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Global Payroll 9 min

How to manage global compensation

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To hire in multiple countries, you must first understand how to create a fair compensation strategy that can scale across international borders. Mastering global compensation and total rewards for a distributed team is part art and part science, but the key to the entire exercise is putting the needs of your team at the center.

According to a survey by Deloitte, 64% of businesses say they will revise their compensation strategy by the end of 2023 at the latest. If we acknowledge that compensation goes beyond salaries and also includes benefits, stock options, and company contributions to perks like pensions, the need for constant reevaluation makes sense. The more distributed your team becomes, the more questions you must address in the evolution of your global compensation plan.

In this piece, we’ll cover what constitutes global compensation and how you can manage it effectively for your remote employees. 

What is global compensation?

Global compensation refers to how companies manage direct and indirect compensation for a globally distributed workforce. While direct compensation accounts for salaries and bonuses, indirect compensation includes all the extra benefits offered by the employer with the aim to attract the best talent and boost employee retention. Indirect compensation might include everything from health insurance to 401(k) contributions to stock options.

Global compensation also includes a legal component — chiefly, how do companies pay international employees compliantly? An employer of record like Remote can help with the compliance part, but for this article, we will focus on the question of how to develop the total rewards program that precedes any international hire.

What do you need to know about global compensation?

Managing compensation is challenging enough in one country. To handle total rewards well across multiple countries, you need to get the basics right first.

Those basics can include:

  • Base salary. Before extending an offer to any candidate, you need to establish the base rate for the role. On top of benchmarking for role and seniority level, an employer must ensure the basic remuneration reflects the candidate’s local purchasing power and a number of other factors (such as the inflation rate or special tax policies).
  • Allowances and premiums. To assess the correct monetary value of bonuses or additional allowances per team member, consider the standard costs of living in each country where you hire. This will help you create an attractive and competitive rewards program while facilitating employee acquisition and retention.
  • Benefits. Each country has its own list of mandatory benefits, which can be supplemented by additional perks, such as private healthcare. However, not every employee will prioritize the same benefits. Given the various medical systems across the globe, some employees will expect private insurance, while others might not see the need to provide anything on top of what’s offered to them by the NHS.
  • Additional incentives. After establishing base pay, you can add in any incentives that relate to your company’s rewards programs. For instance, if all employees are given stock options, then you must ensure that you avoid any legal roadblocks related to offering stock in every country where you hire.

To make sure that you’re offering just, equitable compensation to each staff member, it’s essential to create a total rewards policy that accounts for all aspects of global compensation. Your strategy must address the financial, career, and benefits rewards that motivate staff and promote long-term engagements with your company. Let’s take a closer look at the process behind creating a global compensation strategy.

Why is a fair and equitable global compensation policy so important?

Offering a fair and equitable global compensation policy is a necessary part of building a happy, diverse, and productive workforce.

Diversity and equity in practice and in law

Why should the issue of pay equity be of concern to employers? Not only is ensuring equity in compensation the right thing to do, but putting diversity and equity at the heart of your global compensation strategy will ensure all your employees feel valued.

The concept of diversity and equity goes beyond business effectiveness and ethical practices, though. As more legislatures around the world adopt equal pay laws for people of all genders, companies without internal controls for pay equity could find themselves in trouble with regulators — and making the news for all the wrong reasons.

Remote work and global compensation

Remote work has become the standard for many companies and will continue to empower more businesses to hire internationally. Businesses with remote workforces must be especially vigilant in the creation of their global compensation plans. Because every total rewards policy extends beyond salaries to cover statutory and non-statutory benefits, as well as various deductions, things can get complicated. 

Let’s take Canada and Australia as an example. 

In Canada, employee insurance is paid by employers on a monthly basis, which means there is more money left in the employee's pocket. In Australia, after an employee reaches a certain salary band, employers must make deductions from salaries to cover for the employee's higher education fees (if they attended university). This results in less cash in an employee’s bank account.

