Should you get paid more?

Should you get paid more?

I believe that one of Europe’s biggest challenges when attracting Talent is low salaries.

I've been here for a few years now, so I know about the quality of life, free healthcare, and decent working hours. And nothing tops having Paris a short train ride away.

Alas, the reality is that if you work in tech, you’ll be much better compensated in absolute and relative numbers (compared to the cost of living) if you lived elsewhere.

Source: Hired

I call this the Europe Trade-off: lower salaries in exchange for a better quality of life.

Up until recently, that was OK and data is extra clear: Europe's tech ecosystem grew consistently, by all objective measures, for the past 5 years.

But it's not OK anymore.

Ten years ago, each European country was an isolated Talent market. If you lived in City A, you worked in City A, so compensation was determined by the market (as it should because markets > regulation).

If your Talent Market is restricted to a geo area, and the market says you are worth between €30,000 and €34,000, like it or not, that’s exactly what you are worth:

  • at that specific place,
  • in that specific point in time.
Different cities at different times

Your compensation would be different in Points 1, 2 and 3, even if everything else remained equal (skills, nationality, age, etc.).

A software developer would make more today in the Midwest than 100 years ago in the Valley, but a coal miner wouldn’t.

It's not about fairness, it's about supply and demand.

How do you change that?

You can’t move back to a different point in time in the past (unless you are Robert Downey Jr.), but you can either wait for a different point in time in the future or move to a different place.

Ten years ago, if Jean Pierre wanted to get paid $200,000/year plus stock, he had two options:

  1. wait for the market to evolve. Not fun.
  2. pack his bags and move to the Valley. Doable, but hard.

Most people didn’t care/want to/figure out how to move abroad for work, so the European talent market (and therefore, salaries) remained fairly isolated from and unaffected by the international market.

Now, things are changing big time.

Thanks to the rise of remote work and talent mobility, the war for talent is not local, is global. And Europe is behind.

The Rise of Remote Work

Last week, Stripe announced that their fifth engineering hub would be remote, instead of centrally located:

“Stripe has engineering hubs in San Francisco, Seattle, Dublin, and Singapore. We are establishing a fifth hub that is less traditional but no less important: Remote. We are doing this to situate product development closer to our customers, improve our ability to tap the 99.74% of talented engineers living outside the metro areas of our first four hubs, and further our mission of increasing the GDP of the internet.”

If you’re the CEO of a Europe-based company, I’d be concerned because now you need to compete with Stripe for Talent if you want to stay competitive.

Do you know what’s the average salary for a Stripe engineer? USD194,000, or €173,216 per year.

This means you can live in a small French village, rent an 8-bedroom castle for €2,500/month and still have €11,934 left for groceries and Amazon prime every single month.

Think I’m joking? Think again.

Stripe is the latest example, but it isn’t the only one. Other companies like Buffer, Basecamp, Automattic, Baremetrics and Doist have been doing it for years.

Here’s what an average salary in Paris or Barcelona looks like in comparison with these companies.

Source: Glassdoor, Payscale

If the trend continues, the majority of companies will be remote.

I'm not saying distributed teams are the holy grail. Having a centralized HQ is perfectly fine, you don't need to go remote. But eventually, you’ll have to start paying international market rates regardless of where your team works from.

Remote is not the future, it's already here and it’s here to stay.

Talent mobility is up

People are moving abroad (both intra-European and extra-European) more and more.

According to the State of European Tech Report, Europe’s ecosystem "is more distributed and more interconnected than ever - there are now 5.7m professional developers in Europe, up by 200,000 on 2017. This compares to the 4.4m in the US, a number that stayed flat year on year."

“The change of mobility of young people – they like to do this self-initiative, to do something different before they are tied up in a family or a promising career. For the Millennials or post-90s group of candidates, you will find they would like to be more mobile where people go on working holidays or take a year or two off to go abroad, and that will affect talent pools.” -  Benjamin Wong, HR Director, Knorr-Bremse.

With the rise of technology and the decrease in airplane ticket prices, it is easier than ever to move to Austin and stay in contact with friends and family in Brussels.

There is a multitude of reasons why someone would move away, and compensation is not the only one.

But because physical barriers are considerably lower than they were before (particularly in the EU, and thanks to the work of companies like Jobbatical) it is easier than ever to move from one place to another.

A German company, when thinking about compensation, needs to start considering that the Danish make around €70,000/year.

Like with remote work, fewer borders open up the talent market from local to international. And that’s when Europe doesn’t pose so well.

Here's a list of top tech hubs, ranked by how far the average software engineering salary will get you if you are a family of four.

Multiple sources

I lived in Milano and Paris, so I can attest to that.

The real question is: with the rise of remote work and talent mobility, what will happen?

Gresham’s Law in local talent markets

Sir John Gresham, was a 16th century financier who observed in a letter to Queen Elizabeth "that good and bad coin cannot circulate together".

"In economics, Gresham's law is a monetary principle stating that "bad money drives out good. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation."

He was trying to explain why the good coins made of precious metal were driven out of circulation by coins of the same denomination made of base metals because people prefer to hoard precious metals and transact with crappy coins.

Gresham’s Law for Talent Markets will state that Good and Bad Talent cannot circulate together.

Talent, unlike a coin, has feelings, aspirations, goals, and dreams. In time, if Good Talent is hoarded somewhere else, Bad Talent will be given more movement and circulation within the Talent Market.

As more and more Bad Talent starts to circulate within a market, companies will start hiring that Bad Talent, mostly because this is the only currency being traded.

If Bad Talent is rewarded with a job and power, word will go out and Good Talent will move while Bad Talent will notify gravitates towards whatever they can get.

The consequences of not catching up with the world

I know I sound like a broken record, but the Good Talent Loop is a thing. Talent follows talent of a similar caliber, and when Good Talent is concentrated on a single geo area, money and opportunities gravitate towards that point as well.

Crappy graph of the Good Talent Loop

Inversely, when Good Talent starts moving elsewhere, Gresham’s Law is applied: the bad drives out the good, which spirals down an entire organization (or Talent Market) until nothing but bad apples remain.

If Good Talent gets out of your talent market because they moved elsewhere or landed a remote job making 5x what they were making, then only the bad will remain in local, non-remote companies that don't adjust to the global market.

Here’s Farnam Street:

“While it’s admirable to be the 'cleanest shirt' in a pile of dirty laundry, certain areas of human life do not allow the clean shirts to win.”

Good Talent wants to be the cleanest shirt in a pile of impeccable laundry.