Global compensation management, developing a global pay strategy

If you’re pursuing the best strategies for developing a sound global compensation strategy, you’re probably already running your business internationally.

Many businesses choose a global model to diversify their talent, and to have the opportunity to hire the best performers all across the globe. The ripple effect of this is that employers are able to empower their employees with better work-life balance. They also make work more accessible and inclusive by opening up a whole new world when it comes to hiring new candidates globally.

*This data is from our guide to future working trends.

But there are also some factors that might make employers hesitant to embark on international business models. For example, legislation differs by country – mix that with the differences internally from state to state, and you have more laws than you can keep up with. This trickles down into payroll, with minimum requirements, tax regulations, and reporting duties varying.

Luckily, there are effective solutions for managing this. Global compensation strategies help determine appropriate pay for employees across various regions in two primary approaches. The first one is location-independent pay, while the second approach is localised pay.

What is an effective global compensation strategy?

A global compensation strategy outlines how businesses with a global workforce compensate their international team, covering all aspects of compensation and benefits packages. This includes things such as base salary, bonuses, equity, incentives, allowances, statutory employee benefits, and any additional perks. These are subject to factors such as skills, experience, industry and job level.

Why is a global compensation strategy important?

An ideal global compensation strategy allows businesses with dispersed workforces to better enable fair and competitive benefits packages within their budget, regardless of employees' locations.

It also helps structure compensation and pay bands across the organisation, which helps in delivering a more fair and equitable system and business policy. Having a global compensation strategy will also help you better navigate compliance with wage laws, drive competitive talent acquisition, and can be more cost-effective.

Attracting competitive talent

We all know by now the benefits of remote working, and how this is a great benefit to add to your business when seeking the best talent on the market. Businesses often offer competitive benefits such as health insurance, incentive pay, or indirect compensation to find the right fit for their business.

Adequate compensation and competitive pay is an important element of an ideal compensation strategy. When designing or selecting your plan for your international workforce, you’re going to want a global compensation strategy that takes into account equitable pay and standard expectations in various markets.

Complying with international labour laws

When you operate in multiple countries, make sure that you’re meeting the relevant local labour laws that impact and oversee your employees.

A comprehensive global compensation strategy should incorporate a framework for legal compliance, ensuring that your business meets or exceeds minimum wage requirements, provides sufficient leave management, and fulfils any other statutory requirements.

Location-independent pay strategy

This involves calculating compensation based on the business’s headquarters, and means all employees in similar positions receive the same pay, regardless of their location.

Advantages of location-independent pay:

• Offers more simplicity than others, and can make the global payroll easier with uniform pay rates.
• Allows for greater pay equity and pay transparency, which can ensure greater job satisfaction, morale, and in turn, performance.
• Makes for greater talent acquisition results, as well-crafted compensation plans can attract top talent, especially if the headquarters operates in a high-wage country.

Disadvantages of location-independent pay:

• Greater risk of noncompliance, as your business may miss local minimum wage laws.
• May have high cost associations, as it misses the opportunity to save by hiring in lower-cost regions.
• May create payroll tax differences that can result in non-uniform net incomes for employees in different regions.

Localised pay strategy

The other strategy many businesses leverage when operating worldwide, is a localised pay strategy. This involves adjusting compensation based on the location of each employee, and aligning this compensation with local cost-of-living standards set out in the region.

Advantages of localised pay:

• Considered lower cost due to salaries being adjusted to local standards.

Downsides of localised pay:

• Requires continuous adjustments that create complexity, especially in instances where an employee relocates.
• Risks great pay inequity, as there are disparities that can lead to dissatisfaction among employees. Take a look at our recent pay equity guide to find out how to manage this.

What is the right strategy?

Every business is different – consider the advantages and disadvantages and decide which works best for your company based on budget, team structure, and business goals. Remember that the chosen strategy should reflect your company values and the culture you want to build, whether the focus is on attracting top talent globally or ensuring financial equality among employees.

If you’re unsure how to build your global team, get in touch to learn more about our Employer of Record (EoR) solution. We also have a salary benchmarking tool to help you benchmark salaries and stay on top of your compensation packages.

Looking to build your team? Check out SmartMatch by Employment Hero. It’s an AI-powered tool that connects you with great candidates instantly, and could save you up to 80% on hiring costs.