A study mentions that in the US alone, 100 percent of employees were expecting a salary raise in 2022, while 87% of employees in Western Europe and 78% in Asia Pacific were expecting a salary hike in the same year. Further, as the Great Resignation made headlines in 2021, brands have been more mindful of having a sound compensation strategy to attract global talent. 

If you, too, aim to build a strong global compensation strategy, this guide has covered everything you need to know.

What is a global compensation strategy?

A global compensation strategy is a transparent employee compensation method that ensures all your employees receive fair compensation globally. To build a winning global compensation strategy, brands need to consider various factors like job role, employee experience, cost of living, the culture of the company, etc. We will discuss this in detail in the later section of this guide.

Why do companies need a global compensation strategy? 

Here are the top three reasons why you need a global compensation strategy.

To ensure competitive remuneration

Millennial workers (currently in their late 20s and late 30s) have certain work experience and are attracted to jobs that pay above the basic salary. A report says millennials like to receive well above the minimum wage and expect a 5% raise every year to help them support their growing family and lifestyle. So, ensure offering competitive remuneration to attract the best talent. 

To control costs 

A fair compensation strategy ensures you stay within your employment budget and not exceed it. A compensation strategy gives the hiring managers a framework for making salary and benefits decisions to remain competitive without exceeding the allocated budget. 

To ensure fairness and equity

The gender pay gap is a serious problem across the world. In the US, the gender pay gap hasn't improved in the last 22 years. A report says that in 2022, women earned 82% of what their male counterparts earned with similar education and experience. The situation is nothing better in India. As per a report, Indian women earn 23% less than their male colleagues. 

While gender pay gaps are a concern, discrimination in pay due to cultural differences is another major issue. As The Australian reports, men with ethnic backgrounds are paid 16-20% less than their Anglo male counterparts, while women with ethnic backgrounds get 36% lesser pay. First Nations women suffer the most in terms of pay gaps. 

A global compensation strategy ensures that employees get fair pay based on their talent, experience, and education, not on cultural background, race, gender, or ethnicity. 

Many countries have adopted laws and regulations for pay equity to minimize pay gaps. For example, the Equal Pay Act of 1963 is a labor law in the US that mentions that men and women working in a company under the same role and conditions should receive the same pay. Similarly, the Equal Remuneration Act in India ensures no discrimination in pay, promotion, or training based on gender. 

Factors to consider when developing a global compensation strategy 

Here are some of the most important elements of global compensation that you should consider while crafting your global compensation strategy. 

Labor market

The labor market is one of the most important factors to consider when creating a global compensation strategy. For example, if there is a high demand for a particular skill and a limited amount of skilled labor, you may need to pay more to attract and retain the talent or lose it to competition. 

Employee skills

Traditionally, employees with higher experience and educational qualifications have received better pay. However, skill-based hiring is now on the rise as compared to degree-based hiring. A Harvard Business Review mentions that between 2017 and 2019, employers reduced degree requirements for 31% of high-skill jobs and 46% for middle-skill-based jobs. 

The same report mentions that in 2021 at Accenture, only 43% of job postings had a degree requirement, while IBM had 29%. As skill-based hiring rises, it's time for decision-makers to consider skills while determining their compensation strategy. 

Although measuring skills is difficult and complex, it's worth the effort because employees feel valued when paid for their skills. This, in turn, will reduce churn and improve retention.

Compliance

One of the biggest challenges of overseas hiring is meeting compliance. Non-compliance can attract fines, penalties, and jail time from local law enforcement agencies. Plus, brands lose their reputation for not adhering to the minimum wage standards. 

For example, the Minimum Wage Act 1948, Section 22A, ensures employees are paid minimum wage in India. Violation may lead to imprisonment of five years and a fine of INR 10,000. 

A global compensation strategy helps to adhere to such compliance regulations. Partnering with an Employee Of Record (EOR) is a good idea while hiring overseas, as an EOR helps you to stay compliant at all times. The compliance experts at Gloroots ensure 100% compliance with hiring regulations, payroll, and tax laws.

Cost of living

The cost of living varies greatly from one country to another. And so you need to ensure that your employees are receiving fair pay. You may have a cost of living allowance component, which can be calculated based on the price of goods or services across all locations. This method can help remove living cost disparity and ensure everyone gets paid fairly and equally. 

Company culture

Your compensation strategy should be based on your company's culture and values. So, if your company stands for collaboration and teamwork, keep a team incentive. Linking compensation to company culture helps you to uphold the values and the employee behavior you want to achieve. 

Total compensation package

Consider the total compensation package while determining the compensation strategy. For example, in some countries like Greece and Portugal, 13th-month pay is mandatory, while it might be an optional benefit in some countries. 

Regional salary variations

If pay is completely region-based, employers may miss having employees who can work overseas. Again, not considering the local cost of living is unfair while setting compensation benchmarks. Hence, your compensation strategy should consider the regional salary variations. 

Expat employees

Hiring a new employee at a foreign location might not be the same as transferring an existing employee from one country to another. Cutting down on the wages of the expat employee won't be the right approach, even if it means making it at par with the local salary structure.

Budget

While allocating the budget for each role, consider if you will be paying your overseas employees in their local currencies. Remember, paying in multiple currencies can impact your overall budget since there will always be fluctuations in currency conversion rate, and you need to pay a hefty amount as transaction fees. 

A solution to this problem can be partnering with an EOR like Gloroots that can help you manage paying employees in multiple currencies. Further, Gloroots also ensures that employers enjoy optimal exchange rates. In short, Gloroots does all the heavy lifting for you. 

Steps to create a global compensation strategy

You'll find this step-by-step guide handy if you're all set to create your first global compensation strategy. 

Step 1- Establish priorities

For any strategy to work, you must establish your priorities based on your goals. So, take a moment to think about what you want to achieve. To increase the bottom line, attract top talent, or boost employee morale and retention? Once you establish your priorities, it will help you to structure your compensation strategy better.

Step 2- Prepare a budget

Now that you have set priorities, it's time to prepare a hiring budget. While making the budget, consider the cost of living in that country, the skill level you are looking for, the currency conversion rate, how much your competitors pay, etc. All these factors will help you to prepare a realistic budget. 

Step 3- Know your target market

Knowing your target market is important, especially if hiring in a foreign country. Online marketplaces for skills are good sources to start your research. You must also understand the local laws and regulations to comply with the compensation structure.

Step 4- Research the competitive landscape

Understand the competitive landscape — who are your competitors, what kind of talent do they work with, and what is their average pay structure? Do they have any special bonus components? Knowing all these details can help you shape a winning compensation plan. 

Step 5- Get expert assistance 

Finally, take help from experts who know everything about global hiring. Partnering with EORs can help you gain insights on onboarding contractors compliantly, designing and payroll management for international contractors, and what you need to know about tax split according to the country in which you are hiring. Thus, EORs can help you build a strong compensation strategy. 

Gloroots is the ideal solution for onboarding delays, multi-currency payments, and compliance issues. 

- We offer a 6-click automated contract generation process that lets you conduct the onboarding process smoothly. 

- Our single dashboard view can help you track the status of your onboarding process for specific candidates. 

- We offer a single-click payroll system that easily ensures on-time payments to your global workforce in multiple currencies. All you need to do is make a single transaction in your home currency, and our cross-border payment partners will handle the rest. We also accept Crypto payins.

Want to know more? Book a call now!

FAQs

What are the elements of global compensation?

There are four elements of global compensation: base pay, variable pay, employee benefits, and additional employee perks. 

What are the challenges in setting a global compensation?

Setting a global compensation structure has several challenges, like knowing the local labor law, the local market, exchange rates, tax laws, etc. 

What is the most common approach to international compensation? 

The common approach to international compensation is - understanding the options available, assessing the assignment patterns and business objectives, and assessing the segmentation needs.

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