Location-agnostic pay model
Paying workers based on the value of their work, regardless of where they live.
In a location-agnostic model, companies pay workers based on the value of their work and not on where they live. Companies that use this model believe that “workers deserve equal pay for equal work, regardless of their geographic location.”This is why Pixel Chefs, a digital marketing and web design agency, adopted this policy. According to its founder, Alex Alexakis,
“My company is a firm believer that no matter where you are, you're putting in the same number of hours and the same amount of value in the company as someone living elsewhere, so you deserve the same compensation.”Alex Alexakis, founder of Pixel ChefsFloat, a resource management software company, initially used a location-based strategy to pay their fully remote team. Georgie Roberts, their Director of Operations, says, “This served us okay for 12 months or so, but ultimately we felt it was doing us a little bit of a disservice…We wanted to take the stance of same work, same pay.”While location-agnostic pay models don’t factor location into a remote worker’s pay, they may still have a location component. Companies may use a location for benchmarking pay ranges; they just use this same benchmark for all of their workers, regardless of the workers’ locations.Below, we’ll look at the factors that companies can take into account when formulating a location-agnostic pay strategy:
- A benchmark based on one location
- A proprietary benchmark
- Value of the role
Benchmarking based on one locationEven though they aren’t determining salaries based on their workers’ locations, some companies will still use one location to benchmark the salaries for everyone. This could be a benchmark based on the company’s headquarters. For example, at Frameworks Marketing, a fully remote marketing production agency that provides talent on demand, their pay rates are benchmarked based on the market in Dallas, Texas, where founder and CEO Michelle Keefer lives. Keefer found the Dallas market to satisfy the needs of her team members:
“When my international team saw how equitably they were paid regardless of location, that built a lot of trust.”Michelle Keefer, Founder & CEO at Frameworks MarketingThe benchmark location can also be based on how competitive your company wants to be in the job market. In 2019, project management platform Basecamp published an article saying they “pay at the top 10% of San Francisco market rates for salary + bonus…regardless of the role or where they actually live.” At the time, they didn’t actually employ anyone living in San Francisco, but picked that location as their benchmark because, they said, “it’s the highest in the world for technology, and because we could afford it, after carefully growing a profitable software business for 15 years.” Similarly, Float benchmarks their pay to the 50th percentile for San Francisco, with a 95% “index,” which Roberts explains is paying “95% of [the] average annual pay” at the 50th percentile for a role (e.g., if the 50th percentile pay for a role is $100,000, then Float will pay $95,000). They initially used a 90% index and have increased it to 95% as their business has grown, with a goal to eventually reach 100%.Of course, not everyone can afford to pay San Francisco rates, so the location your company picks needs to take into account how competitive you want to be in combination with how much your company can afford.
Should a company adjust a worker's pay based on the worker's location?
Benchmarking based on a proprietary formulaCompanies using a location-agnostic pay model can also create a benchmark based on their own proprietary formula. For global health insurance company SafetyWing, they decided to give the same base salary of $132,000 to everyone they hire. They didn’t arrive at this number based on a specific market or location, but through planning what revenue milestones the company should hit in order to justify their salaries. As their co-founder and CEO Sondre Rasch states, “We started at a number and then we laid out the [revenue] milestones and we hit the milestones.” Their starting salary is one that is, Rasch says, “good for most positions,” so that they haven’t had candidates decline roles based on it. The company takes a shared approach to salary increases, too. Rasch says,
“At revenue milestones, everyone goes up in salary.”Sondre Rasch, Co-founder & CEO at SafetyWing
Value of the roleAt the core of a location-agnostic strategy is paying workers based on the value of their work and how much they contribute to the company – so that workers with the same roles and responsibilities are paid the same. In 2020, Reddit “eliminated geographical zones” from their compensation structure for US employees. As their Chief People Officer Nellie Peshkov said, “Now all employees in the US are paid within the same range, and it means being rewarded for their impact, not their location.”Though Frameworks Marketing’s Michelle Keefer bases her company’s remote salaries on the Dallas market, she further customizes her pay strategy based on her own formula for the value of each team member’s work. Keefer says,
“I use a proprietary system based off of the usefulness of the work – if we’re doing something high risk and high reward, that’s worth more than low risk, low reward. Depending on what we’re working on, the rate is different. I average it out based on how much an individual is doing of those types of work, and set a sliding scale based on what work is being done and what both parties think is fair.”Michelle Keefer, Founder & CEO at Frameworks Marketing
The pros and cons of location-agnostic payAs with any remote work compensation strategy, a location-agnostic approach has both pros and cons. Let’s take a look at the benefits and drawbacks of this model.
Pros of location-agnostic payCompanies that prefer to remove geography from the equation often talk about the following benefits:
- It can mitigate pay disparity
- No changes are needed if a worker moves
- It can make a company more competitive in the job market
We’ll look more closely at these advantages in the sections below.
