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As you grow your business and expand globally, it becomes harder to manage wages, comply with labor laws, deduct taxes, provide attractive benefits and stock options, consider currency fluctuations, and accommodate the increasing cost of living. Not to mention the need to balance competitive compensation packages with sustainable financial commitments to keep your business running and employees satisfied.
That’s why developing an effective compensation strategy is non-negotiable, allowing you to provide your employees with equitable pay and retain them. In fact, the compensation software market underscores this, valued at $1.94 million in 2023, with Asia Pacific accounting for the second largest share after North America. Furthermore, the market is projected to grow at a compound annual growth rate (CAGR) of 8.8% from 2024 to 2030, reaching $3.51 million.
However, it takes more than subscribing to a compensation management software to build and manage an effective global team. In this article, we’ll explain what makes a global compensation strategy, why it is important, and how you can establish one with effective strategies.
What is global compensation?
Global compensation refers to the salary and benefits that you offer your employees in different countries and regions. It enables companies with a global workforce to manage their direct and indirect compensation.
Direct compensation includes salaries and bonuses, whereas indirect compensation accounts for extra benefits, such as health insurance, retirement plans, and stock options.
The point of a global compensation strategy is to attract and retain top talent, maintain equity, comply with international labor laws, and align with the business’s strategic goals.
Why is global compensation planning important?
With global expansion, compensation becomes increasingly complicated, which renders global compensation planning necessary. Through it, you can enjoy the following benefits:
Attracting and retaining top talent
A global compensation strategy provides fair and competitive wages and comprehensive packages for all employees, including financial and non-financial benefits. This perk attracts top talents, as they appreciate how your rates and benefits meet the expectations set by their respective local markets.
Also, it helps you retain your best employees, as they feel adequately compensated. This way, you can enjoy lower attrition rates and save on onboarding costs.
Ensure legal compliance
With a global compensation strategy, you can comply with labor laws and regulations about minimum wages, global payroll tax, overtime pay minimum rates, and national holidays across different countries. Abiding by international and local laws prevents legal action and saves you money on avoidable penalties.
Manage compensation costs
An effective global compensation plan helps you offer attractive packages while keeping costs sustainable and your business profitable. For instance, you can refer to local markets and consider supply and demand ratios to decide on the appropriate rates.
Motivate and engage employees
Comprehensive global compensation boosts employee engagement and job satisfaction. After all, satisfactory health insurance, pay raises, incentives, bonuses, and retirement plans make employees feel appreciated. The size of such incentives should vary according to regional practices and regulations.
What is the difference between total job benefits and total employee compensation?
Employee compensation and job benefits together constitute what your employee gets from their work.
Total employee compensation refers to the money and monetary benefits they receive. Examples include base wages, overtime compensation, bonuses, commissions, and incentives.
As for the total job benefits, they refer to both monetary benefits (as the above-mentioned ones) and less-direct non-monetary benefits, including paid time off, health insurance, retirement plans, childcare, employee discounts, education reimbursement, and wellness programs.
Read next: HR's Guide to Fringe Benefits
Elements of a Global Compensation Strategy
By understanding the components of a global compensation strategy, you can establish comprehensive and well-balanced compensation packages that appeal to international talent.
1. Base salary
Base salary is your employee’s set salary or regular pay for their worked hours. This wage is the basis for their earnings. To determine the appropriate base salary, you should research local markets, company policies, and job roles. Then, you should pick rates that are competitive and accommodate the cost of living.
2. Benefits
Benefits are non-cash compensations. Your strategy should include administering mandatory benefits according to the regulations of each country, such as paid maternity and paternity leave.
3. Variable pay
Variable pay, as opposed to base pay, is the payment you make to your employees to recognize their commendable performance. It can be a bonus, commission, or equity. Note that it can be subject to different tax structures than basic pay depending on the country.
- Bonuses: These payments usually reward excellence, show gratitude, and increase employee retention rates, complementing their base pay.
- Commission: The U.S. Department of Labor defines a commission as “a sum of money paid to an employee upon completion of a task, usually selling a certain amount of goods or services.” Accordingly, it can incentivize workers to be more productive, and it can be added to or replace their salaries.
- Equity: According to Investopedia, “equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees.” With equity, you can get your employees invested in the company’s success, as their stock values increase with it. Also, if you want to establish an employee recognition strategy but are on a tight budget, you can reward employees with stock options through Employee Stock Ownership Plans (ESOPs).
Learn more: What is Performance Based Pay? Pros and Cons Explained
4. Allowances and perks
Allowances are additional payments that you make to your employees to compensate them for specific working costs or difficult conditions, such as unfavorable work locations, worker relocation expenses, housing allowances, and cost of living adjustments for expatriates.
