With more and more companies switching to permanent remote employment models, many are asking how to salary benchmark their remote teams. There are 3 main options: location-based salaries, role-based salaries, and unique salary formulas.
Which one is best for your company will largely depend on your company size, your goals as a remote business (like cost saving and hiring the cream of the crop), and where you and your employees are based. At the end of the day, you have to meet your business objectives, employee expectations, and stay compliant with local employment law.
This means benchmarking remote employees’ salaries according to where they are being employed. Location dependent salary benchmarking means that you pay what is a good, market salary in a specific location. In this case, you need to consider the relevant employment law regarding salaries, minimum wage, as well as living costs to create fair, feasible salary benchmarks for all your employees’ locations.
That said, do keep in mind the difficulties of switching to location dependent salaries from a different model. Facebook, for example, has faced significant media backlash for their new policy to switch to location dependent salaries in the future. While the company can reduce their hefty overhead and staff costs for their headquarters in Palo Alto, many sceptics are pointing to the potential inequalities it could foster amongst employees.
For companies of all sizes, location dependent salaries work well up to a certain point. But when you have people in 50 different countries, it can get super costly to get all the market data. This can quickly turn into an administrative nightmare.
Location based salary benchmarking also doesn’t necessarily attract the best talent if candidates can get better pay elsewhere. Moreover, companies in areas with lower overall income benchmarks will have trouble employing people living in locations where living costs are higher. This is especially important for small to medium-sized enterprises (SMEs).
1. Consider your company’s location and where you want to hire,
2. Pay market salaries that are compliant and liveable, and
3. Plan ahead for the potential admin burden.
Salaries that are benchmarked independently of an employee’s location are based on their roles and skillset. This is meant to ensure a certain level of fairness across distributed teams. There is also a huge admin benefit as you no longer need to bother with dozens of salary bands for different locations.
A prime example is Basecamp. Also operating out of California’s Bay Area, they pay all employees according to pay grades in San Francisco, no matter where they are based. This scheme naturally attracts the top talent from everywhere in the world. For companies like Basecamp, this means thousands of job applications, including from the best.
Sounds great? It is. However, the effectiveness of location independent salaries can vary. An employee based in London , for example, will be able to do less with the same salary as someone based in, say, Vienna or Berlin.
It is generally also very expensive. Not all companies can afford this strategy. Start-ups and young SMEs in particular may struggle with such a model. It also doesn’t automatically mean drawing in the best talent. That will depend on a range of factors including employee benefits, remote team support, and working cultures.
Some companies are forging their own paths by creating unique salary benchmark formulas. Gitlab and Buffer are famous for their calculations. They combine location-based, location-independent, and additional factors to ensure fairness in compensation.
Gitlab, for example, uses the following equation: SF benchmark x Location Factor x Level Factor x Experience Factor x Contract Factor x Exchange Rate.
Both Gitlab and Buffer are also very transparent about their employees’ earnings. Buffer publishes each employee’s exact salary openly every year.
While creating a workable formula requires effort, many companies may find it appealing in the long run. Particularly big businesses operating across jurisdictions will find it helpful to remain compliant and retain talent.
In addition to wage regulations, most countries require employees to be paid in their local currency. Not doing so can run the risk of non-compliance charges.
You will also need to be aware of currency fluctuations. Fixed exchange rates can be stipulated in the employment contract to help mitigate in cases of severe inflation and fluctuation. Gitlab has included this in their salary benchmark formula.
The greatest gift of remote employment is an infinite and diverse talent pool. Whatever salary benchmark option you choose, Omnipresent can help you employ the best talent anywhere in the world.
Next to onboarding and offboarding, we also organise all your payroll and benefits admin. We will go over all salary benchmark options with you and work out the best strategy for your business. We also help you stay compliant at all times and mitigate currency risk in advance.
As a remote-first company, we are well aware of the difficulties of calculating salary benchmarks for a remote team. Our experts are constantly keeping abreast of the various trends and we keep our clients informed too. The future of remote work is being formed as we speak. At Omnipresent, we are poised to find the best solutions for all remote employers.
Get in touch to explore your salary benchmarking options with us.
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