In this Q&A episode, Alex sits Erik and Andres down and asks them a couple of difficult questions about decisions they would make if they were a remote-first CEO. This episode is centered around the compliance and compensations factor for a remote-based team, so tune in for a very educational episode!
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A big thank you to our post-production wizard, Vanesa Monroy.
[A moderately paced, trip hop song that is best described as chill and cruising. Synth and techno drums are the primary instruments in this track. This is our podcast background music, it starts playing at the very beginning]
[00:00:00] Andres: [00:00:00] Hi, I'm Andres
[00:00:04] Josephine: [00:00:04] and I'm Josephine. Welcome to the Remoter Podcast.
[00:00:07] Andres: [00:00:07] Follow us in season one of this journey as we cover anything and everything you need to know in order to successfully build and scale a remote first team. Someone who's been working remotely for over a decade our CEO, Alexander Torrenegra shares his personal experiences, lessons learned and advice for those of you who are curious and interested in exploring the future of work.
[00:00:33] [00:00:30] Josephine: [00:00:33] This podcast is brought to you by Torre, the end-to-end recruitment solution for Remoters. Get our free AI powered sourcing and processing tools, or let Torre recruit on your behalf at torre dot co. That's T O R R E dot C O.
[Music stops playing]
[00:00:53] Welcome back, Andres. How was San Francisco?
[00:00:56] Andres: [00:00:56] It was great. It was a great, uh, event. Um, it's hap, I'm happy to be back, [00:01:00] but unhappy to be back to so much cold.
[00:01:04] Josephine: [00:01:04] It is a to give viewers context, like mid November now, so it's starting to get chilly, but because of global warming, of course the snow will probably be pushed off until way later. So today's episode, we're doing another fun episode. It's a Q and A about decisions that you would make if you were to CEO, asked by Alex to Erik and Andres.
[00:01:27] Andres: [00:01:27] Yeah, that was actually quite fun. And um, [00:01:30] technically was a CEO in my, my last business. I was a founder and, um, yeah. So, so, but it's nothing like what's going on right now. Uh, at Torre. Like decisions were way... it's an order of magnitude different. Um, but it's a fun episode. I hope you guys enjoy it.
[00:01:48] Erik: [00:01:48] So Alex, do you have a test for us today?
[00:01:51] Alex: [00:01:51] Yes, yes. I have a couple of scenarios that I'm going to give you so that you can make decisions of if you were [00:02:00] CEOs of a remote company. Are you ready?
[00:02:02] Andres: [00:02:02] I'm not going to say born. Ready. Go ahead.
[00:02:05] Alex: [00:02:05] Okay, so you're not ready.
[00:02:08] Andres: [00:02:08] I am ready. Born. Ready?
[00:02:10] Alex: [00:02:10] Okay, good, good.
[00:02:11] Andres: [00:02:11] Then this is one point for Andres.
[00:02:14] Alex: [00:02:14] So imagine you have members of your team in two different countries. One country, the currency is Colombian pesos. It's Colombia and another country, the currency is Mexican pesos, Mexico. In which [00:02:30] currency do you set your salaries for the members of your team?
[00:02:35] Erik: [00:02:35] You'd probably want to set it in whichever one is the most stable for whatever reason, historically.
[00:02:40] Andres: [00:02:40] Where is your company located?
[00:02:43] Alex: [00:02:43] Potentially the HQ, let's say, is in Colombia, and you have an office in Mexico.
[00:02:46] Andres: [00:02:46] Okay? So the salaries for the people in Colombia will be set in Colombian pesos and the salaries for people in Mexico will be set in Mexican pesos.
[00:02:53] Alex: [00:02:53] Okay. Now, let's imagine that a year passed by and the economy in Mexico was really good, but the economy in Colombia [00:03:00] had a lot of inflation. So, uh, let's assume 15% inflation. Okay? So that means that as a consequence, most people in Colombia, not in your company, but all over the place in Colombia, they are going to get a salary increase to compensate for the inflation, 10, 12% something like that, is what usually happens. Now when you compare your salaries to U.S. dollars, now you find yourself paying higher salaries in Colombia than in Mexico, but you don't even have to go to US dollars. You can simply do the [00:03:30] comparison between Colombian pesos and Mexican pesos, and now you find yourself paying higher salaries in Colombia. And some members of your team realized that and they tell you, Hey man, like, why are you paying us less in Mexico? By the way, Mexico you know, you don't have to increase salaries in general because the salaries that you are paying in Mexico aren't really competitive. What do you do?