Perks are extra advantages that you offer your employees (aside from their standard benefits). These perks give your business an advantage over competitors. Think flexible work hours, remote work arrangements, gym access, and company-provided meals.
5. Equity and fairness
The standardization of compensation elements promotes equity and fairness. Needless to say, equity is part of a global compensation strategy, as it enforces fair wage issuance as an ethical practice. Such practices help you comply with labor laws, mitigate social issues (like the gender pay gap), and make your employees feel valued and adequately compensated.
6. Compliance and governance
A global compensation strategy must take into account the differences in labor and tax laws across different jurisdictions that govern your remote employees (such as minimum wage and employment contract regulations) and, of course, international labor laws.
For that reason, you have to research the guidelines on equitable pay in each relevant jurisdiction. Consider partnering with an employer of record (EOR) who takes the weight of compliance with local labor laws in a different country off your shoulders.
This way, you can avoid legal action, penalties, and fines; protect your company’s reputation; and seek expert legal advice.
7. Technology and data analytics
Using compensation management software, you can streamline global compensation management, save energy and time, and avoid errors. To elaborate, you can automate many of the compensation processes, issue paychecks at almost the same time for all employees across different countries, and withhold the right amount of taxes.
Additionally, an all-inclusive HR software enables you to consolidate data for easy access and get reports with data analytics in real time. This way, you can check business compliance, identify pay trends, and further finetune your global compensation strategy.
Ways to Develop a Fair and Equitable Global Compensation Strategy
To build a global compensation strategy that includes all of the previous elements and reaps the supposed benefits, you must follow these actionable steps:
1. Conduct thorough market research.
Look at the market in the countries where your remote teams work—thorough market research will inform your global compensation strategy.
To do that, analyze compensation trends and benchmarks via industry reports and government surveys; estimate the cost of living and of local and global hiring; research legal requirements, tax rates, and mandatory contributions; and consider economic indicators such as inflation.
2. Establish clear compensation principles.
You want your global compensation strategy to be based on a clear and comprehensive framework. That’s why you need to estimate the value of each role in your company and set the expected salary based on the location, job title, qualifications, and years of experience. This way, you’ll have a minimum, maximum, and median price customized for each country and role.
After that, train your management team to make decisions about salaries, bonuses, and benefits fairly, transparently, and consistently. And also remember that the clarity of the global compensation strategy requires clear communication with your workers, especially when different pay levels or structures are involved.
3. Consider the cost of living.
Your employees across various geographical locations require different wages to afford the same basic needs, such as rent, food, and utilities. You can refer to economic reports, government websites, or crowdsourced sites to estimate the cost of living and adjust your offered salary.
Note that the cost of living is calculated for the city where your employee lives. Geo pay ranges, however, are for large areas with similar living costs, grouping several countries with similar costs of living together. This way, you can consider their living costs without there being huge pay gaps between international employees.
Learn more: 8 Steps to Conducting Pay Equity Analysis
4. Provide competitive benefits packages.
Some competitive benefits are basic components of a compensation package, such as insurance, retirement plans, and paid time off. However, a global compensation strategy should align with international norms and tailor benefits packages to local needs while remaining consistent.
For example, in a country without free healthcare, employees will prioritize healthcare subsidies or benefits, whereas employees in countries with robust public healthcare systems are unlikely to prioritize these perks.
5. Leverage HR technology to streamline global compensation planning.
As mentioned earlier, compensation management software streamlines managing a global compensation strategy. That’s because it issues wages in full and on time, consolidates data, and generates reports. It also provides data on local compensation trends and cost of living, which assists in strategic decision-making processes.
6. Continuously monitor and evaluate your global compensation strategy.
Finally, you’ll need to fine-tune your compensation management strategy. As your company grows and labor laws change, this continuous monitoring will prove helpful. But how do you monitor or evaluate your strategy?
For one, you should track certain key performance indicators (KPIs) consistently, such as profitability, productivity, engagement, retention, benefits adoption rates, and time to run payroll.
Also, you should gather intel from your employees to find areas with potential for improvement. Issue anonymous surveys so that employees feel comfortable sharing their feedback.
Building a Competitive Global Workforce with Omni
Omni makes it easy to support employees across multiple countries, time zones, and currencies.
Affordable, functional, and suitable for modern growing businesses—Omni is the payroll provider that your business can rely on. With a comprehensive payroll solution tailored to various countries specific requirements with features like support for HKD, SGD, and MYR; automated tax calculations; and managed contributions, HR teams can simplify their payroll processes while ensuring adherence to regulatory standards.
Our time and attendance features empower teams to automate data and produce detailed reports in minutes, making payroll calculations instantaneous and accurate. With payroll solutions that support local currencies and payment schedules, Omni offers an entire suite of solutions to make your global payroll processing seamless.
Book a demo with our team to learn more about how Omni can support your global workforce.
