By Katherine Bindley and Eliot Brown
Tech workers fleeing the San Francisco Bay Area to work remotely
amid the pandemic are facing a new reality: pay cuts.
Over the past several months, Covid-19 has shaken traditional
notions of where employees can work. In Silicon Valley, which has a
relatively high cost of living and an employee base with access to
state-of-the-art remote-work tools, companies are devising plans
for a future with decentralized staffs. In some cases, changes can
include cutting salaries by 15% or more depending on where someone
moves.
The nascent pay-cut movement stands to create tension between
some of the most profitable companies in the world and skilled
employees who enjoy high salaries.
Companies point out that changing pay based on the local cost of
living is standard practice for many organizations, including the
federal government -- with decisions to raise or lower salaries
related to housing costs and other factors. Letting someone take a
San Francisco salary to Wyoming could be considered unfair to
present and future remote hires in cheaper cities who might receive
a lower wage.
But Silicon Valley companies have spent years going beyond
standard corporate norms to endear themselves to their workers. In
an era where companies rain free food, massages and yoga studios on
their software engineers, the cold rationality of geography-based
pay risks alienating employees used to being courted.
"If anyone should be standing up for high pay, equal pay and
great talent, it should be these companies -- I find it to be
pretty hypocritical," said Jason Fried, chief executive of Basecamp
LLC, a Chicago-based maker of workplace software that has a remote
workforce. Tech companies are so profitable they can easily afford
to do what is right, he said. "You're hiring a person and the
skills they bring."
In May, Facebook Inc. said it was shifting toward a
substantially remote workforce over the next decade and that
location would affect compensation. A spokeswoman for Facebook
declined to share any salary data by market. Twitter Inc., among
the first to announce it would allow employees to work remotely
permanently, has said it has a competitive approach to pay
localization.
More companies have followed suit. Microsoft Corp. said last
week that it will let some employees work remotely on a permanent
basis, according to a blog post. Some will be allowed to move
domestically in the U.S., pending approval, but benefits and pay
might change based on the company's compensation scale by
location.
Payments company Stripe Inc. has started offering employees
leaving San Francisco, New York or Seattle a one-time bonus of
$20,000 to relocate, but they would have to take a pay cut of as
much as 10%. For employees at VMware Inc., a cloud software
provider, moving from the Bay Area to Denver could mean a cut of as
much as 18%.
From the corporate perspective, salary reductions based on
geography are a matter of simple logic. The Bay Area is far more
expensive than Boise, Idaho, or Topeka, Kan. -- and anyone moving
to a low-cost city would have trouble finding a local job that pays
San Francisco wages.
Adjusting pay based on local costs has long been a policy at
companies such as software provider GitLab Inc., which had a fully
remote staff before the pandemic. The company lets employees
calculate on its website how much more or less they would be paid
in a certain city.
But as remote work becomes a large-scale, long-term practice
amid Covid-19, the illness caused by the new coronavirus, some
hiring consultants and headhunters are questioning the idea that
salaries should be tailored to a cost-of-living calculator. They
resist the notion employees should be paid less to do the same job
-- even if the work is done from a lower-cost location.
Sherveen Mashayekhi, CEO of Free Agency, a tech talent agency
representing clients primarily in the Bay Area, New York and Los
Angeles, has been advising his clients to negotiate if they are
forced to take a salary reduction to relocate to a less-expensive
city.
One of Mr. Mashayekhi's clients is a product manager at Facebook
who is planning to leave the Bay Area. Concerned about his
long-term earning potential if he took a pay cut to move, he used
his potential relocation to jump-start a conversation about a
promotion to offset any reduction. The client declined to comment
through Mr. Mashayekhi, citing continuing negotiations.
Mr. Mashayekhi said he doesn't view one-time bonuses like the
one Stripe offered as good for workers in the long term.
The impact on careers "is quite negative," he said, if the
overall pay band for engineers decreases by a range of 10% to 20%
over the next several years because of relocations tied to remote
work.
It is still early to know the volume of people who have left the
Bay Area or what is happening to wages across the industry as they
leave. Some companies, such as Facebook, have asked employees to
notify the companies of plans to move by Jan. 1. According to the
preliminary results of an October survey of 240 U.S. tech companies
by tech consulting firm Sequoia, 33% are undecided about their
policies for employees who relocate permanently. About 22% of those
surveyed said they are readjusting salaries and 20% said they
won't.
The move to cut pay also can backfire on employers. Kevin
Akeroyd, CEO of the contingent-workforce-management company PRO
Unlimited and a former executive at several large tech companies,
said cutting pay for workers who want to move to cheaper areas can
lead to unhappy workers who quit in high numbers.
Still, the idea makes sense to many. A September survey by
Blind, a platform for employees to discuss their jobs anonymously,
found that of more than 5,500 workers nationwide, 44% would be open
to a pay cut if moving to a city with a lower cost of living, while
48% said they wouldn't be. About two-thirds of Blind's users work
in the tech industry.
"The cost of living usually falls more than the paycheck," said
Brian Kropp, research chief of the human-resources practice at
Gartner Inc. Even with a 10% or 20% pay cut, software engineers can
still live a far more lavish life in Austin, Texas, or Nashville,
Tenn., than in San Francisco.
Mr. Kropp said when employees have a negative response to the
practice, it is often "more emotional than rational."
Write to Eliot Brown at eliot.brown@wsj.com
(END) Dow Jones Newswires
October 11, 2020 13:14 ET (17:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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