Workplace

Forget pay cuts. Tech companies are imposing raise caps on workers who move away.

Geo-neutral compensation is expensive. Here’s another way that startups are staying competitive as workers move around.

UHaul truck on a street

Compensation has become more complicated as employees move among a hot tech recruiting market.

Photo: Caroline Guttman/Bloomberg via Getty Images

Moving to a cheaper city comes with a pay cut at many tech companies, including Google, Twitter and Meta. But in a hot talent market, there’s another way to handle moves to cheaper locales. Instead of embracing geo-neutral pay, some tech companies just let things even out gradually.

Executives at several startups have told Protocol they don’t cut employees’ salaries upon their move to a region with a less pricey labor market, but these moves do limit workers’ ability to get raises down the line.

“Employees know not to expect really big increases for a bit until the [compensation] bands are more caught up with where they are,” said Nikki Salenetri, the vice president of People at the employee fitness provider Gympass. “But we’re not cutting their salaries as they go, so people feel more supported if they need to move.”

Gympass has employees in Latin America, Europe and the U.S., and like most companies, adjusts compensation based on the local market. But a New Yorker who moves to Texas won’t get an immediate pay cut, even though “you’re probably super high in your compensation band at that point,” Salenetri said.

The policy presents a middle road between the geo-neutral pay offered at companies like Reddit and the marketing startup Iterable, where workers are paid similarly across different local labor markets, and the types of geo-differentiated pay policies where workers who move to cheaper cities can expect an immediate pay cut. At Meta, for example, moving-related compensation changes go into effect promptly “upon transfer date/start date,” according to company spokesperson Tracy Clayton.

Foursquare, the location data company, pays most of its 400-some employees at the “Bay Area level” in order to remain competitive, but does make small adjustments to cost of living, CEO Gary Little said. And although Foursquare decided early in the pandemic not to adjust pay for employees who were moving, the local market “certainly has future impact” on raises, he said.

Smaller companies can be more nimble than the tech giants when it comes to making these compensation decisions.

“Some of the larger companies have to worry about these mass migrations because they’ve already had employee bases in other jurisdictions,” Little said. “One of the advantages we have at our size and scale is we don’t have to have that problem yet.”

Sparing employees a pay cut can help retain workers who, upon moving to a cheaper location, might otherwise be tempted to jump to a company with geo-neutral pay. This can make a big difference in a world where remote work has decentralized tech jobs. And that’s clearly the world we’re in: Since 2019, companies like Stripe and Coinbase have gone from hiring mostly in West Coast tech hubs to hiring mostly outside of them. (In 2020, Stripe offered a $20,000 bonus to employees moving to less expensive cities, an apparent bid to sweeten the 10% pay cut that came with the move.)

Otherwise, tech employers risk losing talent to competitors that can pay drastically more. Steve Black, the co-founder and chief strategy officer of the global talent mobility company Topia, recently spoke with a senior executive who had lost two engineers in Dallas. Both went from making $100,000 to $250,000 at their new jobs, he said.

“That’s really like a San Francisco salary now in Dallas,” Black said. “Employees are probably winning from a comp perspective.”

Salenetri has seen this kind of increase firsthand. Through talking with employees in exit interviews and examining turnover data, she found that Gympass employees were being poached by companies offering better wages.

“All of a sudden, these employers were offering crazy-high salaries that they weren’t previously,” Salenetri said. She and her team used market data to move Gympass’ compensation bands up and narrow them so that employees were making 20% or less from the midpoint, rather than 30%. Doing an off-cycle compensation increase that brought employees up to 80% of the new compensation bands helped Gympass stem its turnover, Salenetri said.

As tech jobs and pay get more and more decentralized, employers will likely have less need to adjust salaries, according to Amir Nathoo, co-founder and head of the online learning platform Outschool. Outschool adjusts its employees’ salaries “over time to match the location” with each performance review and raise, and doesn’t cut them at the time of a move.

“I think we’re going to see less disparity of pay between locations pretty rapidly as people move around,” Nathoo said.

Joe Du Bey, the co-founder and CEO of the desk booking company Eden Workplace, also expects salaries to even out geographically. While Bay Area engineering salaries have risen in the last couple of years, salaries for Eden’s engineering hires in Latin America have shot up even faster, he said.

“The invisible hand of economics is going to guide us there,” Du Bey said.

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