Basecamp doesn’t employ anyone in San Francisco, but now we pay everyone as though all did

If you want to be amongst the best paid people in software, you have to move to San Francisco. Or do you?

The roots of Basecamp are in Chicago. It’s where the business started, it’s where our only office is located, it’s where we do all our meet-ups. But more than just a geographical connection, there’s a spiritual one too: Chicago is the city that works.

So it made sense when we decided to get serious about setting pay in a fair, transparent, and systematic way to use the Chicago rates as a base. They were already higher than just about any other location we employed people from. And as a remote company, we employ people from all over the place.

Yet when we were doing our pay studies this year, we started to question that decision. If we’re already paying people from Tampa or Chattanooga the much higher Chicago rates, why is the rate based on Chicago at all?

It started to increasingly seem like an arbitrary choice, and if we were going to make one such, why not go for the best and the top?

That’s what we did. Starting 2018, Basecamp is paying everyone as though they live in San Francisco and work for a software company that pays in the top 10% of that market (compared to base pay + bonus, but not options).

We don’t actually have anyone who lives in San Francisco, but now everyone is being paid as though they did. Whatever an employee pockets in the difference in cost of living between where they are and the sky-high prices in San Francisco is theirs to keep.

This is not how companies normally do their thing. I’ve been listening to Adam Smith’s 1776 classic on the Wealth of Nations, and just passed through the chapter on how the market is set by masters trying to get away with paying the least possible, and workers trying to press for the maximum possible. An antagonistic struggle, surely.

It doesn’t need to be like that. Especially in software, which is a profitable business when run with restraint and sold to businesses.

Jason and I surely could get away with paying people in Chattanooga the rates of that market. Or people in Tampa that. Or those in Portland that. It’s how most companies do it.

But in what other part of the business do we look at what we can merely get away with? Are we trying to make the bare minimum of a product we can get away selling to customers? Are we looking to do the bare minimum of a job marketing our business? No.

Do better than what you can get away with. Do more than the bare minimum. Don’t wait for the pressure to build. Don’t wait for the requests to mount. The best time to take a step forward is right now.

(And before you ask, sorry, we’re actually not hiring. That’s part of the restraint bit. We have a team of fifty five of the most kind, wonderful, and capable people I’ve ever had the pleasure of working with. That’s all we need at the moment to do what we want to do.)

The reason we can take such good care of our employees at Basecamp, and why they tend to stay so long as a result, is because of all our wonderful customers. We have thousands of new customers who sign up every week. If you’d like to support a perspective on business like this, consider giving Basecamp a try in the new year.

How we pay people at Basecamp

There are no negotiated salaries or raises at Basecamp. Everyone in the same role at the same level is paid the same. Equal work, equal pay.

We assess new hires on a scale that goes from junior programmer, to programmer, to senior programmer, to lead programmer, to principal programmer (or designer or customer support or ops…) We use the same scale to assess when someone is in line for a promotion.

Raises happen automatically, once per year, when we review market rates. Our target is to pay everyone at the company in the 90th percentile, or top 10%, of the San Francisco market rates, regardless of their role or where they live. So whether you work in customer support or ops or programming or design, you’ll be paid in the top 10% for that position.

If someone is below that target, they get a raise large enough to match the target. If someone is already above the target, they stay where they are. (Nobody will ever see a pay cut because they’re above our market target). If someone is promoted, they get a raise commensurate with the market rates for the new level.

We get the market rates through a company called Radford. They poll a wide array of companies in our industry (from the titans to shops more comparable in size to Basecamp). It’s not a perfect system, and we do frequently cross check with other sources, but it’s certainly better than a few “I’ve heard that X pays Y…”.

Our market rates are based on San Francisco. San Francisco is the top of the market for technology businesses. So whether you live in Tennessee or Arizona or Alaska or Illinois, we pay the same. (We don’t even have anyone who works for us from San Francisco!)

This means everyone has the freedom to pick where they want to live, and there’s no penalty for relocating to a cheaper cost-of-living area. We encourage remote and have many employees who’ve lived all over while continuing to work for Basecamp.

We don’t pay traditional bonuses at Basecamp either, so our salaries are benchmarked against other companies’ salary + bonus packages. (We used to do bonuses, many years ago, but found that they were quickly treated as expected salary anyway.)

There are no stock options at Basecamp because we never intend to sell the company. (But we’ve pledged to distribute 5% of the proceeds to all current employees if, against intentions, we did sell the company anyway).

We’ve also recently put a new profit growth sharing scheme in place. If total profits grow year over year, we’ll distribute 25% of that growth to employees in that year.

There are surely places where people can get paid more than they can at Basecamp. Especially if they’re ace negotiators and able to persuade an employer to pay them more than their peers for the same work.

There are also plenty of places that’ll offer stock options that could make someone a overnight millionaire, if they join a startup that eventually turns into the next Google or Facebook.

But Basecamp isn’t a startup. We’ve been in our current business as a software company since 2004. It’s a stable, sustainable, and profitable enterprise. Some people may even call it boring!

We don’t do all-nighters. There are no tricks or treats to lure people into staying at the office for untold hours. Just a great set of benefits that all focus on helping people lead healthy, fulfilled lives away from work.

No scheme of pay is perfect, but at least with a model like this, nobody is forced to hop jobs just to get a raise that matches their market value. Which is reflected in the fact that we have lots of people at Basecamp who’ve been here for a long time with no plans to leave.

Of course, pay isn’t the only reason someone might leave our company. We’ve had people leave Basecamp because they wanted to give the Silicon Valley trip a try or because they wanted a completely different career or for a number of other reasons. That’s healthy! Some amount of flow is a good thing, but pay shouldn’t be the main driver for most people.

When I hear that the average tenure in tech is just two years, I wonder how anyone gets anything done. When I hear such job hopping justified by the fact that changing companies is the only way to get a raise, I just shake my head at the short-sightedness of such companies.

Hiring and training people is not only expensive, but draining. All that energy could go into making better products with people you’ve kept happy for the long term by being fair and transparent about pay and benefits. Churning through people because you’re trying to suppress the wages of those who stay just seems like poor business.

There’s a fountain of happiness and productivity in working with a stable crew. It’s absolutely key to how we’re able to do so much with so few at Basecamp. I’m baffled such a competitive advantage isn’t more diligently sought.