Therefore, even if two employees doing the same job in two different countries have equal salaries, their net pay will differ as they’re subject to various employment laws. An introduction of a total rewards policy helps companies realize these differences to ensure all their employees are paid fairly. That is not to say that every difference should lead to a salary adjustment, of course — only that companies need to be aware of different local factors to create more competitive compensation offers.

Total rewards for morale and retention

A comprehensive total rewards policy is an excellent way to keep your employees happy and motivated to do great work at your company. The opposite is also true: a poorly planned or nonexistent global compensation plan will make employees feel confused, undervalued, and unappreciated, which can lead to poor performance and low retention rates.

Part of every effective total rewards plan is transparency. If you create a global compensation strategy that is fair and equitable, you should want to share the process behind that plan with your employees — and with everyone else! Remote has a large part of our public handbook dedicated to our total rewards policy, where anyone can see how Remote sets salaries and accounts for things like cost of living and performance.

Pay equity audits

One of the best ways to begin creating a total rewards strategy is with a pay equity audit (PEA, in short).

To fix any discrepancies in rewards, you should first look at how much employees from the same seniority tier make for a living. Next, investigate every discrepancy and scan for any justifiable differences. On top of global fluctuations in tax and contributions, look for things like work experience, tenure, and job performance metrics, i.e. factors that back up any recent raises or bonuses. With those factors out of the way, you are left only with pay discrepancies not justified by other factors — that is where you should focus on closing the gaps.

Now, how do you tell whether your base salary is competitive in the first place? The good news is that many remote companies (particularly, those in tech) are open about the rates they offer to employees. 

Buffer is a perfect example. Not only does the company offer a Transparent Salary Calculator, which lets you see how much you would earn at Buffer for your location and prospective role, but they also disclose how they reward their own staff. These pages correlate perfectly, so anyone considering a job at Buffer can see that staff members are paid as much as the calculator says they would be.

Regular market pay gap and gender pay gap analysis

Conducting a pay equity audit is a great first step toward building a complete global compensation policy. Doing so comes in two parts: a regular market pay gap analysis and a gender pay gap analysis.

A regular market pay gap analysis focuses on the roles your employees hold at your company, their locations, and the salaries they earn based on those factors. In this part of your analysis, you can cover things like seniority (how much experience one person has compared to another in the field) and performance (what kind of performance evaluations have employees received). By quantifying these factors and comparing across the organization, you can identify areas where employees with similar backgrounds should be earning similar amounts for their contributions.

The gender pay gap analysis is a necessary part of the equation as well — so necessary, it requires its own step in the process. Women still earn less than men when performing the exact same work, per Payscale, even though that gap has been shrinking in recent years. As organizations become more proactive about measuring pay disparities across all genders, viewing total rewards through this lens is a vital component of an equitable global compensation plan.

Salary adjustments are purely reactive, so businesses must seek proactive ways to close the compensation gap and keep it closed. Your pay audit should uncover any operational mistakes and provide structure for how to correct those mistakes. 

Remote’s VP of people, Nadia Vatalidis, led Remote’s team through a total overhaul of our total rewards policy, including a global pay equity audit. Her advice for other companies looking to follow the same path is to lean into transparency:

“The question of equitable global compensation is a huge one, and it's a place where we are hoping to set a good example for other companies. Internally, we recently rolled out our new total rewards philosophy, which is available in our public handbook. Our policy focuses on belonging, inclusion, equity, and diversity. We are building Remote to democratize access to opportunity for employees and access to talent for companies, and we believe doing so means paying people fair wages for their work. Remote aspires to set the standard for equitable pay for everyone who works here, and our global employment service makes it easier for other companies to do the same within their organizations.”

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What is happening in the global world of compensation right now? 

Remote work and distributed workforces create some confusing questions about how much to pay employees living in different places. Some organizations (particularly those that are primarily office-based) actually penalize remote workers with reduced salaries for working away from the company headquarters. While cost of living can be a factor in employee compensation, punishing employees for working remotely is the wrong approach.

