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. Still, 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. 

In the previous article, I outlined why some companies choose to localize their compensation offerings based on their employees’ lives. I talked about the cost of living, market rate, and the impact on local communities. I also shared how entrenched this approach is in the business mindset due to its cost-effectiveness. 

Here, I’ll unpack why some companies forgo localizing in favor of a globalized model that aims to pay the same amount for the same role, regardless of where the employee lives. 

Fairness over profit: a new approach

As I mentioned in the previous articles, the conversation around compensation models has become a more popular one this year in response to growing interest in remote work and large tech companies announcing their move towards localization. However, that doesn’t mean this is a new topic. Localization has been the default option for many years as the trend makes the most business sense. It considers the market rate, which has always been a part of setting salaries whether a company hires outside of their city or not, and it is, of course, the most cost-efficient choice. If talent in another city or country is expecting (and happy with) a certain amount, why would you pay far above that?

More recently, some companies have begun to challenge the validity of this approach. 

“Variable pay based on the employee’s geographic location [is] logical, rooted in good intentions, designed for transparency, and optimized for fairness. But regardless of the intention, I believe it’s the wrong approach,” Nick Francis co-founder and CEO of Help Scout said in an article titled Remote Employees Shouldn’t Be Paid Less Based on Geography, published earlier this year. 

Interestingly, Help Scout had previously embraced a localized approach, with a cost of living variable embedded in their salary calculator formula. 

“It was similar to what we have now, but we identified the higher cost of living cities. We would have the base amount that we pay, and then, [for example], if we’ve hired a software engineer in San Francisco, they got $10,000 more than what we would typically pay for that role,” says Julie Menge, Help Scouts HR Operations Lead.

“And then they would reevaluate and ask, ‘Are there any new high cost of living cities on the map where we’ve hired people?’ So, that alone is a tricky process to navigate.” 

Over time Nick recounts becoming increasingly unsure of the model’s morality and received feedback from his team to the same effect. This caused Help Scout to move to a more standardized approach which they dub: equal pay for equal work.  

“I’m borrowing [the] phrase typically used to describe the pay gap associated with underrepresented groups, but the same principle applies here,” Nick says in the article. 

“I wasn’t [with Help Scout at the time], but I can imagine it would feel like suddenly you’re less valuable to the company [if you move to a lower-cost region],” Julie says. “But then the opposite would happen if somebody suddenly moved [to a higher-cost region.] So, I think after having lived through that a few times, and people saying, ‘this doesn’t feel right’, that’s when they decided to take that off the table.”

Help Scout isn’t the only company taking this route. The long-standing remote company, Basecamp has set global compensation based on San Francisco’s salaries since their first hire. 

“There are no negotiated salaries or raises at Basecamp. Everyone in the same role at the same level is paid the same,” Founder & CTO David Heinemeier Hansson said in a 2017 article titled How we pay people at Basecamp.  

San Francisco is talked about a lot because of the prevalence of software companies in these discussions, but what happens if you’re a garment maker, architect, or lawyer? And further, what does it mean for companies with various roles and even industries within its org chart? Despite choosing a global approach to step outside of the influence of market rate, companies who prefer a global compensation model will still likely be subject to its effects when aiming to hire candidates from higher markets.  

This doesn’t, however, have to be a problem. 

Help Scout base their salaries on Boston, which is part of the ‘second-tier’ city grouping in the US, including Seattle and New York City. 

“Whenever I do research and benchmark for salaries, I look at the Boston metropolitan area,” Julie says. “That does mean it can be challenging to hire a software engineer in San Francisco because we’re maybe just not going to be as competitive as some of the offers that they could get. But that’s fine because we have so many other opportunities to find great talent. We didn’t feel like we needed to be that aggressive.” 

Of course, as a second-tier city, Boston’s market rate isn’t exactly low, so they aren’t cutting out a huge chunk of potential applicants, but the sentiment is there. If you can’t afford San Francisco salaries for everyone, why offer them to anyone? 

“When we open a role, we often have no idea where the person is going to be,” Julie says. “I [go into it thinking,] ‘This is what we’re willing to pay.’ It would feel really wrong to me if suddenly we found [our pick] in this [low cost] country and offered a lower amount because they’d take it for half as much. We would just never do that.” 

This is perhaps the most compelling argument for a global approach. It only makes sense that two people doing the same job should be paid the same amount. Even strong advocates for localization agree. 

“If there’s one thing that makes me question our approach,” muses Shield GEO co-founder and Director Tim Burgess, “it’s that we’ve got someone in the Philippines and someone in the US, and they’re doing the same job, and we view them equally as valuable, but the compensation they get in real terms is different.”

Valuing the employee’s work

A similar argument, often made interchangeably with fairness, considers the value someone brings to a company. This goes beyond maintaining equal pay for equal roles and considers the actual value someone brings to the company (monetary or otherwise)...read more

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