocating or working from home, and recently implementing return-to-office policies. We’ve also seen (at least here in the US) millions of people quitting their jobs as part of ‘the great resignation’.

This is obviously a critical time for companies to be thinking about and communicating their strategies for crucial topics like remote work and pay. Here at Wildbit we recently announced a shift to location-agnostic pay, and today I want to share some of the thinking behind our decision.

If you are a people leader curious about this setup and trying to decide if it’s right for your company, or if you’re evaluating your compensation strategy in general, I’m going to walk you through 7 questions I had about location-agnostic pay and how we answered them at Wildbit to show an example of how you could approach it, too.

(To be honest, when I started this project I wasn’t convinced that location-agnostic pay was right for us. I talked with nearly everyone on our team to capture everyone’s perspective and partnered with Finance and our founders to make an objective decision.)

What is location-agnostic pay?

What’s great about location-agnostic pay is that it’s simple to explain. Unlike location-based pay, where your location factors into what you are paid, location-agnostic pay doesn’t involve complex formulas or cost-of-living calculators.

Location-agnostic pay means that where you work does not factor into what you are paid. In other words, people in the same role are paid the same, independent of where they are located.

I’ve seen two flavors of location-agnostic pay: a worldwide and a countrywide approach.

• At Wildbit, we’ve taken a worldwide approach—people in the same job are paid the same, regardless of where in the world they work.

• Other companies, like Reddit, have a countrywide approach—people in the same job and in the same country are paid the same, independent of where in that country they work. For example, everyone in the same job in the US is paid the same, but their salary could be different from people in the same job who work outside the US.

Why have a compensation strategy in the first place?

Both location-agnostic pay and location-based pay are fundamentally compensation strategies.

Regardless of which one you adopt, settling on and sharing your strategy is (and has always been) important to create clarity for current and prospective team members. It should, for example, answer questions about what would happen to someone’s pay if they relocated.

In addition, a well-defined compensation strategy:

• Reduces the risk of inequities in pay based on favoritism or bias

• Reduces the risk of sunk opportunity costs because your team is distracted by or, worse, leaves because of pay

• And, reduces administrative overhead during offers and compensation review processes

All of these levers impact your productivity velocity. Plus, being upfront about your pay strategy can make it easier to attract the right talent for your company (and therefore reduce time spent on sourcing and qualifying candidates).

A word of warning—compensation strategies are not ‘one size fits all’

With many companies arguing for and announcing their pay strategies, it’s tempting to think that their strategy might work for your company too. A good people leader will know that no strategy is one size fits all. For example, just because location-agnostic pay is right for Wildbit, doesn’t mean it’s going to be right for your company.

First, and foremost, you have to ask:

1. Are your founders or executives even interested in location-agnostic pay?

2. What does your team think? Have you talked to them?

If your founders or executives aren’t interested in location-agnostic pay, evaluate how much time and effort it would take you to persuade them otherwise. If your team isn’t interested or doesn’t care, is there anything else you should be prioritizing?

A compensation strategy isn’t something you can define in isolation—it’s for the team and should represent them and what they believe. Our co-founder and CEO Natalie was curious about location-agnostic pay and I talked with nearly every person at Wildbit about it to make sure we could all support it.

7 questions about location-agnostic pay (and how we answered them at Wildbit)

1. What does it mean to say location-agnostic pay is equal?
2. Should pay be equal, or fair?
3. Does location-agnostic pay seem fair when it's implemented?
4. Is location a choice?
5. Does location-agnostic pay risk gentrification?
6. Does location-agnostic pay risk golden handcuffs?
7. Is location-agnostic pay affordable? 

1. What does it mean to say location-agnostic pay is equal?

Both Help Scout and Basecamp use the phrase “equal pay for equal work” to describe their location-agnostic pay strategy. Specifically, Basecamp’s founder DHH explains it as “everyone in the same role at the same level is paid the same.”

In this explanation, 'equal pay' means everyone in the same job is paid the same salary, independent of location.

This way of thinking about equal pay leads me to wonder about net pay—just because someone’s salary is the same doesn’t mean their net pay is. Net pay varies based on applicable withholdings, like taxes or required pension contributions, which vary based on your residential address or location.

For example, the difference between, say, Pennsylvania and California’s individual income tax is ~10% and their respective relative value of $100 is ~10%. Those two numbers alone could explain why there is a difference in base salary between similar jobs in PA compared to CA.

To make it more complicated, this doesn’t include differences in legally required benefits or time-off policies based on your residential address or location. For example, a parent in San Francisco may be eligible for 8 weeks of 100% paid baby-bonding leave, but a mother in Denmark may be eligible for 18 weeks of 100% paid parental leave.

This line of reasoning seemed to be another version of the 'similar standard of living' argument, so I looked at that one next.

