How do you pay employees in different locations? The traditional answer of responding to local market demands is facing new pressures from an increasingly global talent pool.
As more companies operate across multiple geographies, attracting and retaining top talent has become a multinational endeavor with HR policies. Meanwhile, the rise in remote work has made the question of how to adjust salaries when employees move to another city or country a more pressing issue.
The most skilled workers are “likely to be more mobile and happy to move regionally in search of higher-paying professional jobs,” says Pavel Adjan, director of employment platform Indeed. .
He added that lawyers, software engineers and investment bankers are also doing similar work in London, Singapore and Berlin, and that companies may have “no choice but to set salaries at globally competitive levels”. he added.
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U.S. companies tend to pay wages above other countries’ local tax rates, reflecting the strength of the country’s economy and pushing up wages at the top end of the global job market. This challenges the conventional view that you can always save money by hiring staff in cheaper overseas locations.
As a result, salaries are skewed beyond the norm in some sectors. For example, City’s Elite Law Firm has increased the base salary of newly qualified lawyers this year, taking into account the base salary currently offered by US-based law firms of £175,000. He has been forced to raise the amount to £150,000.
The Washington Post recently advertised for a relatively junior breaking news reporter position in its London office, with a salary of up to £85,000, on par with what British media companies typically offer to senior editors. It was advertised that there was.
On the other hand, pay packages offered by California technology companies like Meta and Google are often well above standard rates, no matter where they operate.
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“Pay disparities inevitably cause friction because they are very personal assessments of what is fair for us as individuals, and this is even more so when countries have very different pay policies. ” said Andrew Curcio, global head of compensation and benefits at PwC.
For example, the difference in median pre-tax annual salaries for science, technology, engineering, mathematics (Stem) and management jobs in the US and UK is large and growing, according to an analysis of government data by the Financial Times. are.
This is true even when you use the IMF’s calculation of purchasing power parity (essentially how much profit is earned around the world) to take into account the different costs of living in each country.
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Global companies have traditionally approached this problem in one of two ways, Curcio says. There is the possibility of setting salary bands centrally and converting them in each location according to the cost of living in each market. Alternatively, each country could create its own scale.
The former can be inflexible, and the latter can be complex enough to be difficult to manage.
In response, companies are increasingly adopting hybrid systems that standardize salaries for executives and senior employees globally, but give local branches more freedom to set their own packages. Mr. Curcio says. This allows the senior band to continue to function as one team while adapting to the nuances of each market.
However, additional complications can arise when workers move from one location to another, whether on a short-term secondment or a more permanent move. Differences can occur not only in pay, but also in benefits such as vacation policies, parental leave, and health insurance.
Helen Mildred, group head of consultancy at ECA International, which provides advice and data to companies on global mobility policies, says a common approach is to compensate employees for the higher costs and inconveniences of working in a new location. The idea is to add this amount to their home pay.
It can add up. According to ECA research, the most expensive country to hire a middle manager is the UK, with an average cost of almost £400,000.
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Pay also becomes an issue when employees move to lower-cost locations. They are often reluctant to take pay cuts, but research shows that a system in which expats earn more than locals can breed resentment. A paper by academics at the City University of Hong Kong found that when many Chinese locals compare their salaries with those of expatriates, they are likely to view themselves as “victims of grave injustice”. It is said to be expensive.
One solution that has gained traction in the remote work era is to pay staff the same salary no matter where they live.
Reddit and Airbnb are among the companies that have “geo-agnostic” policies. Both have one compensation structure for each country in which they operate. This means that workers are free to move to cheaper areas on metropolitan packages. Reddit said the policy helps support the trade-offs employees make when deciding where to live.
However, few people have spread it around the world. The exception is US technology company 37signals, which pays all its employees San Francisco rates. The group’s website says, “No matter where you hang your hat, the same person produces the same work.”
But Daniel Seligman, CEO of offshore recruitment agency Talently, believes such a policy is unlikely to be widely accepted. Overpaying in a low-cost market “reduces the cost-saving benefits of hiring from that region,” he says.
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Many organizations are turning to other forms of pay to stay competitive.
PwC research shows that over the past 10 years, 20% of employees say they would prefer a higher salary for their compensation, as they value benefits, development opportunities and work-life balance. It is said to have decreased. A study by the University of South Australia found that almost half of workers would accept a pay cut to work remotely.
Against a backdrop of increasing cost pressures on businesses, including inflation, the recent increase in employer tax contributions in the UK and post-US election uncertainty, and the continued impact of hybrid working, businesses are rethinking their pay benchmarking strategies Curcio predicts that this will need to continue.
“I think all of this will be thrown up in the air within the next 12 to 18 months,” he says.
Salaries abroad: things to consider
pay for the best you can offer
When hiring future employees and getting the most out of them, better pay still means better quality employees. “Companies can’t afford to pay more than they can afford,” said Ruth Thomas, pay equity strategist at software provider PayScale. However, he added, “we shouldn’t aim to reduce payments.”
“We offer premium pay that is 10 to 20 percent above local rates and add benefits such as remote work and home office allowances,” said Daniel Seligman, CEO of offshore recruitment agency Talently. It is recommended that
competition is global
In a connected world, lawyers, software engineers, and even investment bankers can do similar work in London, Singapore, and New York. In such cases, companies “have no choice but to set salaries at globally competitive levels, unless the amenities of a particular location, such as security, weather, or cost of living, are attractive enough to offset lower salaries.” said Adjan Powell of recruitment platform Indeed. salary. “No matter what salaries are paid to staff, employers should know that it is “sending a message”, says Mr Thomas.
But location still matters
Global fields such as law and technology, and sectors where remote work is common, are most vulnerable to poaching by higher-paying overseas offices. In other sectors, the need for higher wages may not be as strong.
Pavel said whether salary increases are needed to attract staff will depend on the skill level and mobility of the employees in question. “For low-paying, in-person jobs, Indeed data shows that people tend to look for jobs closer to where they live,” he explains.
And pay equality can create new inequalities.
It may seem like justice to pay employees the same salary all over the world. But it can cause further problems. Seligman said that while more generous pay in markets with a lower cost of living “reduces the cost savings of hiring from that region,” employees in higher-cost regions “earn less when considering their take-home pay relative to the cost of living.” They may feel that their wages are low.” And taxes. ”
Please tell the staff – they usually understand
There may be a temptation for bosses to wish that salary payments are implicit. However, differences in norms regarding global communication, worker organizing, and pay transparency across regions often highlight significant differences. “Now you can just search Google and find information[about how much companies will pay],” Thomas says. Employers “better tell their stories,” she says.