[00:03:50] Andres: [00:03:50] So they asked me, why you're paying me less than Colombia's. Well, it's not less it's different country. The perception of value, it's dependent of... [00:04:00] it's a perception. So it's dependent on who is perceiving it and where is that person perceiving it. Right?
[00:04:06] Alex: [00:04:06] But they are telling you it's unfair. I mean, they are both doing the same, delivering the same quality work. Why are you paying one person more than the other?
[00:04:13] Andres: [00:04:13] I will ask that person to go read a book on economics because he's not understanding that there's a difference in value and how that value is exchanged between...
[00:04:22] Alex: [00:04:22] Why is that a difference in value? Both are delivering the same value. It just happens that one person lived in Mexico. And another person [00:04:30] lives in Colombia.
[00:04:31] Andres: [00:04:31] Yeah. But you have to compare apples to apples.
[00:04:33] Alex: [00:04:33] So that's one of the challenges that we came across back in the day, having salaries in different currencies, because that happens a lot.
[00:04:41] So I'll give you another example to avoid that from happening again, you come up with this idea. I'm going to have a base salary for everyone, plus an additional compensation depending on where the person lives. So that that will have solved the problem of Colombia and Mexico, because you can tell the person, yes, [00:05:00] but those are the rules. I like, like we have these additional compensation in Colombia because multiple reasons to leave Mexico. You want that salary in Colombia, well move to Colombia. If you want to do that. Okay, so, so you said. A base plus location, kind of salary structure.
[00:05:14] Erik: [00:05:14] Cost of living.
[00:05:17] Alex: [00:05:17] Now you have an engineer that is really good. You hire that person, you know, in, let's say Sevilla in Madrid, little town in Spain. Not little town but a mid size city in Spain and the [00:05:30] person decides to move to San Francisco. Oh right now, as part of the move, and because of the salary structure you have, you realize that you have to pay that person a significantly higher salary, but it's fine, because it's a person that is having a lot of value to the company.
[00:05:44] It's one of your main architects or whatever, right? The person lives in San Francisco for a year. Now the person decides to move to a small town in Northern California. Oh, okay. All right. Where the cost of [00:06:00] living is significantly lower, right? What did you do?
[00:06:03] Andres: [00:06:03] You set the rules before you reduce the salary because you reduce the total compensation because the comp, the viable compensation based on location changes.
[00:06:11] Alex: [00:06:11] Well, there are countries, by the way, don't know if this is the case in California, but there are countries where it's illegal to reduce the salary of a person. So when would you have increased his salary to the person to a certain level, you cannot go back on that front.
[00:06:24] Erik: [00:06:24] It's law.
[00:06:25] Alex: [00:06:25] It's the law. So what do you do?
[00:06:27] Andres: [00:06:27] You fire him and you hire him again.
[00:06:30] [00:06:30] Alex: [00:06:30] So that's a challenge that we have experienced. Now because you are so clever, you come up with this idea, you know, I'm going to set salaries in U.S. Dollars, same salary for everyone, regardless of where they are for as long as they are doing the same role. Right? So this has a consequence and that is what you want to cover the entire world in terms of offering salaries, attractive for everyone, you'll have to offer San Francisco like salaries. Because if you offer salaries that are lower than the San Francisco standards, you'd potentially [00:07:00] excluding your talent pool from San Francisco. But it's fine because as, as large as San Francisco is, is only like 1% of the talent pool or tech talent. So you go for lower salaries where they are good for people in most cities, but potentially not in the most expensive cities on earth. And that's, and that's fine. You ended up hiring some engineers in Argentina and you're paying them maybe in local pesos, maybe U.S. dollars, but you're paying them whatever it is, the U.S. dollar equivalent.
[00:07:27] Andres: [00:07:27] But not in alfajores.
[00:07:28] Alex: [00:07:28] Not in alfajores, any [00:07:30] currency and currency. Forget money. Yeah. Um, although some of them would potentially like alfajores and some good wine.
[00:07:37] Andres: [00:07:37] I would definitely go for alfajores.
[00:07:39] Alex: [00:07:39] I will go half my salary of alfajores please. The local economy in subduing doing pretty well and the Argentinian peso ends up gaining a lot of value against the dollar.
[00:07:52] And that means that the salary that used to be attractive for them is now no longer attractive, and it's actually you're offering lower [00:08:00] salaries compared to the local market than with many other companies are offering.
