How are workers in different locations paid? The traditional response – depending on what the local market demands – is to face new pressure from an increasingly global talent pool.
As more companies operate in multiple regions, attracting and retaining senior staff has become a multinational human resources policy-laden exercise. Meanwhile, the rise of remote work means that questions about how to adjust salary in the event an employee moves to another city or country are more pressing.
Higher-skilled workers “are more mobile and are likely happier to move between regions for higher-paying professional roles,” says Pawel Adrjan, director of recruiting platform Indeed.
Lawyers, software engineers and investment bankers do similar jobs in London, Singapore or Berlin, he adds, meaning companies may “have no choice but to set salaries at a globally competitive level.”
The trend of U.S. companies paying above the local rate in other countries is driving up wages at the top end of the global labor market, reflecting the strength of the country’s economy. This challenges the traditional view that employing staff in conventionally cheaper foreign locations always saves costs.
As a result, some sectors are seeing salaries skewed outside the norm. For example, the city’s elite law firms have been forced to increase base salaries of newly qualified solicitors to £150,000 this year in light of the £175,000 now being offered by US-based companies.
The Washington Post recently advertised a breaking news reporter position, a relatively junior position, in its London office with a salary of up to £85,000, about what UK media companies typically offer news editors. higher level.
Meanwhile, the payment packages offered by California tech companies like Meta and Google are often well above standard rates wherever they operate.
“Inevitably, pay differences cause friction, because it is a very personal assessment of what is fair to you as an individual. This can be amplified when there are really different pay policies by country,” says Andrew Curcio, global head of rewards and benefits at PwC.
For example, the gap between annual median pre-tax salaries in the US and UK for science, technology, engineering and mathematics (STEM) occupations and management positions is large and widening, according to a data analysis Governments from the Financial Times.
This holds true even when taking into account the different costs of living in each country, using the IMF’s purchasing power parity calculation (essentially, how much you can get for your money around the world).
Global companies have traditionally approached this in two ways, Curcio says. They could set salary bands centrally and then convert them at each location according to the cost of living in each market. Or they can let each country create its own scales.
The former may lack flexibility, while the latter may become so complex that they are difficult to manage.
In response, organizations are increasingly adopting a hybrid system in which salaries are aligned globally for executives and senior employees, but local offices have more freedom to set their own packages, according to Curcio. This allows them to adapt to the nuances of each market while keeping the senior band working as one team.
However, greater complexities can arise when workers move from one location to another, whether for a short secondment or a more permanent move. Differences may become evident not only in salary but also in benefits, such as vacation entitlement, parental leave and health insurance.
The typical approach is to add compensation for higher costs and inconveniences in the employees’ new country to their local salary, says Helen Mildred, consulting group head at ECA International, which provides advice and data to companies on global mobility policies.
That can add up: ECA research found that the UK is the most expensive place to send a middle manager, with an average cost of almost £400,000.
Salary is also an issue when employees are moved to a location with cheaper costs. They are often unwilling to take a pay cut, but research shows that systems in which expats earn more than locals can breed resentment. According to one paper According to academics at the City University of Hong Kong, when many locals in China compare their salaries with those of expatriates, they are likely to see themselves as “victims of grave injustice.”
One solution that has gained importance in the era of remote work is for staff to receive the same salary no matter where they live.
Reddit and Airbnb are among those adopting “geoagnostic” policies. Both have a pay scale for each country they operate in, meaning workers are free to move to cheaper areas on packages for big cities. Reddit said the policy helps it support the trade-offs its staff makes when deciding where to live.
But few have extended that to the entire world. American technology company 37signals is an exception and pays all employees San Francisco rates. “The same person produces the same work, no matter where he hangs his hat.” their website says.
However, these policies are unlikely to find wider acceptance, believes Daniel Seligman, CEO of offshore recruitment company Talently. Overpaying in lower-cost markets “reduces the cost-saving benefits of hiring in those regions,” he says.
Many organizations are turning to other forms of compensation to remain competitive.
PwC research suggests the proportion of employees who say higher pay is their preferred way of being rewarded has fallen 20 per cent over the past decade in favor of benefits, development opportunities and work-life balance. personal life. Almost half of workers would accept a pay cut to be able to work remotely, a University of South Australia study found.
Against a backdrop of increasing cost pressures on businesses (inflation, the recent increase in employer tax contributions in the UK and post-US election uncertainty) and the continued impact of hybrid working, Curcio expects businesses They will need to continue rethinking their salary benchmarking strategies.
“I think all of this in the next 12 to 18 months will be up in the air,” he says.
International salaries: what to consider
Pay the best you can offer
When it comes to hiring and making the most of your potential workforce, better pay still means better staff. “A company can’t pay more than it can afford,” says Ruth Thomas, pay equity strategist at software provider PayScale. But “you should not aspire to pay less either.”
Daniel Seligman, CEO of offshore recruiting firm Talently, recommends offering “premium compensation 10 to 20 percent above the local rate, and adding benefits like remote work, home office stipends, and more.”
The competition is global
In a connected world, lawyers, software engineers and even investment bankers can do similar work in London, Singapore or New York. In such cases, Adrjan Pawel of recruiting platform Indeed says companies “have no choice but to set salaries at a globally competitive level, unless the amenities of a specific location, such as safety, climate or costs of living, are attractive enough to compensate for a lower cost of living. salary.” Whatever the staff’s salary, employers need to know that it “sends a message,” says Thomas.
But location is still important
Global fields such as law and technology, and sectors where remote work is common, are the most vulnerable to poaching by higher-paying overseas offices. In other fields, raising salaries may be less necessary.
Whether or not a salary increase is needed to attract staff, says Pawel, depends on the skill levels and mobility of the recipients. “For lower-paying in-person jobs, Indeed data shows that people tend to look for jobs closer to where they live,” he explains.
And equal pay can create new injustices
Paying staff the same globally may seem fair. But it can create more problems. More generous salaries in markets where costs of living are lower “reduce the cost-saving benefits of hiring in those regions,” Seligman says, while employees in more expensive areas “may feel underpaid when their salary is taken into account.” net in relation to their living expenses”. and taxes.”
Report to staff; They will usually find out
It can be tempting for bosses to wait for salary awards to be made in the dark. But global communications, work organization and different rules around salary transparency between territories often mean that large differences are revealed. “Nowadays you just have to do a Google and you can probably find information [about what companies pay] anyway,” says Thomas. Employers, he says, “are better off telling their own story.”