How to structure your total rewards package in an international distributed workforce
November 11, 2022
Finding the right balance between salary and benefits is something a lot of scale-ups struggle with. As the tech landscape is getting more competitive - and with trends as the great resignation and quite quitting also in mind - it’s important to take a closer look at your total rewards strategy.
RocketX and YourCampus hosted an interactive round table session about the different aspects of total rewards. Touching upon salary scales & job evaluation, best practices, communication about total rewards, salary & benefits in times of inflation and total rewards in an international distributed workforce.
In this blog series, we want to take you through the key takeaways of the event, starting with one of the most challenging topics today: hybrid working. More and more people are working hybrid or even totally remote. Raising the question, should everyone receive the same benefits and salaries? Or should there be a different package per location? And to be clear, there’s no good or wrong. Just thoughts and learnings from others in a similar situation.
No time to waste? Skip straight to the takeaways.
Structuring your salary house
There are 3 ways to set up your salary house for an international distributed workforce. Salary based on employee’s location, salary based on HQ location and salary based on specific region.
Salary based on employee’s location
The most common way to set up your salary house is by looking at benchmarks in the country your employee is located and adjust the salary accordingly. Good to remember when going with this strategy is that salaries not only differ from country to country, but also within countries. For example: London has a higher cost of living plus higher salaries than the rest of the country.
For that reason It’s good to use a profound benchmark, for example the one we made for Berlin, Munich and Amsterdam. You can also buy more comprehensive datasets from companies like Radford, the Economic Research institute or use software like Figures.hr and the salary calculator by Deel.
Pros for salary based on employee’s location
Your salaries are competitive in every location you’re hiring.
It’s cost-efficient, if you’re hiring in countries with lower wages than the country your company is located in.
Cons for salary based on employee’s location
The risk with this approach is that you’re going to favour employees from countries where labour costs are lower.
Another issue is levelling. For example: American salaries are significantly higher than in other countries, which creates situations where some senior employees in other countries earn less than their subordinates based in the US.
You’re adding complexity to your compensation structure, and it might be harder to attract talent this way, when people who do the same thing get for example paid 20% less.
Salary based on HQ location
The previous cons explain why some companies state that geography shouldn’t be a factor at all and solely focus on output. If the results are good, why should you pay someone less just because he or she is located in a different country?
A good example of this strategy is Airbnb, where employees can work from anywhere without their salary being affected by living in a lower cost of living country. "This means you can move from San Francisco to Nashville, or from Paris to Lyon. You'll have the flexibility to do what's best for your life – whether that's staying put, moving closer to family, or living in a place you've always dreamed of." - Brian Chesky, CEO at Airbnb
Cons for salary based on HQ location
You become a more attractive employer and have an easier time retaining your employees.
You can simplify your salary bands.
Provide equal pay for all.
Cons for salary based on HQ location
Your cost will definitely increase. You’ll pay everyone the same salary, regardless if they’re in a lower cost of living country.
You might want to hire talent in countries where wages are actually higher. Basing your salaries on your own HQ country will then be a disadvantage.
Salary based on specific region
A third alternative is basing salaries on regional averages. For example, when you’d hire in the Nordics, you take the average for a specific role there and that will be the salary.
Pros for salary based on specific region
It can be cheaper than you might be able to hire someone in London for a UK average salary.
Cons for salary based on specific region
Again, it will be harder to attract talent. Someone in Munich might expect a higher salary than someone in a lower cost of living region in Germany.
It adds complexity to your salary house.
Structuring your secondary benefits, how do you keep it fair?
Besides salaries, a big part of your total rewards package consists of secondary benefits, like health care, retirement plans, holiday time, work-life balance, development programs etc.
Unlike for your salary house, there aren’t any set strategies to structure your secondary benefits for an international distributed workforce. Just because, there are too many different variables to take into account.
Limiting regulations that hold you from offering everyone the same benefits
One of the biggest issues when it comes to compensation across borders are the different regulations per country, that make it difficult to offer your entire workforce the same benefits. A good example of this is China. China makes it difficult for companies to give stock options to Chinese citizens. Something that most scale-ups use to attract and retain talent. Of course, you don’t want to exclude anyone, but as mentioned before, sometimes you just don’t have a choice. You can’t change laws in foreign countries, but you can change the way your company deals with it. Communicate clearly why you can't give some employees the same benefits, be transparent.
Check out competitive compensation packages in the region. You might be able to compensate your employees for lack of stock options by giving them a competitive salary. The region might be more bonus driven, so you may be able to provide these employees with competitive bonuses structures. This way you can compensate for the lack of stock options. You may not have employees in China, but might come across similar limiting regulations and laws that prohibit you from giving every employee the same total rewards. These are just some solutions that can work.
Cultural differences, what benefits and perks do your employees value?
Besides limiting regulations that hold you from offering your entire workforce the same benefits, inevitably you’re going to notice cultural differences in what type of benefits and perks people value. Some countries are more bonus driven, others value health insurance, whereas no pension plan can be a dealbreaker in other countries.
To understand these differences, more and more companies hire local managers that understand the cultural mores in a specific country. Of course, that’s only profitable once you have bigger teams in the same regions. If that’s not the case, you might want to ask your employees what they value, in the end you’re doing it for them, right? Or you could give flexible budgets for people to allocate to whatever they need.
In-office benefits if you work remote?
Then there’s the matter of the in-office workforce and the remote workforce. Inequality exists when office workers have certain perks and benefits like free snacks, lunch, team outings, Friday drinks, etc. How do you make sure everyone stays happy?
You could compensate your non-office workers by providing them with a coupon for a massage, or some other perk, whenever the office team would do something nice together. In the end, it’s crucial to show them they’re part of the team. Make them feel appreciated. This will have a significant effect on perception of fairness. You could also make sure satellite offices (teams that work remote in another office in another country) have their own team outings.
Overall, there are 3 ways to approach international compensation. The way you approach it will mostly be influenced company size, resources, perspective on salary fairness and so on.
Based on employees location
Based on HQ location
Based on geographical average
Giving everyone the same total rewards is sometimes hard when every country has different regulations on this topic. If you can't be uniform, check what competitive packages are in the region (websites like remote.com make it easy to research what good compensation packages are per country).
Be fully transparent and be crystal clear to your affected employees why you can’t give them the same total rewards as other employees.
Do the rules not allow for the same total rewards in every country? Look for second-best workarounds where possible (can you find a solution that gives them the same outcome but in a different way?).
Make sure to create a positive perception of how you’re handling inequalities in total rewards. Show your employees you do care and are actively searching for a solution to make it more fair for them.
Try implementing flexible budgets to keep benefits fair and help employees weather economic events.
Hire a local managing director or HR that knows the local market.
Keep an eye on our website for the second blog in this series about Total Rewards.