[00:08:04] Andres: [00:08:04] Well, that would suck.
[00:08:05] Alex: [00:08:05] What do you do?
[00:08:06] Andres: [00:08:06] You know what companies in Argentina did, right? They had to, they had to increase the salaries of their employees every year, 30, 40, 50% year over a year to compensate for inflation.
[00:08:15] Alex: [00:08:15] That's when the opposite what's happening, right? When, when the peso was losing a lot of value, so they have to increase salaries. In here because the salaries weigh in local pesos, right?
[00:08:24] Andres: [00:08:24] Yes.
[00:08:24] Alex: [00:08:24] But in here it's the opposite. You have the salary in U.S. dollars, and then the peso gains a lot of value. [00:08:30] And as a consequence, a salary in U.S. dollars is not as attractive as it used to be. What do you do?
[00:08:35] Andres: [00:08:35] You're no longer competitive, and that person has to decide whether he wants to continue working with you or not.
[00:08:40] Alex: [00:08:40] So as you can see, there are no perfect answers to these. Those are examples of situations, very similar situations that we have experienced with our companies during the 17 years or so that I've been leading remote teams.
[00:08:54] In addition to those, there are all of the factors, for example, and that is there are countries where taxes are higher [00:09:00] than other countries. So even though you may offer the same compensation, the actual amount of money that the person receives might be lower than another person living, even in the same country, maybe living in a different state.
[00:09:12] In addition to that, there are countries where depending on the type of agreement that you have with the person, whether it's a contractor or an employee, the company might have to pay higher taxes than in other countries. So in the U.S. is relatively low. If you employ someone, the taxes that the company has to pay are like 12%, [00:09:30] but there are some companies, especially in Europe, where the taxes the company has to pay may be as high as 70% of the salary that the person is earning.
[00:09:38]Erik: [00:09:38] Including the VAT and everything else that might apply.
[00:09:40] Alex: [00:09:40] But there is no, there is no bad on payroll taxes, but there are many other things such as social security and such. So what did you do. Did you set a fixed salary or a fixed budget for the different individuals? Or do you set a salary and then you cover the taxes? And regardless of. Those are questions that in many [00:10:00] companies are yet to be answered. What's fair and what's not fair. For now, what we are doing in Torre and the other companies of, of our group is we have a fixed budget for roles. So for as long as you're doing the same role, we have the same budget regardless of where you are. And we are aware that in some cases that means that the compensation might not be attractive for you and you have two options. You can move anywhere else you want or you'll have to go out and find something else.
[00:10:29] There are still [00:10:30] some challenges, for example, even with a compensation in U.S. dollars, there are some countries where you have to increase the salary year over year. So we have to keep, we have to keep that into account as well, and we make it explicit from the get-go when a person gets hired, hey, there are people in these countries for which the salary is going to increase no matter what.
[00:10:49] That's an exception to the rule and you have to be aware of that and you cannot complain later that you're earning less. That's if you want that to happen to you, you have to move to that country.
[00:10:56] Erik: [00:10:56] That's the law there that just have to do it.
[00:10:58] Alex: [00:10:58] It is. It is.
[00:11:00] [00:11:00] Andres: [00:11:00] Which countries?
[00:11:01] Alex: [00:11:01] It changes every day. I mean, in fact, within the group, we are starting a company that takes care of global payroll precisely because it's very difficult to keep track of, of all of those changes and for you to have a global team that you can pay with salaries and benefits.
[00:11:16] Andres: [00:11:16] I'd love a subscription to a newsletter. Just so I know, when you know.
[00:11:20] Alex: [00:11:20] Good, good to know.
[00:11:22] Andres: [00:11:22] Alex, I'm a very simple man. Gimme a simple answer. How can I manage my remote team compensation in the most simple words? What's the [00:11:30] easiest way to do it nowadays?
[00:11:31] Alex: [00:11:31] Ideally, compensations in a single currency, same budget for everyone. People take care of local taxes and fees. If you can, outsource your payroll to a company that offers global payment.
[00:11:45] Andres: [00:11:45] All right. Awesome.
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[00:11:55] Josephine: [00:11:55] I really liked your last phrase, that you are a simple man and you just [00:12:00] want a simple answer, because I think that drew the best recap out of Alex that everyone was actually aiming for.