Research from Remote found that 81% of workers would move to a new place if they could do so without affecting their prospects at work. As remote work makes workers more mobile, people are less willing to stay in one place when they know they could do the same work for the same or similar pay in a more desirable location.

That does not always mean moving to a tropical paradise, however. Many employees move to be closer to their families, to access better schools for their children, or simply to experience a new culture. The reasons for moving can vary, but the option for mobility is the common factor. Companies that are more accommodating of employee relocation are much more likely to attract and retain great people in the long term.

Creating a modern benefits plan

To compete for the best talent in different locations, companies cannot simply offer the bare minimum of statutory benefits required by law. Employees are attracted to opportunities with more competitive benefits packages. Fortunately, developing a more appealing benefits package does not necessarily mean spending a lot of money.

The modern benefits stack today’s employees desire most puts flexibility at the front. Not every employee wants to work remotely, but many of them do, and those workers do not want to limit their options to companies requiring a return to office. Perks like flexible working hours, location independence, and home office stipends can go a long way toward making employees feel supported regardless of where they want to work. Add in the more traditional benefits, like pensions and health insurance, and the benefits part of a total rewards package can play a major role in attracting and retaining employees.

Scalability of total rewards

The beauty of a total rewards policy is that it’s scalable by nature. Once you understand how and why you set salaries at certain levels and how to offer the best benefits, you can make competitive offers to great candidates much more quickly.

Think of two situations. In the first situation, you have no clear total rewards policy. When you find a great candidate for an open role, you must quickly figure out what the salary for the role should be, which benefits you can offer in the candidate’s country, and how much cost of living should affect your offer. This process takes time to complete, leaving your candidate with a lot of frustrating “it depends” answers and potentially leading the candidate to take another offer.

With a clear total rewards policy, you can skip all the parts of compensation that drag out the hiring process. Find a candidate, look at your policy, and tender a great offer immediately. The candidate doesn’t keep looking for other jobs because you demonstrated how much you value this person and how excited you are to have them join your team.

The same is true of internal scalability for total rewards. Your policy not only covers new hires, but also events like promotions and performance reviews. This accelerates internal mobility, ensuring people who are already within your organization feel valued and seen.

What are the different types of global compensation strategies?

There are, broadly, four different approaches to global compensation: paying everyone the same salary, adding a cost of living adjustment, using a salary calculator, or following a total rewards approach. Before we dive in and take a look at the differences between these four strategies, we first need to understand the difference between global pay, GEO pay, and local cost of living.

Global pay vs. GEO pay vs. cost of living

Global pay means setting salaries based solely on role and experience, then paying workers the same no matter where they live. GEO pay refers to using geo pay ranges to set salaries. Cost of living, of course, refers to using the cost of living of the city where the employee lives to adjust the employee’s salary.

Global pay and cost of living are self-explanatory, but geo pay ranges are a little different. Geo pay ranges are large areas with similar costs of living. For example, a standard cost of living model for compensation might consider every individual city within a country, while a geo pay range may include a few countries with similar costs of living as one entity in terms of salary calculations. We use geo pay ranges at Remote, because doing so allows us to compensate our team members with higher salaries.

Four global compensation strategies

The following are the most commonly used strategies for determining global compensation.

Global pay: Roles, not regions, determine salaries.

This is the easiest strategy to manage, but it is also the most expensive. Paying everyone the same usually means setting salaries at a rate tied to an expensive city — otherwise, the company would be unable to hire anyone living in a major metropolitan area. That means an employee working in San Francisco as a senior operations specialist, for example, would earn exactly the same salary as a senior operations specialist in Chiang Mai, Thailand. For smaller companies with lots of money, this may be a good option, but scaling global pay gets expensive quickly.

Cost of living: Set salaries by role and adjust by city or region.

