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Strategic compensation helps companies attract, retain, and motivate employees. To develop a strategic compensation package, companies need to know what aspects to consider and how to cater to specific types of workers, including international remote workers.
This guide to strategic compensation for remote workers will help companies understand how to approach compensation in a global marketplace. We’ll also outline the top factors to consider when undertaking strategic compensation planning and how to fairly negotiate compensation with international remote employees.
What is strategic compensation?
Strategic compensation refers to the overall benefits and incentives a company offers its employees. HR managers know that to attract and retain top talent, they need to develop a compensation package that will effectively position their company on the job market. With the global workforce becoming increasingly more competitive, companies must find ways to bring in new talent, potentially from competitors, and a well-thought-out compensation strategy is often a differentiating factor.
Companies also want to avoid losing talent to their competition. Strategic compensation helps retain employees and protect the company’s return on investment in the hiring and training process.
In addition to attracting and retaining top talent, a compensation strategy can also be a tool to motivate employees to meet certain business objectives. Strategic compensation packages often include innovative or competitive methods of remunerating employees for their work with the aim of driving performance. This type of compensation is separate from the negotiated salary and can include both financial and non-financial incentives.
Financial compensation includes direct economic incentives like bonuses and commissions, as well as stock options or retirement savings. Non-financial compensation holds no inherent monetary value but can include vacation time, flexible working schedule and location, paid training, development, education opportunities, or other perks.
A strategic compensation package is essential when companies hire international remote workers. Since the talent pool is much larger for these positions, having an attractive compensation package is critical to attracting and retaining top remote talent worldwide.
Pay strategy options for remote workers
Companies want to find the best way to pay their employees a fair and competitive wage. In a traditional in-office work model, companies pay their team members whatever is considered competitive within the local market. With remote workers, it becomes less clear whether compensation should be based on the company’s location or the worker’s location. With international remote workers, determining a fair salary becomes even more complicated.
When deciding how much to compensate remote workers, there are three main strategic compensation options to choose from. Here are the advantages and disadvantages of each of these pay strategy alternatives.
1. Single-market compensation
A single-market compensation approach is often considered the simplest way to determine a remote employee’s salary. With this approach, the company sets the same salary range for the entire global job market, meaning the differences in salaries among employees are not based on where the workers live.
Typically, the single-market compensation rates will be based on the location of the company’s headquarters. However, some companies may choose to use a different location as the basis for their single-market compensation.
The advantages of single-market compensation include:
- Considered to be the simplest approach to strategic compensation management
- Avoids discrepancies among workers
- Provides a good short-term approach when hiring remote workers for the first time
The disadvantages of single-market compensation include:
- Difficult to set one compensation rate for companies with multiple locations
- May cause future problems with high-market earners when switching to another pay strategy later
- Can be more expensive if the single market is based on a location with higher living costs
Companies that hire local and global remote workers may choose to offer both a domestic and an international single-market compensation plan.
2. Zone compensation
To avoid some of the financial drawbacks of a single-market compensation approach, companies may divide their compensation plans into zones. Zones may be determined geographically or by market type. For example, geographic zones can be North American vs. European compensation.
Conversely, zones based on market type may involve setting a zone for metropolitan areas with a high cost of living vs. regions with a lower cost of living. In this scenario, companies may offer one pay rate for workers in high-cost areas, such as New York, San Francisco, Toronto, London, or Paris, and another pay rate for workers in cities with a comparatively lower cost of living, like Seattle or Austin.
The advantages of zone compensation include:
- Can potentially lower operational costs
- Helps target specific talent based in certain locations
- Appears more equitable to workers from diverse locations
The disadvantages of zone compensation include:
- May not be precise for all regions within a zone, which could result in some workers being over- or undercompensated
- Needs to be adjusted constantly according to the average living costs across the cities composing each zone
- Requires ongoing monitoring and revision, which increase HR costs
While zone pay may result in a fairer compensation than a single-market compensation approach, this benefit is offset with higher HR costs and efforts in the long term.
3. Local market compensation
Local market compensation involves calculating wages based on what’s fair and competitive in the specific area where the employee lives. With this approach, HR managers are responsible for researching market data in each employee’s area and calculating a compensation standard for that region.
This approach is similar to zone compensation, but every zone is a local market. For example, instead of using only two pay rates for high-cost and lower-cost areas, you would determine separate rates for each place where your employees live. If you only have two locations and no remote employees, you would have two pay rates. However, if you have remote employees worldwide, you would have a different pay rate for every location your employees live.
The advantages of local market compensation include:
- Locally precise and based on specific data points
- Considered the fairest compensation approach for workers
- Prevents overspending on compensation for the company
The disadvantages of local market compensation include:
- Difficult to administer in larger companies that are expanding
- Increases HR costs due to the amount of research required in the hiring process
- May cause companies to miss recruitment opportunities in specific regions
Local market compensation allows for the most precise, accurate, and fair compensation for each individual employee. However, this method is challenging to build and maintain, especially as a company grows and adds new talent.
