diff --git a/setup.py b/setup.py
index 56eb7a7410d..f51fba9d7a5 100755
--- a/setup.py
+++ b/setup.py
@@ -522,8 +522,11 @@ class Sdist(sdist):
             self.run_command('write_salt_ssh_packaging_file')
             self.filelist.files.append(os.path.basename(PACKAGED_FOR_SALT_SSH_FILE))
 
-        pkgfiles = [pkgfile if IS_PY3 else pkgfile.decode(__salt_system_encoding__) for pkgfile in files]
-        sdist.make_release_tree(self, base_dir, pkgfiles)
+        if not IS_PY3 and isinstance(base_dir, unicode):  # pylint: disable=incompatible-py3-code
+            # Work around some bad code in distutils which logs unicode paths
+            # against a str format string.
+            base_dir = base_dir.encode('utf-8')
+        sdist.make_release_tree(self, base_dir, files)
 
         # Let's generate salt/_version.py to include in the sdist tarball
         self.distribution.running_salt_sdist = True