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How to develop a global compensation policy
Angelica Krauss
August 2, 2022

How to develop a global compensation policy

Before hiring across multiple countries, it’s important to understand how to develop objective compensation policies. An international compensation policy should balance employee motivation and keep costs at a minimum. The key to a fair global compensation strategy is prioritizing your distributed team by keeping their needs at the center.

Mercer's Global Compensation Strategy and Administration survey finds that a majority of responding organizations (84%) have established a global compensation strategy for their executive employees, but most continue to define their compensation strategies at the local or regional level. As a global employer, it is vital to acknowledge that compensation goes beyond employee pay — you may need to focus more on the benefits, company contributions, and stock options to keep your workers motivated and focused on the job.

Here we discuss tactics to create an effective global compensation plan.

International Compensation: What’s it all about?

Global compensation encompasses the processes that organizations use to manage the compensation of their internationally distributed workforce, it can either be direct or indirect.

When dealing with direct compensation, companies look at factors such as employee salaries and bonuses. On the other hand, indirect compensation covers the additional benefits to employees that the employer uses to hire top talent and reduce turnover. Here, the business owner can look at factors like health insurance, stock options, and 401(k) contributions.

The following are some of the basics to know before you start compensating a distributed team:

• Base salary: As an employer, you must evaluate a global employee's base pay before you can start compensating them. The base pay, or base wage rate, refers to how much you should pay someone at minimum to do work, and should be negotiated during the hiring process. You must pay global workers based on their country's minimum pay and wage laws.

• Benefits: All nations have mandatory employee benefit structures, and some employers can supplement these benefits with company-based perks like healthcare. It is vital that you consider what your global workers deem essential since people have different expectations of their jobs regarding international benefits and compensation.

Equity: Equity refers to the financial benefit of being granted stock options at your company. Depending on the role and tenure of your employee, you might grant them stock options as a part of their compensation structure.

• Remote work: Remote work enables employees to work from any global location, and for some companies it is a great perk to offer your team. Depending on the role, you may be able to adjust the compensation structure based on whether you offer remote work as an employee perk.

In order for global employers to provide fair and equitable compensation to their staff, they need to create policies that put all these basics into perspective. Employers should address their workers' career, financial, and benefits expectations to ensure that they remain motivated and focuses on creating long-term work arrangements.

The Benefits of Global Compensation Policies

1. Factoring in Remote Workers

Remote work has become an essential aspect of management in the post-pandemic era. Organizations that employ remote workers should ensure that their compensation policies factor in the difference between remote and office workers.

When paying remote workers, organizations should factor in issues like minimum wage laws, pay frequency, state-specific taxes, and income tax laws for the locations your workers are in. For example, if you have two workers with similar roles and you want them to receive the same net pay, you may have to pay them different salaries due to differences in income tax and employment laws in their locations.

A global compensation policy that recognizes the differences in total rewards in each region is the more fair approach.

2. Enhancing Diversity and Equity

An international compensation outlook also enhances diversity and equity. After all, you want to create an atmosphere where everyone feels valued. The solution is to create internal controls that look at ethics and business effectiveness to avoid internal disharmony and external pressure from regulatory bodies.

3. Enhancing Morale and Retention

Another associated advantage is global compensation's ability to boost team morale and reduce worker turnover. An all-inclusive total rewards plan can help you keep everyone singing to the same tune. When you plan poorly, your workers may feel unappreciated and under-compensated. The end results will be poor performance and high employee turnover.

Note: Your total rewards plan must be seen to be transparent - meaning there is clarity around how employees are compensated. That way, all employees will feel like part of your business' expansion process and maximize their output.

How to Create a Global Compensation Plan

1. Understand What You Want

The first step is to find talent in the countries you’re expanding to (or simply hiring in). There are many options to choose from as online skills marketplaces have made it easier to hire remote workers. You can use these platforms to match with potential hires who align with your values, needs, and preferences.

After that, take a moment to research the compensation basics in those countries (minimum wage, etc) and make sure to factor in the market, economy, culture, and employee qualifications when establishing a basic salary range. Other fundamental considerations are the laws and regulations governing remote work in those countries.

2. Talk to the Experts

You might not have all the knowledge needed to move forward with a global hiring process, meaning you should consult with the experts, such as an Employer of Record (EOR). Outsourcing or consulting with global employment experts will help you create and manage a suitable compensation structure. However, you should always know the specifics of your global employees’ compensation structures to avoid any miscommunications.

3. Create a Budget

The next step is to estimate how much you will need to spend on your preferred salary structure—an excellent place to start when budgeting is to put yourself in an employee's shoes. For example, suppose you want to hire or have an employee working from India. In that case, it is vital that you consider how much you will pay them per hour, the foreign currency conversion rate, the living standards in India, and their hypothetical monthly expenditure. Such an approach will avoid cost overruns that might harm your bottom line, and will make sure your potential workers are excited about their offers.

Note: Don’t forget to factor in overtime benefits, if applicable.

4. Group Your Employees

Putting your employees into categories based on skills, tenure, and job role will help you ensure you reward everyone appropriately. For instance, a team leader may get more benefits than a junior developer. Employee classification will help you avoid any forms of misappropriation that may harm your employees’ happiness. Ensure the sorting system also takes into account the employee’s country, state, or region.

5. Finalize the Plan

To finalize the global compensation plan, determine your business's objectives and put them in an outline. Include the number of employees required, their job descriptions, and what your business needs from them. Then, establish the compensation for each position in your home country by considering the level of work, skill set, seniority, and importance of each role.

After that, make sure to further segment each role’s salary structure based on the country or region your potential employee is in. Since there are different wage laws and standards of living in each region, you want to make sure your employee is being paid a fair wage based on that market. Always be ready to update or adjust your compensation plans, and make room for employee feedback regarding effectiveness when making these changes.

Bottom Line

Given the complexities of compensating distributed teams, modern employers should create global compensation plans that exude fairness and equity. If you want to leverage the ongoing culture of hiring great talent from anywhere in the world, you can work with an Employer of Record (EOR) like Remofirst.