Oyster’s Compensation Philosophy – An Intersection of Economics and Ethics
Chapter I: The Complexity of Geography
Here we come to the matter of geography, or where someone lives even if they “send” their labor elsewhere. Currently, it is factually true that people living in certain parts of the world command less wage negotiating power than in other parts of the world.
It is also currently factually true, to give a specific example, that a software engineer living in San Francisco will usually command a higher salary (all other things like skill level being equal) than a software engineer living in Portugal. By “factually true” we simply mean here that if you polled starting salaries for similarly-qualified individuals in these two locations, you’d see a real difference in the data today.
Thus, at present, it is economically reasonable that a business doing what businesses will do (and to some extent should do) would be willing to pay more – all other things being equal – for someone in the Bay Area than for someone in Portugal. It is tempting to see this as a business devaluing a human being for a trivial reason. However, “businesses” per the above discussion are playing by clear rules when they seek to purchase the lowest pricing or cost on something.
There are a huge number of possible economic-only justifications or explanations for the present reality on wage differences around the world. Some are about cost-of-living – how much things like rent, home ownership, food, etc. – costs in different parts of the
world. Many of these economic realities are relatively easy to point to. Harder are more “hidden economic differences” such as cost of education, health care, and quality of life, including aspects such as safety and social and religious freedoms.
The essence of the matter is simply that a technical recruiter living in a major urban tech hub is in shorter supply and perceived as higher value. If companies continue to pay more for a technical recruiter in London than in Bangkok, or more in New York than London, or more in the Bay Area than in New York, these wage differences will continue to be factually the case on the basis of economics.
But that isn’t the end of the story...
Chapter II: Un/Justifications
Regardless of the justifications presented for underlying economic differences of unequal pay for the same role across different geographies, there is a movement to argue that they are unjustified regardless. One way to frame this stance would be to argue that, like other aspects of personhood (e.g., race, gender) where one is born or chooses to plant one’s feet on this fragile blue marble should not determine one’s pay.
No matter what possible economic justification anyone could bring to the argument that matters of race or ethnicity or age justify pay inequalities, we no longer accept those reasons as valid. There are limits to what we allow businesses to do, and what we accept as reasonable for them to do, and these do change over time. We conclude that such practices – regardless of their possible business-operational benefit – are unjustifiable ethically.
There may well be a time when pay-by-location falls into the category of things we are collectively not willing to accept as defensible, ethically. Then, regardless of the economic reality or merit, we will ensure that business cannot use this as a basis for pay inequality.
We aren’t there yet, at least not societally or legally. Further, If there were a law, for example, in the United States that made it illegal to pay foreign employees in any non-US location less than what is paid to United States workers, it would probably have the practical effect of putting many companies out of business (and consequently laying off those foreign workers).
Chapter III: Finding Talent
There are transaction costs to finding and employing talent overseas. We, at Oyster, are helping to decrease those transaction costs and make it easier for businesses to employ across borders. However, it would be hard for the average startup to stay afloat with this lower transaction cost, if they could not save any money by moving talent overseas in the first place.
Startups in developed economies are economically advantaged by the cost of labor differences – it helps them achieve output and innovation at decreased input costs. It is a highly ingenious play in the business game. By making it easy for people to find talent in developing economies, and employing them, we at Oyster are helping move capital to developing economies. Over time, as more people employ startup tech workers in developing countries, the wages will rise simply by economic scarcity dynamics. The employee bargaining power will increase as more people are employed from developing countries and the supply of under-employed or unemployed individuals goes down.
Chapter IV: Our Strategy
One perfectly reasonable strategy for growing a distributed company these days is to focus on scooping high market tech talent by paying top dollar and encouraging those people to live wherever they like. Our strategy, however, must be different.
How do we find local talent in a developing country as opposed to paying someone to move from a high market to that location to enjoy a lower cost of living (and other potential benefits)?
In service of our mission, we must solve for the former, not the latter.
There are real costs to finding and employing talent all over the world. If an employer can pay top dollar, it will tend to focus on the easiest and most expedited way to get talent (and it will happen to be oriented toward the top salary markets). At our scale, pushing the bottom limit on wages up very high would likely have the unintended consequence of not seeking out developing world talent.
In short, if a startup in a high market urban center can pay the highest possible wages for its market, it is far more convenient – which essentially means time-efficient, which also means less additional costs – to just focus on searching for talent in its local neighborhood.
This reality would not serve our mission to bring employment to more corners of the world. For v1.0 of our Compensation Approach, we have therefore opted for a middle ground solution that aims to solve for our mission first.
Chapter V: Equity
In contrast, equity (or ownership potential) is, for Oyster leadership, a different category.
Symbolically and practically, an option grant is a right to become a partial owner. Whereas we can see a rationale for local economic realities to influence salary differences, we are going to walk a different path when it comes to ownership.
What someone takes home in monthly wage can be linked – at least in a general sense – to locally-influenced costs each month. But a stake in this collective enterprise, as a potential owner, is less clearly dependent on anything other than the labor one puts in.
Therefore, we want to reward options-for-ownership in a manner that focuses on the grant per level and function and not location.
The hope is that version 1.0 of our Compensation Approach enables us to pay fairly and transparently in service of our mission. The heart of our mission is employing local talent globally and providing new entrance points into the startup ecosystem for workers in developing economies.
As the market changes — and it is changing rapidly and dramatically — we will not only revisit the data we use for version 1.0 but also the tenets.
This is a version 1.0 and we invite conversation and ongoing dialogue in our Oyster community about how we reward fairly and equitably. There is no current clear and simple answer. In every case, the economic or business realities are in balance with potential ethical and social framing. This is a conversation we will have for many years, and our conversation can help inform the industry.