Factors to consider when negotiating compensation for remote employees
To attract and retain either domestic or international remote employees, companies need to understand the various factors that determine how to compensate workers. These different factors help both companies and workers negotiate a fair compensation package that will retain talent, drive worker performance, and increase employee satisfaction.
For companies looking to hire remote international workers, there are strategic compensation planning considerations that can improve recruiting efforts and help build successful remote teams. From the industry and company size to the worker’s location, experience level, and personal preferences, companies need to consider many different factors in the strategic compensation negotiation process.
Here are the top six factors to consider when determining compensation for remote employees and ways to give your company a competitive edge.
The type of industry your company operates in has a significant impact on your strategic compensation planning efforts. Each industry has its unique set of best practices and standards, including strategic compensation. In some industries, it’s common to offer robust compensation packages that include stock options, performance bonuses, and extended holiday pay simply because recruiting is highly competitive in the sector.
As a result, the wage remote workers can expect to earn depends significantly on the industry they’re working in. It’s essential to know the standard practices of your industry ahead of time to negotiate compensation for remote employees fairly.
2. Company size and type
How much companies pay their remote employees also depends on the company size and the type of operation. For example, startups tend to pay a lower salary and make up for reduced compensation by offering other perks, such as flexibility, growth opportunities, or a more exciting work environment. However, corporations with decades of experience tend to have the capital to pay their employees more but may not offer the same flexibility that startups can.
Smaller businesses also tend to pay less than corporations, but like startups, they can offer more flexibility. Some workers prefer to work for smaller companies because they like having more responsibility and being directly engaged in the business.
Knowing how to position your company based on the work environment can help HR managers develop strategic compensation packages that attract remote workers who are the right fit.
3. Worker location
When hiring remote employees, recruiters may focus on specific regions, whether it’s domestic or international. Depending on the strategic compensation approach, some companies may focus on hiring workers in certain markets because it can be more cost-effective and widens the talent pool.
When companies hire remote international workers, it’s also important to consider the region’s labor standards and best practices. For example, many European countries require a minimum of four weeks of paid vacation, so companies must factor this into their compensation strategy when recruiting workers in this area.
It’s essential that companies become familiar with the region’s legal requirements, including minimum wages, holidays, sick and parental leave, payroll, taxes, and other related employment costs. Having a clear picture of the total cost of employment based on the workers’ location can help both the company and the employee negotiate a fair compensation plan.
4. Experience level and position type
Another critical factor to consider when negotiating compensation for remote employees is the employee’s experience, skills, and position preferences. It’s important to consider the worker’s career trajectory and academic credentials that make them a good fit for the position. If an employee has more experience and training, companies may be willing to pay a higher salary or offer additional financial or non-financial compensation solutions.
Another factor to consider is if the worker will fill a full-time or part-time position and whether this position will be temporary or permanent. For example, vacation pay may vary depending on the employment type.
5. HR recruitment practices
Another way to recruit remote workers using strategic compensation is to implement specific HR policies that encourage candidates to apply. When developing job descriptions and other recruitment materials, HR professionals can include specific information about the compensation strategy to increase the efficiency of the hiring process.
Some of the information to include in recruitment materials include:
- Proposed salary range
- Compensation approach, such as single-market, zone, or location-based pay
- Whether there is an opportunity for a pay increase after a specified period
Creating detailed job descriptions can increase application rates and improve the negotiation process with candidates.
6. Flexible bonuses and benefits
Finally, many companies develop creative bonuses and benefits packages specifically for remote workers. However, companies that hire remote workers should not conflate remote work with being a benefit in itself. Remote work is not always advantageous to every worker, so offering diversified benefits can help improve recruitment and retention.
Some of the types of benefits, bonuses, and perks companies can offer as part of strategic compensation for remote employees include:
- Health, dental, and vision benefits
- Flexible wellness and lifestyle perks, such as compensation for childcare or gym memberships
- Vacation and holiday pay
- Bonuses, commissions, stock options, retirement plans, and other financial compensation
- Company perks and non-financial incentives
Having a compensation strategy that includes flexible benefits, bonuses, and company perks in addition to a base salary can help facilitate the negotiation process and retain more remote workers.
Choose Globalization Partners for remote hiring solutions
Having a competitive compensation strategy is critical for better talent recruiting, retention, and employee performance. Strategic compensation management involves developing a fair salary and other competitive incentives and bonuses. Companies can tailor compensation to international remote workers to improve global competitiveness and expand their remote teams.
To successfully build a remote international workforce, consider working with Globalization Partners. Our AI-driven global employment platform allows you to easily onboard international remote workers. Learn more about our global employment technology and how we can help your company find remote talent worldwide. To find out how we can help with your global hiring needs, request a proposal today.