How Do Remote Companies Set Salary and Compensation for a Global Team?
Setting compensation is something every employer has to consider and the decisions they make ultimately affect everyone they will go on to hire. This makes deciding how to approach compensation complicated no matter the makeup of your team...
Setting compensation is something every employer has to consider and the decisions they make ultimately affect everyone they will go on to hire. This makes deciding how to approach compensation complicated no matter the makeup of your team, but with more companies embracing remote-friendly policies and expanding their hiring pool internationally, the layers of complexity naturally increase. In an effort to unpack all the competing arguments and intersecting elements, our Journalist, Bree Caggiati, is sharing a seven-part article series on Compensation for Global Teams.
One of the first conversations I ever had with our Co-Founder, Tim, centered the debate between global and local compensation models.
It was during an early interview for my current role, and I asked his thoughts on the subject. At the time, I wasn’t even entirely aware of the scope of the issue, where I stood, or how passionate Tim would be. As someone who aims to live my life as ethically and thoughtfully as possible, it was merely something I was interested in learning about as it pertains to our industry.
At the time, Tim made a case for a localized approach, bringing up scenarios I’d never thought of and posing questions that made me curious to think more on the topic.
Funnily enough, one of my first-ever features for the Shield site tackled the issue and gave me further insight into some of the pros and cons of each side. I found it wasn’t as simple as a global salary being the ethical choice and a local approach an economic one. In fact the implications of what is fair, and what isn’t are much more complex when you’re entering a new community different from your own.
However, I still wasn’t entirely convinced I knew enough to take a stance myself.
After the success of our podcast series earlier this year, we began brainstorming topics for a new series, and this idea to unpack the compensation debate kept cropping up.
The series would allow me to hear from advocates from both points of view as well as multiple roles and, hopefully, different home countries too. Through interviews, research, and reading, I’d gain a fuller picture of the entire topic.
It would allow me to dig deep, ask the tough questions, and uncover the various layers involved. All while sharing my findings with you.
We ultimately decided an article series would be better suited to this topic and will begin the rollout of our seven-part series this month.
To launch our series, this article will provide an overview of the significant tenets involved in compensation models and the standard approaches. We’ll aim to answer our first question of the series — how are compensation models set? And introduce you to some of the key players in this space, including distributed companies at the forefront of these discussions, compensation consultants and remote work advocates.
Compensation packages and the total cost to employers
Compensation, of course, covers more than just an employee’s take-home pay. Packages also take into account taxes and other deductions like retirement funds or employment insurance and benefits such as health care or equipment allowances. Depending on the role it should cover base pay as well as overtime pay, commissions where required, as well as any end of year bonuses, profit sharing, merit pay and stock options.
In some cases, you may even quantify the cost of adding extra users to your operation programs, or any annual gifts or regular staff lunches. For co-located companies that may include an extra parking space, the cost of extra keys or office snacks. In other words, it’s the total cost to the employer, not the total net pay to the employee.
When companies hire worldwide, the structure of these packages often changes between employees due to differing local employment law and requirements. For example, in Canada, employers are responsible for paying employee insurance (EI) each month, designed to cover your employee in case of termination. In Australia, employers are required to deduct a portion of any employees salary who have offset their tertiary education fees through the Higher Education Contributions Scheme (HECS) once they reach a certain salary band. While these instances don’t necessarily have to affect the overall compensation package, they can change the employee’s net pay. In other words, what is required by law may mean employees living in different countries will receive differing salaries, even where they have the same total cost to the employer.
While these aren’t the only ways compensation packages differ between employees in the same company, or even within the same role in a company, it’s important to acknowledge these differences are unavoidable when hiring globally.
3 Types of compensation models
The more dominant reason for differences between employee salaries will, of course, have to do with the company’s compensation philosophy.
There are three main compensation models that we will cover throughout this series. Each has its own merit, and I’ve spoken to people with strong cases for and against each of them.
Global compensation approach
This model sets compensation packages based on the position — no matter where the employees live. That means anyone with the same job description is paid the same amount, globally. This approach aims for fairness in the dollar amount...read more