Spotify, one of the top European companies, announced its strategy to offer salaries based on the San Francisco rate, regardless of where professionals live.

It’s an ambitious strategy as salaries for digital professionals in San Francisco are the highest compared to other tech hubs.

But first, let’s understand why Spotify wants to offer talents the same salary regardless of location and its consequences for the talent market.

Why does Spotify plan this strategy? 

Due to the COVID impact and new remote work plans, Spotify decided to offer top salaries for top talent. It doesn’t matter where they’re living. Spotify will pay them the highest salary offer globally: wages based on the San Francisco rate.

Not all companies can afford this huge amount of money for wages. However, Spotify can, being one of the leading technology companies in Europe.

This proposal is restricted to companies with significant profits or located within the ecosystem of Silicon Valley or the United States. What that means is they are already paying these figures.

Offering a high salary regardless of the geographical location removes monetary concerns when opting for an offer so that these companies can acquire the most exclusive talent irrespective of location.

How does it impact the talent market?

From a recruitment perspective in the big tech hubs, Spotify’s decision creates a more significant gap between higher and lower wages. In general, in global tech hubs (Barcelona, ​​Paris, London, New York), a small group of companies competes globally.

Typically they offer the most generous salary range. With the emergence of these companies, it is no longer necessary to have an office to attract talent in that location. Spotify and other companies offering remote work now appear as new competitors in all tech hubs.

What are the consequences of companies that follow the same strategy as Spotify? 

Currently, few organizations offer the same salary regardless of location, so the market does not perceive a significant change in wage ranges. However, if more companies carry out this new action plan, wage bands will be broader in all tech hubs. Companies with limited resources will offer lower salaries, while companies with higher wages will attract ‘top’ talent.

Offering the same salary regardless of the location increases the inequality between professionals, where two professionals working in the same position may have a salary five times higher.

This disparity also covers the pay gap between high-demand roles and precarious jobs, resulting in an undesirable imbalance that can cause harm to professionals in a city.

Wage bands are tough to calculate as they depend on the set of companies that are competing for talent. One approach is the cost of living. You can apply this factor to wages depending on the expenses incurred when living in a particular location.

A person living in San Francisco earns a higher salary because their cost of living (commodities, rent, leisure) is higher than in Barcelona. It’s a simple rule to apply to weigh what compensation one should receive.

However, this strategy may fall short since the cost of living can vary when you live within the city or in the suburbs.

In conclusion, companies should adjust the salary ranges of their workers so that everyone receives a ‘fair’ salary compared to the costs they may have in the city where they work.

Increasing the wage gap will only have negative consequences for all companies: wage inflation.Follow TalentUp on LinkedIn and subscribe to our newsletter to get our latest articles!