Intro

One of the biggest challenges global-first businesses face is salary benchmarking. In other words: how do you pay a globally distributed team fairly and cost-effectively?

For local-first teams (i.e., those based in just one location), this process is fairly straightforward. You simply gather market rate data for the local area by role type and decide how competitive your compensation packages should be.

In contrast, the process is much more complicated for global-first teams because you have to consider location as a variable. After all, what’s considered a good salary in one country or city isn’t in another.

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There are 4️⃣ options when paying a global team

Learn more about each option, why choose one over the other and finally how to implement it.

If you’re working on a project with me then… ✅ I’ll run you through how each of these options work in your compensation calculator and make recommendations on which option is best for your organisation.

✅ I will pre-load location factors in the calculator for each of your locations based on what I see commonly used with my clients.

How many salary bands will you need to build and maintain?

Before delving into each option, it's important to recognise that they all come with their own advantages and disadvantages. A key consideration is the number of salary bands you'll need to create and manage. This factor significantly impacts the complexity and administrative burden of your compensation strategy.

See here for a spreadsheet you can use to understand these implications.

Option 1️⃣ - Pay individuals at the local market rate using pure market data

Employees receive their salary based on pure market date from the geographical area where they live.

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Why do it?

Cost effective - The main advantage of paying staff according to local rates is that it enables you to remain competitive in both high and low-wage areas. Even if your employees don’t receive equal wages, they can still enjoy a very similar standard of living. It also means you don’t overpay for talent in lower-wage areas, saving your business money and allowing you to hire more talent.
Paying staff at local rates takes into account localised market rates for labor or for the cost of living - and often a combination of the two. This allows you to adapt to market changes as and when necessary.
‘Pair fairly, but not equally’

Why not do it?

Should someone's pay be lower just because they live in a location that has a lower cost of labour / living? More reading on this here from Helpscout.
Disadvantages of building separate salary structures for different locations using separate reports
1. Complexity in Data Management: Pulling market data reports for each job family in every location to determine the market rate can lead to significant complexity. The number of reports required increases exponentially with the number of job families and locations.
2. Inconsistency in Pay Progression: Managing separate salary structures for different locations often results in inconsistencies in pay progression. For instance, within a single team, such as Software Engineering, having five distinct salary structures across various locations can lead to non-uniform salary increases. This variation can cause confusion among employees and perceptions of unfairness.
  
  Graph showing a non-uniform set of salary increases for one job family across 3 locations.
3. Employee Dissatisfaction and Perceived Inequity: Disparate salary structures can lead to dissatisfaction and perceived inequity among employees. For example, if an employee in the UK receives a promotion with a corresponding raise that reflects their increased responsibilities, but an employee in Germany receives a proportionally smaller raise for the same promotion, it creates a sense of unfairness. Despite having the same responsibilities, the compensation does not align, undermining the principle of equal pay for equal work.
4. Increased Administrative Burden: The administrative effort required to maintain multiple salary structures can be burdensome. Regularly updating and ensuring consistency across all these structures demands significant time and resources, which could be better spent on strategic HR initiatives.
5. Difficulty in Ensuring Compliance: Ensuring that each salary structure complies with local labour laws and market standards adds another layer of complexity. This becomes particularly challenging when dealing with numerous locations, each with its own legal and economic context.

How to implement this approach

Gather market data reports from your chosen benchmarking provider for each job family in each location to determine the local market rates.
This option doesn't require location factors or currency conversion rates, as it uses pure market data in local currencies.

Option 2️⃣ - Pay individuals at the local market rate using a location factor

Using a base market to anchor from, employees receive their salary adjusted to the geographical area where they live.

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Why do it?

Adopting a unified global salary structure with location-specific adjustments is a pragmatic solution for several compelling reasons:

Ensures Consistency: Keeps compensation structures uniform across locations and job families, fostering trust and fairness.
Simplifies Administration: Reduces complexity by managing one dataset, making it easier to implement, update, and communicate changes.
Enhances Transparency: Employees can understand salary adjustments better, improving satisfaction and minimising disputes.
Facilitates Scalability: Adaptable to new markets and job families, streamlining expansion efforts without redesigning compensation structures.
Control: Allows organisations to control their location factors, enabling them to adjust for market conditions, talent acquisition challenges, or strategic priorities in specific regions. This flexibility helps in maintaining competitiveness while ensuring internal equity across the global workforce.

Graph showing uniform salary increases for one job family across 3 locations

Why not do it?

While aiming for consistency and simplification, applying the same location factor to all job families in one location, may result in salaries that are either too high or too low when compared to the local market data.
- For example the location factor for Software Engineers is 0.95x, however the location factor for Customer Support is 0.83x. By taking an average location factor, you may end up underpaying for Software Engineers and overpaying for Customer Support.

How to implement this approach

1. Select a baseline market
2. Gather data from your other locations
3. Analyse the data and determine your location factors
4. Convert salaries to a local currency

Examples of companies taking this approach

GitLab’s compensation philosophy is one of the most well-known examples of this.

Option 3️⃣ - Pay individuals based on a location band or tier

Employees receive their salary adjusted to a group of geographical areas defined by the organisation to be similar

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This approach again uses localised data but then groups similar location costs into bands.

‘Time zone approach’
‘Hybrid approach’
‘Grouping locations into tiers’ or bands’

Examples of companies taking this approach

Why do it?

Using a banded approach helps close the gap found in traditional compensation approaches where multiple location multipliers result in a fragmented approach to pay. For example, without a banded approach, you may have two people on two marginally different salaries even though one is based in Spain and the other in Portugal.
However, one of the disadvantages of using this approach is that you may end up “overpaying” some people when compared to the local market rate approach.

How does this template help you?

The template allows you to carry out a cost of market evaluation compared to your desired reference market in a matter of minutes and quickly create location multipliers for new locations where you may have a blind spot.

✅ Visualise and understand how compensation differentials vary globally from your data sources

✅ Understand the cost implications for adopting one of the 3 pay strategies above so you can make a data informed decision on how to pay in each location, while taking into consideration your organisation's values and philosophical beliefs

✅ Model the salary costs in any currency, and in any location in the world, in order to build salary ranges that align to your organisations philosophical beliefs.

✅ Build out a local salary structure for a new location (city, country or region) in a matter of minutes