[00:12:07] Andres: [00:12:07] Well, I'm really good at getting Alex's ideas out there. That's kind of my job.
[00:12:14] Josephine: [00:12:14] And, um, I mean, the entire question and answer was very intriguing. And, um, the one answer that I was actually most surprised to hear, I wasn't expecting to hear that you dropped out of high school. Could you tell us all a little bit more about that?
[00:12:29] Andres: [00:12:29] Yeah, so, so [00:12:30] when I was in ninth grade or eighth grade, I don't remember. I came back from Brazil. I was living there for two years with my family.
[00:12:38] Back in Brazil when I was 13, that's when I started working on digital marketing and video marketing. And I was doing videos for a company and so on. And when I came back, I was so into learning more about it and, and, you know, building e-commerce sites and, um, helping my family business through only marketing and what I have been learning in my time there.
[00:12:58] So [00:13:00] I just wasn't feeling any more comfortable with, with um, being in a nine to five high school. It wasn't nine to five, it was like 6:00 AM till 4:00 PM or something high school. And um, I went into my mom and asked her to put me in a virtual school. Technically speaking, I never dropped out because I, I finished it.
[00:13:21] But practically speaking, I did. Because and I will not, if you know, ever a government asks me, I will say that this was a lie and a [00:13:30] joke for the podcast. But, um, back in the day, I actually had my cousin do the online classes for me and take the online tests for me. So, um, I essentially paid him with the money that I was earning from my, my, my job back in the day, uh, to finish high school for me. Not, I don't, I don't, I don't think it's, I think it's something quirky.
[00:13:53] I don't, I don't know, you could say that I'm a fraud or whatever, but, you know, it allowed me [00:14:00] to go further into what I was really passionate about and, um, I felt I had enough of school.
[00:14:06] Josephine: [00:14:06] I mean, well, look at where you are. I mean, it, it proves that people don't really um, and I'm not discrediting education, but everybody has their own path to get where they want to be. And it doesn't have to be as traditional and conventional as society deems it to be to get where you want as long as you kind of put in the work. And I mean, [00:14:30] I think you're living proof of that, as well as a lot of other people out there who have dropped out of school because it is... it's not as uncommon as people think.
[00:14:39] Andres: [00:14:39] You know, I don't take me wrong. I love education. I, it's one of my passions. Um, actually, while my friends were going through 11th grade or 10th grade, I was actually attending diplomas. So there's a, there's an intensive programs that universities do. Sometimes, I attended, I attended six of those in that period of time.
[00:15:00] [00:15:00] Um, in everything from only marketing, social media, marketing, uh, community management, um, building apps, building e-commerce, and so on. Um, and, uh, I also attended several online classes from, uh, Wharton Business school and Harvard and Stanford. Um, so I, I, yeah, I love it education and then, but I love to be able to further invest your time in whatever fulfills you the most.
[00:15:26] So that's why I made the decision to switch from high school to [00:15:30] diplomas and HBS online and Stanford online. And coursera and so on.
[00:15:35] Josephine: [00:15:35] I mean, it is another way of learning and I totally, I don't see anything wrong with that and it's pretty, I think it's pretty cool. It's got you where you are today. And that's all that matters.
[00:15:52] Andres: [00:15:52] Thank you so much for tuning in. A few last words, if you enjoyed that episode, please...
[00:15:57] Josephine: [00:15:57] Follow us on social media @remoterproject and [00:16:00] let us know what you think about the latest episode.
[00:16:02] Andres: [00:16:02] We'd love for you to join us as we continue building the Remoter library on our website, remoter dot com. That's R E M O T E R dot com.
[00:16:11] Josephine: [00:16:11] If you want even more resources, sign up for our free Founding and Growing Remotely online course.
[00:16:16] You can find that on our website or check the description for links. Don't forget to follow and subscribe to us on Spotify, Apple Podcasts, SoundCloud, wherever you listen to your podcasts.
[00:16:27] Andres: [00:16:27] And by the way, we've got some exciting news. We're [00:16:30] gearing up for season two. This time, we're going to go further into interviewing remote work leaders all around the world, and we'd like to ask you, what are some questions or topics you'd like to hear covered next time? Who would you like to hear on the show and let us know through Twitter, Facebook, Instagram, email, um, you know, carrier pigeon, whatever it is, you like, we're all ears.
[00:16:52] Josephine: [00:16:52] And remember, we're here to make work fulfilling. So what part will you play in shaping the future of work? [00:17:00]
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