As mentioned previously, companies can consider cost of living using either city-level data or geo pay ranges. Geo pay ranges strike a good balance between global pay and city-level costs of living by compensating employees with higher salaries without creating huge gaps in pay equity. With geo pay, anyone living in a high cost of living area still receives a good salary, while someone in a lower cost of living area receives a higher salary than they would in a city-level model.

Cost-of-living calculator: Use a formula to set salaries.

A compensation calculator tied to cost of living can be a smart way to manage global compensation, at least for the salary portion. Buffer and GitLab both have salary calculators that are publicly available, so prospective hires can get a good idea of what they would make at the company. The trouble with owning a salary calculator comes with the upkeep — managing all those variables can be tricky, especially as factors like exchange rates change over time. Changing the calculator can have widespread implications throughout the workforce, so it’s important to get it right from the outset.

Total rewards program: Create a customized, scalable solution.

Large organizations and high-growth startups face immense challenges regarding global compensation. At Remote, we have some of the most hands-on experience with global compensation and total rewards in the world, so we used that expertise to develop a total rewards policy that is generous, equitable, and flexible.

For example, geo pay ranges allow us to pay our team members well no matter where they live. To ensure we can attract the best leadership candidates, we use global pay ranges for roles at the director level and up, benchmarked at 80% of the US rate. Our compra-ratio approach sets the baseline for salaries at 65% of the median rate (instead of the usual 50%), then adjusts up or down based on performance and experience. Tactics like this allow us to pay our employees well while leaving room for growth.

For more information on how different companies handle compensation, see our piece on how to manage remote worker compensation. If you want to know more about Remote’s total rewards policy, you can always check out our public company handbook.

link to Guide to hiring international employees
19 MIN

Guide to hiring international employees

Hiring international employees can be risky if you’re not familiar with local payroll, taxes, benefits, and compliance in every country where you source talent. This guide was developed to answer all your international hiring questions to help you feel comfortable and confident as you begin onboarding international employees.

Why fair global compensation is more than just salary

Fairness and equity are not as simple as setting equal salaries for all. Equality in compensation is important, but to achieve true equity, companies must account for everything from worker location to benefits packages.

The importance of a global compensation total rewards policy

Remote work gives employees more freedom to select the employment opportunities they like best. With more power shifting to the workforce, businesses need to be proactive in developing total rewards policies that are not only equitable and competitive, but also appealing.

To retain current talent and attract new employees, companies have to approach their total rewards policy holistically, including both financial and non-financial incentives. This is especially important given the cultural context and the discussion around equality. It’s the organization’s responsibility to structure rewards in a way that guarantees transparency and fairness. In addition, employees respond strongly to whole-person total rewards programs that include perks like mental health care, student loan repayment assistance, learning and development budgets, and similar nontraditional offerings.

Having an attractive, forward-thinking total rewards policy will not only act as a great motivator for employees to perform at their best but will also make them feel appreciated. Additionally, benefits like these will help employers to stand out from the competition, which is key in an increasingly competitive talent marketplace.

There is no one-size-fits-all approach to benefits

Building a total rewards plan with associated benefits is a bit of an oxymoron. Every employee should feel their benefits package is personally relevant, but every employee should have access to the same company-sponsored benefits whenever possible.

Different countries have different rules for social contributions and associated government assistance. This should be reflected in your compensation benchmarking. For instance, at Remote, we take into account that the Netherlands requires an employer to pay a holiday allowance that translates to 8% of the employee’s annual earnings. We factor extras like this into our benchmarks for each role. In the Philippines and Mexico, both of which require employers to offer a 13 month’s salary, we follow the same practice.

State-mandated benefits alone do not make a competitive benefits package. Employers must also take into account rewards that aren’t required by the government but are seen by the employee as a market standard (for instance, private insurance packages in Brazil or the US). To stand out from other employers on the market, consider which nontraditional benefits your current and prospective employees may desire.

Remote’s total rewards program

To give you a real-life example of how global compensation can be managed, let’s take a look at how we handle total rewards at Remote, where we have hundreds of employees in dozens of countries all over the world.

