Wages among Detroit area tech startups fall short of other cities according to a report from Carta. In fact, the California-based technology software company revealed that Detroit area tech workers earn just 77% of what they would make in the metro areas of San Francisco, New York City, Seattle, and San Jose, California. These cities were identified as the areas with the highest pay packages.
As you might expect, the data from Carta shows that the West coast continues to be the premier region for tech talent, with established hubs like San Francisco alongside growing cities like Salt Lake City and Portland. Austin and Miami are also strong performers. Relative compensation across the Midwest lags behind, with only Chicago seeing typical compensation at 90% or more of cities like San Francisco.
The report from Carta examines compensation trends across venture-backed companies. Their study may reveal an opportunity for tech firms looking to bid on low priced tech talent – a trend that may already be occurring. According to their research, just 35% of new hires among tech startups in 2019 were based in a different state than the primary company headquarters. That number has jumped up to 62% this year as the era of remote work goes mainstream.
Whether you are a startup or not, remote work poses some challenges for employers with a distributed workforce. How do you adjust compensation for individuals who work outside of your normal geographic boundaries?
According to the research from Carta, most companies (84%) do take location into account when deciding on compensation packages. Interestingly, startups with more modest valuations (i.e., smaller companies) are more likely to adjust compensation by location. Around a quarter of companies valued at more than $500 million choose to pay employees equally, no matter their current location.
A very small percentage of companies have begun paying certain job functions (primarily engineering) identically across all locations, but this approach is far from the norm. Companies that decide not to geo-adjust their compensation may do so as a perk to retain employees, who can choose to work remotely from lower-cost locations, or as a strategy to attract new workers.
The report from Carta does suggest some convergence of rates between the salaries of lower-tiered areas toward the higher-tier metros. The authors of the study suggest that this is likely due to a combination of factors including the growth of remote work.