Less than a third of employees think their pay is fair, and those who believe their compensation is inequitable are less engaged at work and have less intent to stay with their employer.
Clearly, providing fair and equitable pay is important, but developing a compensation strategy, particularly a global compensation strategy for employees in multiple countries, can be challenging.
Competitive compensation packages also go beyond employee salary, including benefits, company contributions, stock options, etc.
We’ll walk you through factors to consider when designing your compensation strategy, key elements to include, and tips for creating a robust global compensation strategy.
What Is a Global Compensation Strategy?
A global compensation strategy is a set of policies and procedures determining how a company pays its employees in various countries. It includes salaries, bonus structures, equity, benefits, allowances, and any other form of compensation.
It’s not just about establishing salaries — it’s about ensuring fairness, competitiveness, and compliance in every country where you have employees.
Getting your global compensation strategy right is crucial for attracting and retaining top talent. In today’s competitive, remote-friendly job market, candidates often compare offers not just locally, but also internationally.
Providing compensation packages that are both locally competitive and globally consistent shows that your company values its workforce no matter where they’re located. On the other hand, inconsistent compensation packages can result in frustration, low morale, or even legal risks.
In short, a well-designed global compensation strategy does the following:
- Promotes equality among employees across various countries
- Helps companies stay compliant with country-specific labor laws, tax requirements, and mandatory benefits
- Improves company culture, employee satisfaction, and employee engagement
- Attracts and retains top talent
- Contributes to a positive employer brand
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 that vary across countries and regions. Here are some of the most important aspects to consider when designing your compensation plan.
1. Cost of Living
The cost of living differs 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 numerous ways to calculate the cost-of-living allowance (COLA) for your global employees, including:
- The multinational approach weights the prices of goods and services equally across all locations and compares prices of similar products from similar outlets.
- The nationality-specific approach uses different weights for each country or market and compares prices between the home country and host country so that employees can maintain their habitual spending patterns.
These methods address disparities in global living costs so that all employees receive a fair salary, regardless of location.
2. Local Labor Market
The local labor market can also affect your compensation policy. For example, if there’s 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, consider offering team-based bonuses or other incentives.
Similarly, if your goal is to empower your team financially, it’s a good idea to factor inflation into your compensation strategy and aim to raise 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.
However, this poses a challenge for employers working with a distributed workforce. Skills-based — as opposed to solely qualifications-based — hiring is on the rise. In fact, 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%.
That’s why it can be smart to consider skills-based pay as part of your compensation strategy — focusing on the value of an employee’s individual skills rather than just their job title. While it may take more effort to evaluate and structure pay this way, it can be a powerful motivator, encouraging employees to build diverse, in-demand skills that benefit both their career growth and your business.
5. Competitive Landscape
When hiring remote workers in different countries, it’s essential to conduct a competitive analysis to see what compensation and benefits other companies in the same industry offer 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 partner with an external compliance specialist, such as an Employer of Record (EOR). EORs like RemoFirst have teams of legal experts who stay up-to-date with ever-changing international employment laws to minimize client compliance risks.
Main 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
You must determine a global employee’s base pay first. The base pay, or base wage rate, refers to the minimum amount you’ll pay, and it 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 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 private 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, region, and culture.
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 can offer them stock options as 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 can adjust the employee compensation structure based on whether you offer remote work as an employee perk.
Tips to Create a Strong 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 on the right foot.
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 strategy.
Then, begin your search to find talent in the countries you’re expanding to or 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 statutory benefits — and make sure to factor in the market, economy, culture, and employee qualifications when establishing a basic salary range. Other fundamental considerations are those countries' laws and regulations governing remote work.
2. Create a Budget
Estimate how much you’ll need to spend on your preferred salary structure.
When budgeting, an excellent place to start 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’ll pay them per hour, the foreign currency conversion rate, India’s standard of living, and their hypothetical monthly expenditures. 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 also 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 your competition is doing in the area. 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 necessary knowledge to move forward with a global hiring process. In this 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 compensate everyone appropriately. For instance, a team leader may be granted more benefits than a junior developer.
Proper employee classification also helps prevent misunderstandings or missteps affecting employee satisfaction and well-being. Ensure your classification system reflects not just roles and responsibilities, but also factors like the employee's country, state, or region to stay aligned with local labor laws and cultural expectations.
5. Finalize the Plan
To finalize your global compensation plan, start by clearly outlining your company's objectives. Define the number of employees you need, the roles they'll fill, and the specific contributions you expect from each position.
From there, establish compensation benchmarks for each role based on responsibilities, required skill sets, seniority, and strategic importance — using your home country as the reference point.
After that, segment each role's salary structure further based on the country or region in which your potential employee is based. Since there are different wage laws and standards of living in each region, you need to ensure your employees are paid a fair wage based on that market.
Always be ready to update or adjust your compensation plans, and allow for employee feedback regarding effectiveness when making these changes.
Challenges of Building a Global Compensation Strategy
Here’s a look at some of the challenges you can expect to encounter when developing a global compensation strategy.
Balancing Global Consistency with Local Competitiveness
What’s considered competitive compensation in Argentina might not align with expectations in Germany. Similarly, company-sponsored health benefits are commonly expected in the United States, but may not be as important to employees who live in countries with free national healthcare, like Australia.
Companies must navigate these expectations, as well as differences in cost of living, salary benchmarks, and tax structures to create a global compensation strategy that meets local market standards and broader company standards.
Dealing with Discrepancies in Cost of Living and Currency Fluctuations
With so many differences in the cost of living and ever-changing currency valuations, it can be challenging to determine how to adjust international employees’ pay.
What feels competitive in one market might fall short in another, and sudden currency shifts can impact take-home value overnight. That’s why many companies use tools like cost-of-living indexes, local market salary benchmarks, and geo-based compensation bands to maintain fairness and consistency across borders.
Maintaining Compliance with Local Labor Laws
Compensation-related regulations, including minimum wage, mandatory benefits, holiday pay, and tax requirements, differ by country and can change frequently. Failing to stay on top of local regulations can lead to fines, penalties, or reputational damage.
Ensuring Internal Equity and Pay Transparency
If you don’t have a clear framework for compensation, differences in pay for similar roles across countries can contribute to employee dissatisfaction and loss of trust.
Companies must consider how to structure compensation in a way that’s seen as competitive externally while still fair internally.
Coordinating Across Teams and Systems
Building and maintaining a global compensation strategy often involves HR, finance, legal, and local partners, which can be a lot to juggle.
Clear communication and alignment across teams are essential to ensure consistency, compliance, and equity.
Many companies rely on centralized platforms or compensation consultants to streamline the process and keep everyone on the same page.
Use an EOR to Support Your Global Compensation Strategy
Getting your global compensation strategy right is essential for all companies with distributed teams. However, it's a complex process that requires ensuring compliance with a myriad of international and local labor laws.
That's why partnering with an EOR like RemoFirst is a good idea. As your global hiring partner, RemoFirst handles compliance, runs international payroll, and helps you craft a compensation strategy that attracts and retains top talent worldwide.
Ready to simplify global hiring and get compensation right from day one? Book a demo.
.png)
.png)