2. Should pay be equal, or fair?

Slite’s CEO recently stated that “remote employees should be indeed paid fairly, but not equally. By fairly, I mean that the same work should be given to a similar standard of living level, and give the feeling that it’s appreciated the same way—no matter where people live.”

In this statement, ‘fair pay’ means everyone in the same job may have a similar standard of living, independent of location.

But I know from experience that proxying ‘a similar standard of living’ is harder than it sounds—compensation data can be incomplete or statistically underrepresented, especially if you’re looking globally. GitLab, for example, used to rely on the rent index to proxy local market rates, but later evolved to incorporate more data points because the rent index alone didn’t offer a strong enough correlation.

Plus, when I raised this ‘similar standard of living’ line of reasoning with my team, they were not convinced. In our view, people are worth what they’re worth to the business, independent of their location. The business gains a particular monetary value from someone’s work product (in Wildbit’s case, that’s a dollar value) and that value converts to what the business can pay for that person’s work.

In other words, our team was in favor of ‘equal pay’, meaning everyone in the same job should be paid the same salary, independent of location.

Not too differently, Help Scout’s CEO Nick Francis explains that “in a software business, geography plays no role whatsoever in determining the intrinsic value of the work. Code written in Thailand has the same value as code written in San Francisco; it works the exact same for end-users, and it’s just as easy for teammates to read/review.”

3. Does location-agnostic pay seem fair when it's implemented?

If you’re a global company, you might have a salary structure—intentional or not—with differences in pay per role by location across different countries reaching up to 80% (based on real compensation data). By choosing location-agnostic pay, some people might end up getting significant raises while others might not, or might even be overpaid relative to the benchmark.

When I thought about adjusting people’s pay to make sure everyone is at the benchmark, I wondered if people think location-agnostic pay is fair when it’s implemented.

To answer this question, I studied other companies that implemented location-agnostic pay:

• Let’s say you set your benchmark near the top of the market, or the 90th percentile of San Francisco’s market rates like Basecamp: then everyone may get a significant raise, making it unlikely the change would be perceived as unfair.

• Similarly, for Help Scout, benchmarking at the second-highest tier markets (or the 75th to 90th percentile of Boston or Seattle’s market rates), like Wildbit, makes it less likely for the change to be perceived as unfair.

What I learned was that given our team’s idea of location-agnostic pay, that people are worth what they’re worth to the business, independent of their location, it didn’t seem like we would have to convince them that location-agnostic pay is fair if we implemented it.

It’s easier for me to understand this if I think about location as a choice—you could relocate and reduce your cost of living. So I dug into that claim a little more.

4. Is location a choice?

Basecamp’s compensation strategy states that location-agnostic salaries give everyone “the freedom to pick where they want to live, and there’s no penalty for relocating to a cheaper cost-of-living area. We encourage remote and have many employees who’ve lived all over while continuing to work for Basecamp.” 

I got curious about this benefit. Is location a choice? Can anyone really choose to relocate and reduce their cost of living?

I can imagine a situation where someone’s location might not be a choice. For example, someone who takes care of their family—where someone’s family lives may not be their choice. Also, not everyone has the savings to relocate. It seems like a privileged position to say that location is a choice.

Arguably, this statement is more about the freedom to choose and, better, the freedom to choose without incurring a pay cut. This statement seems like a response to companies announcing they will cut pay if someone moves to a location with a lower market rate, in contrast to companies saying they’d raise pay if someone moves to a location with a higher market rate, like VMware did.

It’s notable that if a pay strategy reconciles pay down for someone who chooses to relocate, it must also reconcile pay up for the same reason. Otherwise, it’s not consistent—and inconsistent pay strategies are ripe for inequitable pay.

Since this line of reasoning around location, choice, and pay cuts seemed contextual, I moved on to a related question about whether the freedom to move is always a good thing. I did note, however, that relocating in a location-agnostic pay structure is much simpler to reconcile and understand than in a location-based pay structure.

5. Does location-agnostic pay risk gentrification?

Some companies are now allowing their teams to work remotely and deciding not to cut pay. For example, Reddit shared that “some team members will want to move away from a Reddit office and if they can be effective while remote, we will be supportive of the move—and won’t adjust their compensation down;” Zillow also “told its 5,600 employees that if they chose to relocate from their current city, their pay wouldn’t be adjusted.”

But imagine the impact of thousands of people relocating to, say, Tahoe. If you have a critical mass of people in one location (or you might be influencing companies that do), you should be thinking about gentrification. What kind of impact might your compensation strategy have on the bigger picture, including the communities your team lives in?

At Wildbit, we are intentionally trying to remain small (we’re currently at 36) and we do not hire in hubs, so gentrification didn’t seem like a strong case against location-agnostic pay for us right now. But the same may not apply to you if you work in a company or influence others with a critical mass of people in one location or another.