Total rewards philosophy and mission statement

At Remote, our mission is to ensure bias-free compensation and equity for all employees. Our total rewards policy is the result of deep research regarding compensation with employee wellbeing, fairness, and equity at the core. It is our hope that, through our approach to global compensation, we can inspire other companies to reward their distributed teams well, improve standards of living around the world, and empower more people as they contribute to their local economies.

Compensation data, benchmarking, and fair pay analysis

In 2021, Remote ran an extensive pay and equality analysis to understand how to benchmark compensation for each role. We included a gender gap analysis during this research to ensure everyone at Remote is paid fairly regardless of gender.

While we cannot publicly display our compensation data for specific employees, we do publicize the factors we use to determine compensation. Remote applies global pay to director-level employees and sales roles, which are benchmarked at 80% of the US rate. Compensation for all other roles is based on:

  • Cost of living/rent index (geo pay)
  • Alignment to industry benchmarks
  • Level of experience and alignment to the position
  • 65th percentile positioning within the overall market
  • Benchmarking across teams and departments to ensure internal equity and fairness

GEO Pay Ranges 

At Remote, we use the above-mentioned geo pay ranges as part of our rewards policy formula. When determining the cost of living index, we look at the exact costs of living per country instead of per city or region. This is important, as two neighboring countries might fall under two different geo ranges (for instance, Lebanon and Israel).

​​Compensating in local currency

To ensure compliance everywhere Remote operates, all employees are paid in their local currency. We use a constantly updated calculator to convert from USD to all local currencies. To guarantee fairness and find balance between currency fluctuations, we use a 12 month trailing average rate. 

Compensation review policy

Our compensation review policy includes a number of factors, including:

  • Two annual performance reviews (compensation review in October/November and market check in May/June)
  • Determining role readiness and individual predispositions when determining promotions
  • Our compa-ratio metric, which takes the midpoint salary range on the market and compares it against our employees’ remuneration

For a deeper dive, be sure to give our public rewards policy document a read.

Benefits

At Remote, we offer competitive benefits to employees, such as flexible working hours, unlimited time off, a learning stipend, and a co-working allowance. We also offer location-specific benefits, such as 13th and 14th salary and vacation stipend, when required by the employee’s home country.

All Remote employees also have access to a common pool of other great benefits, including our partnership with Modern Health for career coaching and mental wellness. Our goal is to set a high standard of living and create a benefits package that ensures Remoters all across the world are able to experience that standard.

How to attract and retain great talent with a global total rewards program

We have put together several resources to help you better manage payroll and benefits for your remote workforce. These include: 

  • Global Payroll Management Guide – Learn how to manage global payroll while staying compliant with international labor laws. Building a globally distributed team using a fair and equitable global compensation total rewards program is a great way to attract and retain the best talent worldwide.
  • Global Workforce Revolution Report – A comprehensive report which will help you prepare for the future of work and stand out in the competition for the best global talent. Learn about the top trends in remote work and see what employees want from the new world of work.
  • How to Calculate Compensation for Remote Employees – A great supplementary piece where we shed light on different compensation models, including examples from brands like Basecamp, Buffer, and GitLab.
  • Consulting servicesTalk to our experts to learn how you can effectively grow your workforce globally while staying in line with international hiring laws. 
  • Move to a remote-first model– A resource that explains how you can remove barriers to global hiring and embrace the future of work. 

Managing global compensation can seem like an overwhelming task at first. Differentiating between global and geo-based salary rates and handling compulsory and additional benefits are just some of the elements you need to consider. The good news is that hiring a remote, distributed team can be a straightforward process, provided that you follow the right approach.

Remote recommends building a global compensation total rewards policy that accounts for a mixture of factors — location, market demands, global trends, and equitable pay. If you’re already hiring a global team, be sure to begin your rewards policy strategy by running a pay equity audit to close any unwanted gaps between groups at your company. To learn more about paying and managing a distributed team, be sure to give our Global Payroll Management Guide a read.

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