Compensation: The Great Levelling

It used to be that cost efficiency was the driving factor in companies hiring remote talent. Then the pandemic hit, making remote work the norm. In the process, compensation began decoupling from location. Now, the trend is for the market rate for a given skill to transcend borders: increasingly, high-calibre talent can command similar fees, regardless of where they live.

Sequoia research confirms this insight. In our survey, over four-fifths of recruiters said that pay differentials are being eroded within European countries (between metro and rural areas), while almost three-quarters see this pattern between countries (Figure 1).

Among the recruiters surveyed, 58% felt there was no disparity in remuneration between remote engineers and those in similar roles at headquarters. Interestingly, 3% even stated that remote engineers earn a minimum of 25% more than their counterparts in on-site positions (Figure 2). 

Many engineers can get a San Francisco salary no matter where they are, even if they’re based in Spain or Poland. It’s becoming more of a global marketplace, which is a challenge on the engineering side.

—Nali Weinstein, Head recruiter at Front

Still, levelling is not the same as level. One recruiting executive acknowledged this trend but told us that a 15 or 20% regional difference in compensation continues to be important. Across a set of hires, this difference may mean being able to hire an additional employee in another location, which is especially significant for smaller companies. Although price is not as important a consideration for recruiters as access to talent (74%), it is still important to nearly half of the surveyed group (45%).

One factor to be aware of when recruiting from other locations is that cost of living is still strikingly variable. It tends to be higher in cities in Western Europe, followed by Southern and then Eastern Europe. Engineers could opt to work remotely while benefiting from living in a more affordable city.

It’s perhaps surprising, then, that engineers are not moving en masse to cheaper regions. Our research indicates that residents of pricier cities are more likely to rate their cost of living as “satisfied” while those in more affordable cities report an “unsatisfied” cost-of-living experience (Figure 3).

Regional cost-of-living rating

We see the same pattern on a country level. The UK has the lowest levels of cost-of-living satisfaction, with only 33% of talent ranking it “good.” Sweden leads here by a long shot, with 92% approval. These two countries have relatively similar costs of living, but talent in Sweden is happier with what their money can buy (Figure 4). The lesson for founders and hiring managers: don’t assume that tech talent in Eastern Europe, or relatively low cost-of-living cities, will be satisfied with smaller compensation packages.

With the normalisation of remote work, tech salaries are converging across the continent. This creates challenges for recruiters. Engineers—commanding London or Paris salaries while working in Athens or Zagreb—increasingly hold an advantage in recruitment negotiations. But this shift could be a net positive: recruiters can now spend less time on gaming the regional talent arbitrage and more time focusing on company needs, like skills, culture fit, and where (or if) they want to establish hubs for distributed or in-office teams.