Location-based pay and remote work
Compensation is a major driver for work. Generally, we acquire skills to upscale and the more mastery of the skill acquired, the better your market value when hired for a job with your skill-set. What’s better? Working remotely and earning in a stronger currency automatically improves your earning ability.
The major argument in favour of location-based pay for remote workers living in ‘cheaper’ countries has been the competitive advantage of guaranteed hire since your hiring rates are lower. Location-based pay helps hirers save money.
While remote workers aren’t necessarily paid in equal measure with their counterparts in the locality of the employer, they have a higher chance of being hired since they cost the employer less for the same value.
The analysis is this:
You and Jane have just completed your coding Bootcamp as Front-end Junior Software Engineers. You have both applied to be hired remotely for a London-based company. Jane lives in London while you live in Lagos, Nigeria. The going rate salary for junior software engineers across organisations in London, for example, is $2,000 while the going rate for the same position across organisations in Lagos, Nigeria is, $500. Bear in mind that both workers will offer the same value to the company when employed. The London company then offers to pay you $1,000 based on the going rate for a Junior Software Engineer role based on your location. Note that while you are being offered half of Jane’s potential pay, you are also being paid twice as much for a Junior Engineer in Lagos, Nigeria.
Based on the analysis above, location-based pay makes you a more attractive hire than Jane since the London company will pay considerably lower and get the same value for money.
Merits of Location-based Pay
While it can be seen on a surface level as ‘unfair’ to be valued lesser than people of equal skill in another clime, location-based pay is merely a product of economic advantage. Businesses are in existence to make profits and those who have the upper hand in the labour market are in a better position to determine market forces.
Location-based pay can also be a win for occupants of cheaper localities because:
- Your hiring pool has now been widened to include the world employment market.
- You have a better chance of being hired by a foreign employer than the workers in the hirer’s locality since hiring you saves great cost.
- Hirers are almost always willing to pay a bit more than the going rate for the same job role in your city, all things considered.
The Danger of Location-based pay
Foreign hirers are loosely guided by the pay competition in the remote workers’ location and can get away with paying just a cent higher than the obtainable minimum wage for cheaper cities. Desperate workers accept these offers thereby progressively reducing the quality of remote pay in the long run for other remote workers.
A potent issue that resonates in the discussion of location-based pay in all the analyses above, which must guide the relationship between hirers and remote workers is this:
If the idea of remote work is based on the premise that a remote worker is not confined to a particular location and what matters is that deliverables are timely made, why then is pay tied to locations?
Furthermore, does the Hiring Contract contain a pay review clause anytime you change location?
These are the issues.