6. Does location-agnostic pay risk golden handcuffs?

Choosing a location-agnostic pay structure might mean some individuals making more than their peers outside of your company relative to their location, which risks placing them in a ‘golden handcuffs’ situation.

A golden handcuff is a financial incentive that can discourage people from leaving a company. People make lifestyle decisions based on their salary—they might purchase a new home or support new family members, and these are hard things to take back.

What happens when someone no longer feels fulfilled with their work at your company but feels like they must stay? Let’s say they’ve accomplished all of their tours of duty, but they don’t want to stop growing their career. Or your company culture shifts, but they don’t want to compromise their values. Or even, you attract talent more senior than the work you have for them.

What do you need to have in place to make sure you’re delivering on your promise to your team? Does this change how your managers hire and coach their teams? Do you need to revisit your performance management or severance policies?

At Wildbit, personal fulfillment is important to us, both while the team is with us and also when they move to their next role. Since we are putting practices in place to ensure we’re delivering on our fulfillment promise and were looking to benchmark our pay at the second-highest tier, golden handcuffs weren’t a reason not to adopt location-agnostic pay.

7. Is location-agnostic pay affordable?

The most popular argument I’ve seen against location-agnostic pay is that it’s not affordable. For example, GitLab’s CEO said that “if we pay everyone the San Francisco wage for their respective roles, our compensation costs would increase greatly, and we would be forced to hire a lot fewer people. Then we wouldn’t be able to produce as much as we would like.”

But, when companies like Facebook and Google announced they would cut someone’s pay for relocating, there was a negative backlash—people argued that, given the companies’ profits and market share, this was an act of 'corporate greed'.

Not every company is like Facebook or Google. Depending on their revenue, bootstrapped, independent, or small companies might not be able to afford what a VC-funded, unicorn, or tech giant can.

Here at Wildbit we modeled a lot of scenarios (both location-agnostic and location-based) and realized we could afford location-agnostic pay. This exercise also helped us frame a conversation around what milestones we would need to achieve to afford more. Today, we’ve benchmarked our pay at the 75th percentile of Philadelphia, and our goal is to continue increasing our benchmarks to get to the 90th percentile.

What did I learn?

After talking to a lot of people, examining these questions, and collecting and summarizing the data, I had a productive conversation with Finance and my founders to conclude that location-agnostic pay was right for us.

And, while I wanted to do it the right way and implement this pay strategy alongside a strategy for career pathing, our CEO Natalie was too excited to hold back making sure everyone was at this benchmark today. So, we did it our way and were open and honest with the team about our reasons.

Own who you are

Regardless of how your company answers questions like these and whether or not you decide location-agnostic pay is right for you, what’s most important is doing the work to put your stake in the ground and clearly and honestly communicating your decision, so people can make an informed choice about what’s right for them.

It’s about asking:

• What kind of company do you want to be?

• How does your compensation strategy align with your values?

• Who are you trying to attract or retain?

• What you can afford?

• What would it take to afford more?

It’s also about being upfront and honest with the answers. If you’re a founder, you might even ask yourself what your 'enough number' is and write it down—or, better, share it, like Wil Reynolds.

We are aware we didn’t benchmark at the very top of the market and, because of that, we cannot compete with companies paying in that range. But, that's okay for us. We believe in what we’re doing and own who we are.

Pay is not just about cash

People join and stay at Wildbit for a bunch of other reasons. Most notably, we have strong principles and values, people-first leadership, 32-hour workweeks, and we move slowly and with intention. No internal politicking. No unnecessary drama.

Does your company offer anything else that creates value for your team? How does that fit into your talent strategy? Different people will likely value cash against intangibles differently, and even the same people may value cash against intangibles differently at different times in their lives.

For me, I’m grateful to be a part of a company that didn’t think my desire to explore all angles of this topic and talk to every person on our team was a waste of time. Elsewhere, I might have been forced to pick a side without doing this due diligence.

Building better companies

The business implications of location-agnostic compensation structures are significant. Deciding whether to adopt location-agnostic pay is as much a tangible financial decision as it is a cultural and strategic one. It’s about what kind of company you’re building and how you want to support the people who are helping you build it.

Motives notwithstanding, not every company will be able to make a location-agnostic pay structure work for them. As uncomfortable as it might be to admit, not every company will be able to afford to: and that’s okay.

Compensation strategies are likely to remain a crucial aspect of the discourse surrounding work and work culture, especially as remote setups become increasingly commonplace. We hope you’ll join us as we continue to encourage and work with entrepreneurs and founders to build people-first companies and explore new ways of working that are for everyone, not just for businesses.

PS: if you'd like to hear more on the topic, you can find me discussing Wildbit's approach on Oyster's brand new podcast, New World of Work: