Typically, employers use one of two methods to compensate their remote employees: location-based or even compensation for all. Which strategy is best for businesses hiring remote employees? Read on to find out.
Important Points To Note
- Location-based salaries help to save the compensation budget of a company.
- Equal salary for all means companies gets to hire either the top talent or low-performing talent from around the world, depending on the compensation budget.
- Depending on the budget and goals at the time of hiring, a company can mix and match the two compensation strategies to get the optimal result.
2 Compensation Strategies for Remote Employees
With a tight job market and the growth of remote jobs, attracting and retaining top talent has become increasingly difficult for businesses. In addition, with the implementation of VR, AR, and AI technologies becoming commonplace in businesses large and small—job responsibilities are shifting and industries are rapidly changing.
And while we’d all like to think our organization is immune from these changes, the unfortunate reality is that every business will eventually need to make adjustments to remain competitive in today’s marketplace.
To help businesses determine which strategy is best, we dive into the salary frameworks so companies can choose wisely moving forward.
Contingent on Where the Employee Lives
When a company uses a location-based compensation strategy, the company will pay remote employees based on the cost of living in the employees’ country.
In simple terms, this means that remote employees in expensive cities would be offered a higher salary than those in cheaper locations.
For example, if a company based in California is hiring remote employees located in India, the company can actually choose to pay the employees a salary that is below California's average pay.
Because California has a notoriously high cost of living and India comparatively has much less living expenses, a below-average salary in California can potentially equal the top 1% compensation packages in India.
What It Means for Companies
Ultimately, the location-based compensation strategy means companies get to hire top talent from around the world and still save a lot of the compensation budget.
Similar to paying less to top talent in inexpensive countries, companies will have to offer an impressive, above-average salary to be able to attract the top percentile of remote employees in expensive countries.
Location-based salary is a simple yet powerful compensation strategy for businesses looking to save on compensation budget while still hiring top talent.
Pros of a Location-Based Compensation Strategy
- Paying less to most of the company's employees saves money.
- The saved money can be invested in attracting top talent in expensive cities.
Cons of a Location-Based Compensation Strategy
- Creates team tension as employees don't usually feel "ok" by earning half the salary of a colleague in the same role.
- Hard to retain employees in low-cost regions since their lower salary means they can leave if offered better terms.
Equal Salary for Equal Positions Regardless of Where an Employee Lives
When a company uses an 'equal salary for all' strategy, it pays every remote employee the same amount of salary regardless of location.
Here, salary is equally offered to remote employees based on their role, skills, and experience. So remote employees with similar job titles will receive the same salary, regardless of how expensive or cheap their country is.
With this strategy, remote employees located in inexpensive countries like India or Nigeria will be able to reap the most benefits. For instance, if a company from Switzerland is hiring remote employees located in Nigeria, their compensation package will be in respect of Switzerland.
So if they offer an above-average salary for top talents, remote employees from Africa will be earning much higher than Nigeria's top 1% compensation packages. That could probably fall in the range of 2-4 times the highest salary range in Nigeria!
What It Means for Companies
An equal compensation strategy means businesses will have to keep relatively a larger sum of compensation budget to be able to attract top talent across the world.
However, if companies are not willing to sacrifice the budget, they can still hire top talent from lower-cost countries like India or Nigeria.
This strategy is also much easier to set up and manage in a startup context. Rather than having to deal with multiple columns of countries and pay rates, companies just have to pay the same to everyone in the same job role.
Pros of an Equal Compensation Strategy
- Equality & fairness among the workforce as equal roles get an equal salary, and no one feels they are paid less than an equivalent colleague.
- Helps to hire the best talent in low-cost regions as a low salary in the US is a huge salary in India, and get's the best talent there.
Cons of an Equal Compensation Strategy
- Paying the same to everyone tends to be more expensive.
- Not competitive in high-cost regions as a high salary in India is likely not attractive for US-based Engineers.
For a company, the final decision on the compensation strategy to use will ultimately depend on the compensation budget.
Companies looking to save from the budget should opt for location-based salaries while companies seeking top talent with an expensive budget should utilize the benefits of equal compensation.
It’s also in some companies’ strategy to mix and match these salary frameworks depending on their financial situation and goals at the time of hiring.
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