Global Hiring

How to Develop a Global Compensation Strategy

August 2, 2022

If you’re hiring a global remote team, you’ll need to develop a global compensation strategy that’s fair and equitable for all employees — regardless of their location — and that balances employee motivation with keeping costs at a minimum. 

A global compensation strategy is a set of policies and procedures that determine how much employees are paid and what benefits they receive. When done well, it can boost employee satisfaction and retention and help you attract top global talent. 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 found that 84% of companies have established a global compensation strategy for their executive employees, but most continue to define their compensation strategies at the local or regional level. 

Competitive compensation packages go well beyond employee pay — you’ll also need to include benefits, company contributions, and stock options to keep your workers motivated and focused. 

In this article, we’ll walk you through factors to consider when designing your compensation strategy, key elements to include, and tips for creating a robust compensation strategy.

Factors to Consider While Developing a Global Compensation Strategy

Your international compensation strategy should take into account the factors that affect all your employees but vary across countries and regions. Here are some of the most important aspects to consider as you design your compensation plan.

1. Cost of Living

The cost of living varies greatly from one country to another, so you’ll need to ensure that your employees are being paid a fair wage, even if they’re located in a country with a lower cost of living.

There are different ways to calculate the cost of living allowance (COLA) for your global employees, including:

  • The multinational approach, which weights the prices of goods and services equally across all locations and compares prices of similar products from similar outlets.
  • The nationality-specific approach, which uses different weights for each country or market, compares prices between the home country and host country so that employees can maintain their habitual spending patterns.

These methods are designed to address disparities in global living costs so that all employees receive a fair salary, regardless of their location.

2. Local Labor Market

The local labor market can also affect your compensation policy. For example, if there is a high demand for workers in a particular country, you may need to pay higher salaries to attract and retain talent — or risk losing them to a competitor.

3. Company Culture and Values

Your company culture and values should also be reflected in your compensation strategy. For example, if your company values teamwork and collaboration, you may want to consider offering team-based bonuses or other incentives.

Similarly, if your goal is to financially empower your team, it’s a good idea to factor inflation into your compensation strategy and aim to raise your salaries every year in line with inflation. This shows your international employees that you care about their well-being and needs.

4. Employee Skills and Experience

As is true of any compensation package, the skills and experience of your employees should also be taken into account in your compensation strategy, paying employees with more skills and experience higher salaries than those with less experience.

However, this poses a challenge for employers working with a distributed workforce — how to compensate for skills. Skills-based (as opposed to solely qualifications-based) hiring is on the rise — in 2021, the number of job postings on LinkedIn advertising for skills and responsibilities rather than qualifications and requirements grew by 21%, while the number of positions that don’t require a degree grew by 40%.

Therefore, you might want to factor skills-based pay into your compensation package — which means focusing on individual skills rather than job titles. Although calculating skills-based pay may be complicated, it will be worth it, as it will motivate employees to obtain a wide range of skills. 

5. Competitive Landscape

When hiring remote workers in different countries, it’s important to carry out a competitive analysis to see what compensation and benefits other companies in the same industry are offering prospective employees.

For instance, if you’re hiring a software engineer from Poland, you should be aware that coders and developers from Eastern Europe are highly in demand, so your engineer could easily find another job if they’re not satisfied with your offer. Doing your research will enable you to give them a competitive compensation package.

6. Compliance

One of the biggest risks employers face when hiring remote workers is non-compliance with local labor laws and regulations. Failure to comply with employment laws in every country where your employees work could lead to penalties such as hefty fines and even jail time, not to mention damage to your business’s reputation. 

To ensure compliance, many companies choose to partner with an external compliance specialist, such as an employer of record (EOR). EORs like Remofirst have teams of legal experts in multiple countries who stay up-to-date with ever-changing laws to minimize compliance risks for their clients. 

Elements of a Global Compensation Strategy

Global compensation can either be direct or indirect. Direct compensation usually refers to factors such as employee salaries and bonuses, while indirect compensation covers any additional benefits, which might include health insurance, stock options, and 401(k) or social security contributions.

The following are some of the basic elements to include in your compensation plan.

1. 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.

2. Variable Pay

Variable pay is additional compensation that you can pay to employees based on their performance or other factors. This can include bonuses, commissions, and profit sharing.

3. Benefits

All nations have mandatory employee benefit structures, and some employers supplement these benefits with others, such as healthcare, to position themselves as an attractive employer. It’s vital to consider what your global workers deem essential since people have different expectations regarding international benefits and compensation that can vary by country.

4. Perks

Perks are additional benefits, such as company cars, gym memberships, food vouchers, and discounts on products and services.

5. Equity

Equity refers to the financial benefit of granting employees stock options in your company. Depending on the role and tenure of your employee, you might decide to offer them stock options as a part of their compensation structure.

6. Remote Work

Remote work enables employees to work from any global location, and offering it can help you attract the best talent as you undergo global expansion. Depending on the role, you may be able to adjust the employee compensation structure based on whether you offer remote work as an employee perk.

How to Develop a Global Compensation Strategy

Developing a global compensation strategy is a complex process. However, there are a few key steps that you can follow to get started.

1. Establish Your Priorities

What are the most important goals of your global compensation strategy? Do you want to attract and retain top talent, improve employee morale, or boost your bottom line? The answers to these questions will help you determine your priorities.

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 (such as minimum wage) 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. 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 an employee working from India. You’ll need to consider how much you will pay them per hour, the foreign currency conversion rate, the standard of living in India, and their hypothetical monthly expenditure. Such an approach will prevent cost overruns that might harm your bottom line and will make sure your potential workers are excited about their offers.

This step involves researching your target markets to determine the cost of living in the countries where you have employees or hope to hire, the local labor market, and what the competition is doing. This will help you to determine what a fair and competitive salary range is for any given country.

Note: Don’t forget to factor in overtime benefits, if applicable. Learn about each country’s overtime requirements in our Country Guide.

3. Talk to the Experts

You might not have all the knowledge needed to move forward with a global hiring process — in which case, you should consult with the experts, such as an 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.

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 negatively impact your employees’ happiness and well-being. Ensure the grouping 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.

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 their compensation policies factor in the difference between remote and office workers.

When paying remote workers, you should consider 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 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 minimize 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 employee retention. An all-inclusive total rewards plan can help 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 global expansion process and maximize their output.

Get Global Compensation Right with an EOR Solution

Getting your global compensation strategy right is essential for all companies with distributed teams and remote workers in different countries. However, it’s a complex process that requires ensuring compliance with a myriad of international and local labor laws. 

EORs like Remofirst take the hassle out of global hiring and ensure that all employees receive fair compensation for their work, no matter where they are in the world. 

To learn more, check out this article about the most important questions to ask an EOR.