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Could Paying Top Dollar For Staff Be Worse For The Labor Market?

Source | FastCompany : BY LYDIA DISHMAN

The tech company Basecamp has a mostly remote staff of less than 60 people. But even its headquarters aren’t in Silicon Valley; Basecamp is in Chicago. Which is why it was a bold move earlier this month when cofounder and CTO David Heinemeier Hansson  announced in a blog post that the company is paying its workers according to San Francisco’s labor market.

Since their employees are scattered all over the globe, it wasn’t clear what the cost of living benchmark should be. According to Heinemeier Hansson, “It started to increasingly seem like an arbitrary choice, and if we were going to make one such, why not go for the best and the top?” So as of January 1, Basecamp employees will receive a salary reflective of the top 10% of what software companies are paying in San Francisco (compared to base pay plus bonus, but not options). They also offer some amazing benefits. (Put your resumes away, though, because Basecamp isn’t looking to hire more people.)

Cofounder Jason Fried tells Fast Company, “We think this method of paying people regardless of location is just the right thing to do, so hopefully we can encourage other companies to do the right thing too by sharing what we do.” For some, that meant a single-digit percentage increase, while others saw as much as a 20% boost to their paychecks. The cost, Fried says, is “hundreds of thousands this year.”

Fried insists that this isn’t a onetime deal. “Salaries will continue to go up every year at the San Francisco rate if SF salaries go up,” he asserts. Could this scale sustainably if Basecamp did add more staff? And, more importantly, can this initiative work at other companies?

Heinemeier Hansson says Basecamp’s rationale was informed by Adam Smith’s classic book Wealth of Nations. In particular: “The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labor.” This, writes Heinemeier Hansson, is “an antagonistic struggle,” and one they deliberately are upending.

Payscale’s chief economist Katie Bardaro says one of the reasons companies have remote workers or set up offices that are not in San Francisco or Seattle is because the cost of labor is cheaper.  “If we start to see more companies doing what Basecamp is doing, that benefit will wash away,” she explains. “We’ll be facing a national labor market; regardless of where people are working and living, they will be arguing for the same compensation.”

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