Evaluating that job offer — $100k in SF, £55k in London or $36k in Lagos
Recently, Sola (name is masked for anonymity) has been reading many interesting conversations comparing salaries in Nigeria to Europe and the US. The comparisons become even more real whenever one of Sola’s friends or former colleagues relocates and gets what appears to be a massive salary increase. Along with other factors, this feeling of being financially left behind has made Sola really question whether it makes sense to continue living in Nigeria or leave.
Many Nigerians have started benchmarking their salaries against global salaries. Because software engineers have proven that it’s possible to command massive premiums, and because a lot of young people have successfully relocated, the financial pressure on their friends is increasing.
Ultimately, what most people want to know is that they are being paid in a way that recognizes their abilities, contributions and value creation. And if they aren’t, they want to optimize for getting paid more, or at least more fairly. Even monkeys do not like being paid unequally, as evidenced in this famous fairness study (2 min video).
The best way to measure fairness in pay is to use publicly available information that compares roles and company stages like-for-like. Before compensation data became more readily available, people compared themselves to friends, then to others within the same company, then to others at different companies in their sector, and now we’re able to learn about compensation across different industries, countries and continents. But there’s still no easy way for the average person to make objective comparisons across geographies, and even the largest companies struggle with this, so we’re all left to make our own assumptions or listen to the Twitter experts.
If you follow the conversation, the message is clear: if your employer who runs a smaller business in Lagos is not paying you the same as someone in your role at a mega corporation in London or San Francisco, then they’re ripping you off. And if you can’t get them to pay you those amounts in Nigeria, then your next best option is to relocate and instantly becoming 3–4x richer. There’s some truth to this. But there’s also a lot of information asymmetry about the cost of living differences between different countries, and how gross salaries translate into disposable income.
We can agree that over the long run, the *average* person with the same skills and motivation will *earn* more in the US and Europe than they will in Nigeria, and that they won’t suffer from high inflation mixed with perpetual currency devaluations. Anyone who debates this either has a vested interest or seeks to obfuscate the truth. If this was an incorrect statement, then we wouldn’t have droves of citizens across socioeconomic classes and age groups looking to leave their country in search of better opportunities and a more stable currency abroad. I’m not writing this to obfuscate reality.
I’m also not writing this to make a broad judgment on whether people should relocate or not, because that is a deeply personal topic, and there are numerous factors to consider. I have relocated outside of Nigeria, relocated back to Nigeria, and I am still continuously trying to decide where “home” is. So I can relate to people on both sides of the fence.
What this commentary and analysis is specifically focused on is demystifying the numbers, because following the salary conversation without context can be very misleading. And if there’s anything we can learn from the internet, and social media in particular, it’s that people often leave out context in order to go viral, even if it leads to misinformation. With this analysis, and a link to the spreadsheet which you can manipulate, I hope people will be better positioned to frame cross-border compensation discussions.
To get a better understanding of what it really means to get paid “more” in a foreign country, let’s do some quick maths.
Let me reintroduce Sola, a fictitious operations manager making $3k per month ($36k per annum) in Lagos Nigeria. Sola currently lives in 1004 and works at a tech-enabled company in V.I. Sola has been interviewing for roles at other companies, and now has to decide between two offers that require relocation. One job is offering Sola $100k per annum in San Francisco, while the other is offering £70k in London.
Sola understands that there are many differences between living in Lagos, San Francisco and London, but one thing Sola is really trying to figure out is how to compare the compensation offered across these locations.
Based on the numbers above, it should be a no-brainer, no? What crazy person would take a $3k per month salary over £5k ($7k) or $8k per month?
Ultimately, Sola is likely thinking through how that offer letter translates into disposable income, which can be used for investing, saving and/or chopping life.
Here’s a rough analysis of how Sola’s income and easily trackable expenses compare across the 3 different options that Sola is considering. These numbers give a much clearer picture of how much money Sola is likely taking away each month, to funnel into short-term savings, longer-term investments, personal entertainment and living, family support, and whatever else.
I’ve kept this very simple, in order to prompt you to look more closely at the numbers and do your own additional research. This is not meant to be bullet-proof analysis. Between writing this and now, the Naira has further devalued to closer to 760–800 per Dollar.
My assumptions can be challenged (and I welcome that), and I’ve likely left out some important information. But overall, this is directionally accurate. The math shows that the massive differences between taxes, housing and other required expenses, makes the disposable income look very different from the gross salary. This math is the reason why most Americans (including those who earn this much) live paycheck-to-paycheck, and are not swimming in cash. It’s not that much better in the UK.
According to Benjamin Franklin, the only two things guaranteed in life are death and taxes. But people always talk about gross salaries without looking beneath at taxes and other required expenses like rent. When you move abroad with a “good paycheck”, you’ll get a better quality of life overall and, on average, a nicer residence. But it’ll cost you.
When you add other costs like vehicles (if you own one) insurance, maintenance, parking, or public transportation, the costs can change materially in either direction. For costs like food, entertainment and personal grooming, Nigeria is typically significantly cheaper due to the lower cost of labour. For imported items like electronics, international travel and other discretionary consumption, Nigeria is typically worse. You can find some cost benchmarks on Numbeo.
A quick reminder here, that this analysis does not factor in other important elements like quality of life - housing, electricity, healthcare, mobility, entertainment, etc which are all very important when someone compares locations. It also doesn’t factor in that you can finance purchases in the US like cars and homes, while everything in Nigeria is cash and carry. This is just strictly math at a snapshot in time, with a specific set of offers Sola is contemplating.
I know you’ll come to your own conclusions, but I hope it makes you a little bit more informed about how to think through and discuss cross-border compensation. And if you ever have to compare offers across countries, I hope you’ll build a spreadsheet that helps you set expectations correctly.
This is the link to the spreadsheet. Feel free to make a copy and use it for your own analysis.
Updates:
- Nov 1: I used this UK tax rate calculator to arrive at a 26.5% effective tax rate in the UK, instead of 40%. That increases the disposable income for the UK by $825 from $548 to $1,373.
- Nov 1: I used this US tax rate calculator to arrive at a 33% effective tax rate in the US, instead of 30%. That increases the disposable income for the UK by $250 from $2,017 to $1,767.
- Nov 1: I added the local currency salaries at the top of the table, so that people could more easily adjust the NGN salary equivalent and exchange rate, instead of having to directly compute a USD salary