When you have remote teams working around the world in different countries and different areas of the world, it can be challenging to decide on how to compensate them fairly and equitably.
It’s challenging because salaries for the same position vary from country to country, as does the cost of living. And companies need to decide whether to compensate staff according to where they live, or according to the pay scales applicable to the location of the head office.
For digital nomads that may change countries quite often, it can get a bit challenging to manage all the different local salary equivalents. And for companies with large teams of remote staff, some of which will change location, it can be complex to calculate and estimate local salaries especially if there’s not enough data on local living costs.
Ultimately the decision on what type of remote compensation methods to adopt will be based on the company’s own unique working culture. This can take a while to develop over time, as the company gets experience with different compensation approaches. For larger companies, it’s much tricker to transition from a global compensation approach to a local compensation approach or visa versa. That’s because the impacts could be significant for a great number of employees.
Your company’s remote compensation policy should aim to reflect your company values, and that’s where this article comes in. If you haven’t thought about how to approach your compensation policy, then below we list the several options and considerations that may be helpful.
The challenges of setting a remote work compensation policy
Firstly, when it comes to setting a remote work compensation policy for remote staff, be prepared for the fact that it probably won’t please everyone. Compensation is a controversial topic. You’re unlikely to find consensus among all staff about which method is best and most fair and equitable. That’s why it’s good to give enough thought and consideration into which method you’ll adopt for remote staff.
There are various different remote work compensation approaches you can opt for, which we explore in more detail below. Each has its own unique challenges, drawbacks and benefits.
Bear in mind also that compensation is broader than just salaries and extends to perks, benefits and equity too. In some cases, companies may opt for giving staff salaries commensurate with local pay scales and living costs, while also providing global perks and benefits to all staff regardless of location.
Local, global and hybrid approaches to remote staff salaries
Consider the scenario where you have a staff member living in London, being paid a London-based salary. You also have a staff member at the same company working in South Africa, earning a local salary. Both people do the exact same job and have the same experience. Now the Londonder moves to South Africa. Do you keep paying them the London salary even though the South African gets far less and does the same job? Or do you decide to pay them both a local wage? Or do they both get a global salary, based on where the company is based and what your company can afford.
There are several compensation models — each with their own benefits and drawbacks.
The challenge with setting a local salary for compensation is that there isn’t always enough data on the cost of living and pay scales. And while sometimes there is research data available about local living costs, it can be prohibitively expensive to buy. That means you may have to approximate a fair salary
This can result in employees feeling disgruntled when they are paid very differently from peers with the same job roles but in different cities. Or staff may be unhappy with local salaries because they could be based on inaccurate guesstimates about living costs.
For example, the person living in South Africa may earn a local salary but may also need to pay much higher living costs. For example, they may need to pay for private medical cover, private schools for their children, private security to protect them in their homes, and high levies to live in gated security estates. They may also pay much higher tax rates. That means that many people receiving local compensation rates may not receive a fair wage when compared with other staff located elsewhere in the world.
Local salary model: based on the employees location
This compensation model is based on paying remote employees a wage that commensurate with local salaries and based on the cost of living in that area. The underlying reason behind this approach is to provide all staff with equal purchasing power, based on where they live.
It can get complicated if you have many employees and you need to calculate local salaries for a range of different countries and cities. And if you employ digital nomads who tend to travel and change location quite regularly, then it can get even more complex.
That makes the global salary model attractive from an administrative point for view. It’s much easier to calculate and apply. But it can also be more costly.
Global salary model: based on the head office location
This compensation model for remote staff pays all staff the same salaries for the same role and experience, no matter where in the world they live. The underlying reason behind choosing this approach is to be fair by paying all staff equal salaries. One of the most cited examples of this approach is Basecamp, which pays all staff of the same level, the same salary regardless of where they work.
One of the benefits of adopting this approach is that you may be able to attract some of the best talent from around the world and increase retention rates. It also helps to make employees feel that they are equal and that their country of birth, or where they choose to work, doesn’t make them less valuable or their contribution less significant. This can really help to boost productivity and engagement among staff.
