In-Depth Background on Compensation Philosophy
The section goes into more philosophical details of choosing a pay strategy in a mission-driven, distributed company such as Oyster. It aims to provide rationale and grounding for our approach summarized here.
What is most crucial for us is not only how we are paying and what we are paying, but why. Compensation is a tricky and complex topic, partly because it is where economic and pragmatic considerations rub up against ethical and social questions. In both areas – the economic and the ethical – there are reasons for choosing one or other compensation approaches.
When the Oyster senior leadership began talking in earnest about compensation approaches in 2021, it was clear we had to think deeply about how our mission would influence our compensation strategy.
Our mission asks us...
...to create a more equal world by making it possible for companies everywhere to hire people anywhere...
Although the mission itself is silent on the question of pay equity, it is clearly strong on the notion of increasing equality of access to employment opportunities, and implicitly that would point toward adopting fair standards around compensation.
We recognize that in the discussion of distributed work, compensation standards that factor location are increasingly challenged as unfair or unjustified. Given this, whatever we choose to do should be in service of the mission.
Choices that maximize the likelihood of increasing access to employment opportunities in the distributed, startup technology sector should be preferred over those that do not. Interestingly, it could be that geographic pay agnosticism moves at odds with the aims of increasing opportunities for employment. That will be explored below.
The Economic Lens
Businesses – or at least for-profit enterprises – are entities that operate within a specific set of rules.
One of the basic rules of the business game is to keep inputs (costs) as low as possible while making outputs (sales/revenue) as high as possible. If we were in the construction business, for example, and we had two suppliers with building raw materials that were otherwise equal in every way we’d select the lower cost supplier. If you did not do so, you simply wouldn’t be playing the business game sensibly or rationally.
The same can be said for wages, and the wage issue has been a high-stakes issue for as long as we’ve had modern private-sector, profit-seeking businesses. A very real source of wage differentials has been the economic differences between countries. Businesses in more wealthy, developed countries have moved labor costs to less expensive countries for as long as it has been practical to do so.
Thus, business people acting rationally – i.e., with good reasons – are going to look to minimize costs where possible as long as minimizing costs does not adversely impact maximizing revenue/profits. That has included wages.
This idea of “acting with good reasons” will come back repeatedly. It may end up being the case that minimizing something like labor costs ends up hurting a business. If, for example, public outcry against foreign wage standards or worker treatment leads to decreased sales and revenue, a business can and will choose a strategy that does not minimize something like wages. The economic reasons become aligned with the social or ethical reasons.
But to sum up, someone playing “the business game” is going to seek to minimize input costs wherever possible. To do otherwise is actually irrational or nonsensical for a business.
The Ethical Lens
To tease out the ethical issues in compensation, we have to look at things a bit differently than only through the economic lens. Most, if not all, compensation-related ethical arguments hinge around principles of fairness (or, more broadly justice-as-fairness). At the heart of the matter is the question: on what grounds can we pay people unequally?
Some things are taken for granted. It is generally accepted that the more “senior” in a business hierarchy, the more someone should be paid. It is also generally accepted in our industry that performance – capability, achievements – is a reasonable grounds for increases in compensation.
But none of these things are necessarily true. You could imagine a system of pay where everyone gets a randomized ticket regardless of level in the hierarchy and year-to-year pay changes on the basis of what ticket you get. Many organizations have in the past operated – and some still do operate – purely on a tenure-basis for increases in compensation (the longer you are with an organization, the more you are paid, regardless of performance).
In some cases – such as the pay differences between a CEO and a line employee – we accept them as ethically justifiable, but they also happen to be pragmatically, economically sensible too. There are fewer “qualified” CEOs than line employees which creates higher wages for a limited supply of qualified workers.
But all of these examples, and countless more we could look at boil down to whether we accept the justifications and reasons for inequality, where inequality simply means that people aren’t paid exactly the same.
There was a time, not all that long ago in the historical sense, when policy-makers in major developed countries believed that it was reasonable to pay a woman and man differently for the same job.
Indeed, every year there are still examples of companies that are found to be discriminating on the basis of gender when it comes to compensation. And, there may be economies and social systems in the world that continue to believe for any set of reasons that gender-based pay differentials are justified (i.e., reasonable).
At Oyster, we do not believe as such. And, lawmakers in a number of countries have made it illegal to do so – which is the ultimate enforcement of an ethical standard. Pay differences on the basis of gender are deemed ethically and legally indefensible. Or, putting it differently, we no longer accept gender as a legitimate reason for inequality of pay.
You could imagine a list of things we explicitly or implicitly accept as grounds (reasons) for pay inequalities and things we don’t accept. With those areas where we do not accept pay inequalities, we are in essence creating limits to the “business game” above, and sometimes those limits enter into legislation aimed at the business itself.
We are, with social policy, saying to the business game-players – even IF you could keep costs lower by paying less on account of X, we as a society are not willing to accept that as a justifiable criterion.