How to Create an Effective Global Compensation Strategy

When building a talented, competitive global workforce, learning how to pay international employees accurately is essential. Each country and region has its own standards surrounding pay and benefits. As such, international companies must manage these nuances to offer competitive pay to every team member while staying within budget. 

The answer to such a dilemma? International companies must develop a sound global compensation strategy. 

By creating thorough global compensation practices, you can design a pay and benefits structure that supports employees in any location. 

What Is Global Compensation?

Global compensation encompasses the salaries, wages, and other benefits a company pays to its domestic and international workforce. This includes direct financial payments and benefits like health insurance, retirement contributions, and paid time off (PTO). 

When companies operate in multiple countries, they may have different compensation rules and requirements that they need to adhere to in order to avoid global payroll challenges. For example, some countries have weeks of required time off, while others give employers full discretion regarding PTO. 

Additionally, the market rate for certain types of work can vary based on location, with candidates in high-cost-of-living areas typically averaging a higher salary range. Your global compensation strategy should consider each of these factors, providing you with a framework for making decisions about employee pay and benefits packages.

The Importance of a Global Compensation Strategy

Having a global compensation strategy allows companies with a dispersed workforce to provide fair, competitive benefits within their budget—regardless of where their employees live. It guides the way you structure compensation and pay brackets across your organization, helping create a fair, equitable system for determining compensation packages. 

The main benefits of having thoughtful global compensation practices include the following.

Attracting Competitive Talent

If you want to attract qualified candidates, it’s important to compensate them appropriately. Candidates look for employers who value their contributions and are willing to provide benefits that meet or exceed the industry standard in their area. 

By creating a global compensation strategy that accounts for standard expectations in various global markets, you can design pay and benefits packages that attract top candidates in any location. 

Complying With Labor Laws

Operating in multiple countries involves staying up-to-date on requirements for wages and benefits. A good global compensation strategy builds legal compliance into the process of determining employee pay. This includes ensuring that your company meets or exceeds the federal minimum wage, provides sufficient PTO, and makes any additional contributions to which employees are entitled. 

Prioritizing global payroll compliance in your compensation strategy helps you avoid costly fines or legal consequences and helps you maintain your company’s reputation.

Supporting Equitable Pay

Pay equity refers to the idea of equal compensation for equal work, regardless of protected factors such as race and gender. 

When you have a thorough global compensation plan guiding your compensation approach, you can ensure fair, equitable pay throughout your organization. Ultimately, prioritizing pay equity supports diversity in your organization and ensures that all candidates receive a competitive market rate for their work.

Boosting Employee Morale

By using a global compensation strategy to support fair, competitive pay across your organization, you help boost employee morale and build positive employee-employer relationships. Building a transparent, fair strategy for global compensation directly demonstrates that you value the contributions of both your domestic and international teams.

Because providing fair compensation can help support the overall standard of living for your employees, it can directly impact their company loyalty, workplace satisfaction, and overall productivity. When employees feel that they’re being fairly compensated, your employee retention rate will rise. 

Elements of an Effective Global Compensation Strategy

A global compensation strategy addresses all the same essentials of a domestic compensation plan, but with a focus on how each aspect functions in different countries. 

By incorporating each of the following key types of compensation into your international hiring strategy, you can ensure that you’re offering a competitive and fair compensation package to your employees. 

Base Pay

Base pay is the starting pay rate that employees earn, either as a standard salary or an hourly rate. When determining base pay, employers typically consider the fair market rate for the level of experience and education they’re seeking. 

That said, the market rate can greatly vary by location. When creating your global compensation plan, you can decide which local market rate you want to use to guide your base salary brackets. 

Some companies use a location-based strategy, where they determine base pay based on each individual candidate’s location. Candidates in higher-cost-of-living areas would earn higher salaries than those living in more affordable areas, helping each of them maintain a similar standard of living. 

Another option is to offer the same pay bracket to all employees in a specific role, regardless of where they live. Employers who implement this strategy typically offer salaries that meet the market rate for more costly areas, ensuring that they can offer a competitive salary for all candidates. 

Note that when offering role-based pay to international employees instead of adjusting for local rates, it’s important to ensure that you’re meeting all minimum wage requirements.

Incentive Pay

Incentive pay, or variable pay, is monetary compensation that employees can receive on top of their base rate. This includes commission, stock options, and performance-based bonuses that employees earn for hitting certain key performance indicators (KPIs). 

Variable pay structures may be more normalized in some countries than others, so it’s important to consider the perception of incentive pay in the areas where you’re hiring. You may also want to account for the value of the incentives you provide. Do you want to provide a flat bonus to all employees, or an adjusted bonus based on the local cost of living?

Allowances

Allowances and premiums are additional stipends or pay adjustments that help employees achieve a high standard of living when they move internationally. For example, if an employee moves to a country with a higher cost of living due to a job assignment, their employer may increase their pay to account for increased expenses. Examples of allowances include:

• Housing assistance
• Cost-of-living adjustments
• Relocation stipends

If you don’t require your employees to relocate, you may not need to incorporate premium pay into your global compensation approach. However, it can be helpful to have general guidelines in place for if and when the case arises.

Benefits

Non-monetary benefits can still significantly impact an employee’s well-being and quality of life, making them a core aspect of your global compensation plan. Offering benefits to your international team involves having an in-depth understanding of local healthcare systems, retirement plans, and minimum requirements for time off. 

Your benefits plan can also include other perks, such as gym memberships, free meals, or tuition reimbursement. 

Just as employers can decide to tailor salaries to the local market or create a standardized bracket for base pay, they can choose which benefits to provide to employees in different countries. The benefits your employees value most may vary by location, so be sure to research local standards and expectations for the benefits you want to provide.

How to Develop a Global Compensation Strategy

A successful global compensation strategy supports your organizational goals as you grow your team. This involves tailoring the wages and benefits you provide to your long-term objectives, considering which markets you want to target and the level of talent you’re seeking. As you build your strategy, use these basic steps as a guide.

#1 Define Your Goals

Start by determining how you want your international employee compensation structure to support your business as a whole. For example, companies focusing on hiring in a few key areas may have different compensation goals than those seeking to hire a vast dispersed workforce in several different countries. 

Consider your short-term hiring and compensation needs, as well as how you envision your international workforce to grow down the line.

#2 Conduct Thorough Research

The ideal global compensation strategy relies on plenty of research. Gather as much information as you can about local labor laws, minimum wage, and average pay rates in your target countries. Research what both local companies and other international competitors include in their benefits packages. 

This process gives you valuable insights into the potential cost of hiring abroad, plus your legal obligations as an employer. Remember that new laws and regulations can change over time, so have a plan for keeping up with new developments. Simply put, your research is never complete.

#3 Create a Budget

Determine how you want to allocate your compensation budget for both domestic and international employees. Account for all the key elements of your compensation strategy, plus extras like exchange rates and administrative expenses. 

As you plan your budget, you’ll also want to consider how many employees you want to hire and how you plan to categorize their pay brackets to ensure you’re creating accurate projections.

Provide Strategic Global Compensation With Omnipresent

Partnering with an employer of record (EoR) makes it easy to design and implement a custom global compensation strategy for your team. By collaborating with experts in global workforce management, you can be confident that your compensation plan attracts the right candidates— all while complying with nuanced local labor laws.

Omnipresent has access to in-depth local market expertise in over 160 countries, allowing you to effortlessly incorporate international requirements and regulations into your existing compensation structure. 

As a provider of global payroll services, we handle the full range of tasks associated with compensation and benefits administration. If you’re ready to streamline your compensation process, connect with our team today.