Decreased pay disparityOne of the main benefits of using a location-agnostic pay model is that it can decrease pay disparity between two people who have the same skills and job responsibilities but who live in different locations. As previously mentioned, making geography central to pay rate calculation can result in wildly different compensation offered for the same role. Suppose you’re a company that is about to make a job offer to two Sales Engineers. One lives in Australia, where the median salary for a remote Sales Engineer is $93,639. The other lives in Bulgaria, where the median salary for the same role is $70,040. If you were using a location-based pay strategy, you would pay the Australian engineer 134% more than the Bulgarian one.
Sales Engineer Salary
However, with a location-agnostic approach, you would pay them the same amount. In fact, you might want to give them a higher offer than what their respective markets recommend in order to attract and retain them. To do that, you could select a benchmark for one location to use for your whole company (as Frameworks Marketing and Float do) or use a custom benchmark or formula, like SafetyWing does.Ali Greene, co-author with Tamara Sanderson of Remote Works: Managing Freedom, Flexibility, and Focus, is a proponent of using location-agnostic salaries because of its equal work, equal pay approach. She says, “I personally am such a big believer in location-agnostic pay, because if somebody is contributing the same level of intellect, amount of hard work, and value to a company, but they’re getting paid substantially higher just because of where they happen to be born or live, that could seem very unfair, unless you are really being intentional about explaining why.” Decreasing pay disparity among your employees helps build a sense of equity within your company, increasing employee satisfaction and making your company more attractive to job seekers.
No changes needed when a worker movesIn a location-agnostic pay model, because a worker’s location does not affect their pay, you do not need to raise or lower their pay when a worker moves to a new location. No need for uncomfortable conversations about lowering someone’s pay, and no need to budget for potential raises in the event that an employee moves to a more expensive place. In this sense, a location-agnostic model is much simpler to administer than a location-based one.This flexibility for workers is one of the main reasons that Float decided to move from a location-based strategy to a location-agnostic one. Roberts says, “We as a remote organization strongly encourage people to be able to move around. And if someone was to move from London to a city that had a lower cost of living, would we be reducing their pay? These were the questions that we really started to consider, and they restricted us. They restricted us as an organization strategically with hiring, but they also would restrict our team if that’s the way we were operating.”
More competitive and attractive in the job marketDepending on what starting salaries or benchmark location a company chooses, using a location-agnostic pay model can make a company very attractive to job seekers and help widen the company’s prospective talent pool. With their strong starting salary, SafetyWing has been able to attract candidates more easily. As their CEO Sondre Rasch says, “We have never had an issue when people joined…I think we’ve almost never been in a situation where someone has said no [to a job offer], actually.”
Cons of location-agnostic payAs with any pay model, there are some potential disadvantages to using a location-agnostic strategy:
- It can be expensive
- Workers in areas with higher costs of living may have less discretionary income than their colleagues do
- Workers in areas with low costs of living may feel they have golden handcuffs
Too expensive, especially for small businesses and startupsA disadvantage of the location-agnostic pay model is that it can be very expensive. If you’re a small business or a startup, you may simply not have enough funds to adopt a location-agnostic approach, even if you’re a proponent of “equal pay for equal work – regardless of geography.”Not everyone can be like Basecamp and pay highly competitive San Francisco wages to all employees. And if you choose to pay a less expensive wage to everyone, then you wouldn’t be as competitive in the job market and would risk having dissatisfied employees. As with any pay model, choosing to use a location-agnostic model requires strict financial modeling to make sure you’re choosing a sustainable model (much as SafetyWing did in setting revenue targets in connection to projected salaries).
Variations in discretionary income among workers in the same roleWhen all workers in a role have the same salary range, this means that workers in areas with high costs of living typically have less discretionary income than their colleagues do in more expensive areas. Consider an example where you have a content marketer in Hong Kong and one in Cape Town, South Africa. According to Mercer’s 2022 Cost of Living City Ranking, Hong Kong is ranked number one in the list of most expensive cities in the world, while Cape Town is 194th. If both marketers were paid the same salary of $80,000, the employee in Cape Town would likely be able to buy a home, with discretionary income to spare, while the employee in Hong Kong would need to rent an apartment and have much less discretionary income.
Golden handcuffsOn the flip side, with a location-agnostic pay model, employees who are paid much more than their cost of living may feel obligated to keep their jobs, because they won’t be able to make as much elsewhere. This can be especially challenging for well-paid employees that are early in their career. For example, the median salary of a Software Engineer I in Hyderabad, India, is $6,393. If this engineer were offered a remote role for a US company paying a salary based on a US benchmark, their starting salary would be perhaps ten times or more what they’d earn locally. This means that, even if the engineer disliked their job or found it didn’t provide opportunities for career advancement, they’d be very reluctant to leave. The location-agnostic pay strategy, then, can result in employees who are paid well but have low morale.
The location-agnostic pay strategy, then, can result in employees who are paid well but have low morale.
Hybrid remote pay model
Learn what a hybrid pay model is and its pros and cons.Read more