Editor’s note: This is the third of a four-part series on the history, current state and moral implications of outsourcing for tech companies. In the first part, we looked at the history of outsourcing. In the second, we covered why tech firms are hiring so much internationally — and where.
“Markets are not intrinsically just, though,” said Brian Berkey, a business ethics professor at the Wharton School of the University of Pennsylvania. Power and privilege play out in quiet ways — and minimum wages, for example, can even increase overall employment up to a point.
Ought a tech CEO seek out whatever employee with the right skills who will take the lowest salary?
A lot of that depends on what you think a CEO’s job really is. If their job is to maximize the company’s efficiency, or its profits, you might say yes. That elegant argument for the role of a CEO is under attack today, as an array of stakeholders demand more. Tech CEOs have nowhere to hide from those heightened expectations.
One reflexive criticism of an entrepreneur who hires abroad is that they are taking opportunities away from others who live in their city, state or country. But most of these cases of “reciprocity,” in which one person feels compelled to advantage someone who is geographically nearer over someone else who is farther, is an outdated misunderstanding, Berkey argues.
“A hundred years ago, practically speaking we could only hire those nearby to us. That just isn’t true anymore,” Berkey said. “Our inclinations to help those nearest to us is just because for so long it was always so.”
A CEO is meant to grow the most competitive company they can. That may increasingly involve hiring around the world.
A CEO’s intentions matter a lot in the matter of morality, he said. If a CEO is out to minimize the salaries they pay at all costs, then it is likely they will cross ethical boundaries — using coercion, say, or misleading a prospective employee. But if they are simply building the best team they can, with salary competitiveness being just one component of that strategy, then they are doing their job, Berkey argues. In the system in which they operate, the CEO is meant to grow the most competitive company they can. That may increasingly involve hiring around the world.
One employee at a software development firm I interviewed concurred. His company is operating a hybrid model, but is considering hiring abroad for the first time, in part to help reduce the hourly rate his company charge clients, by mixing in lower salaries from cheaper geographies. Lots of tech companies pay their employees with equity — that is, bits of ownership in their company — or profit sharing, or some kind of bonus structure, he reminded me. For many companies, the goal is to grow big or profitable, and that may mean competing globally, which many tech firm employees may welcome.
The motivation matters, then. Rarely is going for the cheapest option of anything the right way to create something of value that will last. Plan to build the best team, and let the decisions follow.
“Rather than carve the last penny out of your business, you have to consider a range of inputs — not just the cost of salary but the relationships and commitments you and your employees are making,” experienced CEO Michael Araten said. You’ll recall from part two of this series: As The Great Recession rocked economies around the world, Araten led a years-long transition to bring back much of the manufacturing and office functions of his family’s company, including K’NEX, from China to the United States. They became a case study for so-called “re-shoring.” “We think in terms of decades, and when you do that it makes sense to ask what business decisions will result in a robust society with less fragility.”
As an early employee of a tech company that went from startup to big outcome told me: “It really just matters if you’re fulfilling the company’s vision and goals that everyone agrees on.”
What are simple rules for compensation that tech companies can follow internationally?
Out of philosophy class, we may seek a straightforward answer: Is it unethical to pay differently for different people who have the same skills and job but live in different places? Short answer: No, not necessarily, says Berkey.
“Cost of living is the real thing that matters,” he said. Two big ways to think about that:
- Fully distributed — If you operate a true “work from anywhere” company, salaries will tend to be fixed regardless of geography, Berkey said. You’ll give up the benefits of hiring from lower-cost locations for the added flexibility for your workforce.
- Office boundary — If you operate physical offices, employees can be “attached” to any given office and their compensation can be set by that geography. To handle this, employers are often either committing to a percentile salary level (for example, a company might pay in the 70th percentile for a given role in a given location, according to a certain data provider), or set a base level of compensation and offer stipends for higher-cost geographies, to avoid reducing someone’s salary due to a relocation.
Return to the three newly hired software engineers you met at this series’ beginning, all of whom are at the same skill and experience level. What should they earn, per this thinking?
- Teddy’s company is fully remote, so he should be paid within the range of others who would take the role elsewhere.
- Sarah is relocating to be within proximity of an expensive office, and so she should be paid a cost-of-living adjustment increase, either as an adjustment to salary or a proportional stipend, which she could lose if she was able to return to a lower-cost market.
- Jessica got her promotion at a Silicon Valley company, and if she’s given permission to work remotely while traveling then her location is semi-permanent and so her salary should remain the same.
In short, Teddy should earn more than he is likely getting now, and Sarah should earn less, with Jessica retaining her current level.
This is simple enough for a company’s own hiring, but what about when outsourcing? In the 1990s, Nike was hit with an infamous cascade of investigations into its supply chain, which included outsourced manufacturing firms that employed children and wages well below rich-country standards. That set off a decades-long discussion of how much responsibility a company has for how its products and services are produced.
Hire wherever does the most good, but broaden your understanding of the most good.
How much should a tech CEO understand the quality of life of both their employees and the employees of companies they are outsourcing IT services to?
“Just ask the question,” offered one CEO. If an outsourced company’s services seem too low-cost to be true, they probably are. Ask about the dynamics of the people producing the work. Willfully ignoring that makes us complicit.
In the broadest sense, hire wherever does the most good, but broaden your understanding of the most good. That includes value for your company; team culture and productivity around variable time zones play as much a role as marginal differences in compensation levels.
In a philosophical sense, argues Berkey, the ethicist, “I think it’s very important that these jobs be made available to those who are worst off.”
To Berkey, if their outputs are the same, he sees very little difference between hiring a software engineer in Pittsburgh and hiring one in Lima. One big difference between hiring factory workers and software engineers is that those with the latter skills already do have considerable agency in a world hungry for those skills.
That poses one final big question: Are you doing more good hiring elite coders in a low-cost country or investing in technical training in disinvested communities within your own rich country?