However, many companies that are keen to save costs will probably prefer to negotiate local or hybrid compensation models for their remote staff.
The hybrid model: based on the employees location with global benefits
The hybrid model for remote work compensation is a mix between the global and the local approaches. So, for example, an employee may get a localized salary based on their local living costs, but they may also get additional benefits that employees everywhere in the world receive. These benefits and perks can be things like healthcare insurance, a set amount of annual leave days, and a pension fund contribution.
National average model: based on the head office’s country
You could also decide to base salaries on the national average salaries in the country of the head office. However, this approach does mean that you may not be able to attract talent from some of the more expensive cities in the country where your head office is based.
Whatever model you select, you will need to check that your salaries comply with fair labor standards and minimum wages.
Remote salary calculators
Transparency is important for business reputations and that’s why you may want to make your compensation policy transparent too. Part of that compensation transparency involves showing how you calculate salaries. In other words, showing that you have a method for calculating remote salaries and explaining exactly how salaries are calculated.
Some companies like Buffer have developed salary calculators that are available on their websites. These help staff to see what certain roles would be paid, depending on which city the staff member lives in. This can also be helpful to give staff an indication of how their salaries may change if they change location, so they don’t get a surprise once they relocate.
Factors to consider when drafting your remote work compensation policy
When you are drafting your compensation policy, it’s useful to look at the compensation options (which we discussed above). It’s also a good idea to look at what remote work compensation trailblazers are doing and at how competitors are positioning themselves in the market to attract and retain talent.
Below we list several factors to help spark debate and consideration when you’re drafting your remote work compensation policy.
- Do you want to be transparent and openly share your remote compensation policy and will you be open to revising it over time?
- Which remote work compensation model do you plan to opt for: the local compensation, global compensation, national average compensation — or a hybrid approach? This may be determined depending on where you plan to hire employees from, and how big the team will be in time.
- If you opt for local or national average compensation models, then do you plan to use a compensation calculator to establish fair salaries? Or will you buy verified and well-researched data on living costs for each location? Or will you guesstimate local salaries and living costs? How often will you update the compensation calculator data? Will you use feedback to make adjustments where the compensation calculator or estimates of local salaries and living costs seems to be incorrect?
- Would you reduce an employee’s compensation if they relocate?
- Do you plan to provide any perks and benefits to employees over and above salaries, regardless of where they live?
- Do you plan to monitor employee salaries to ensure that they are fair and equitable, and that gender equality and underrepresented groups are treated fairly?
- Will you have a different compensation approach for top executives and managers?
- How will you make decisions in future about remote compensation and how often will your policy be reviewed and updated?
Final thoughts on remote compensation models
Choosing a fair and equitable remote work compensation policy that also suits your budget and keeps employees happy and engaged is complex. This is particularly the case with distributed teams, living in different cities around the planet.
Ultimately each company will need to reflect on their own circumstances, budgets, values and company culture, together with the pros and cons of each compensation model, to decide on the way forward.
It’s useful to look at leaders in the field of remote compensation to see what’s possible and to get ideas and inspiration. Reddit’s remote work compensation policy, for example, offers the option of remote or hybrid work, and pays the same amount no matter where in the US it’s staff are located. Stripe’s compensation policy is a little different: they may cut salaries if employees relocate to less expensive locations, but also offer a relocation bonus. Buffer uses a transparent compensation calculator and monitors equal pay; GitLab has created their own complex remote salary calculator based on employee locations.
Taking a strategic and proactive approach to remote compensation is critical in this time of change where many companies are wanting to, and having to, transition to having remote workforces.
Taking time to properly consider your remote compensation philosophy can also help to create a more fair and attractive compensation approach that can keep employees engaged, productive and help you attract and retain a globally outstanding talent pool.
Originally published at https://andysto.com on October 19, 2021.