Globally distributed teams have always been around, but before 2020, they were regarded as a kind of curiosity. Since then, our understanding of where work happens has shifted, and a large number of organizations have moved to hybrid or fully remote models. In this new global world of work, one of the most difficult challenges is figuring out how to design a pay system for employees who are located all over the globe, or who move to another country. Typically, pay is still tied to an employee’s specific location; Human Resources Director Magazine recently reported that 51% of companies adjusted remote employees’ pay after they chose to move. Meaning, if an employee lives in (or moves to) a country with a lower currency value or lower typical pay bands for their role, they would be paid less than their counterparts who are located elsewhere. But is it the right approach, and is it ethical? If you’re embracing global hiring but also care about doing the right thing, how should you be paying people?
At Bright + Early, our compensation team has worked with a number of globally distributed teams to design unique and equitable pay systems. We’ve created this guide to help you get started with designing an ethical global pay strategy of your own. It’s designed to help you understand the different options and decide what works for your team today, as well as develop milestones to support your ethical pay journey as you scale.
Here we go!
Step 1: Understand ethical pay
Before getting into what we pay, it’s important to start with why we pay the way we do. By definition, pay is compensation given in exchange for a good or service. Sounds objective enough, but in practice, pay has reflected the oppressive societal constructs of who can and should be paid. In the US, women were prevented from entering the paid workforce until WWI. Instead, they participated in the unpaid labour force, which cemented gender-specifc roles and impacted how women would be be compensated.
During the women’s rights movements of the 60’s, the US government enacted equal pay legislation, which mandated corporations to provide equal pay for equal roles.
Equal pay legislation was a step forward in the right direction. However, gender biases have led to some jobs being commonly held by women and others by men. When jobs held by women continued to be paid less than jobs held by men, it perpetuated the gender wage gap.
Pay equity, also known as equal pay for equal value of work, was enacted as a response to gender-based pay inequities. It mandated corporations to assess the required qualifications, required effort, responsibilities, and working conditions under which the job is performed across the organization and to pay based on the scores. This means that if an office manager’s role was deemed equivalent to a bookkeeper, they could receive the same pay under pay equity.
We still have ways to go in actioning pay equity. As teams globalize, we see a new wage gap emerging; while employees in various countries may be contributing the same value of work, there is a large pay gap between those that live in low versus high cost economies when employers take a purely localized approach to pay.
Companies are also forced to question what pay equity looks like at a global scale– does it mean providing an equal salary, or an equal standard of living to employees? Does it mean providing everyone with the same employment arrangement, or does it mean ensuring everyone experiences some equality in what happens to their paycheck after taxes and local currency fluctuations, even if that means adapting employment arrangements based on each individual’s need?
It’s complicated! To navigate the nuances, we invite you to think about pay ethically.
This means considering:
- Who am I impacting with my pay decisions? In addition to employees, we’re also impacting candidates and local economies across the globe.
- What are their needs?
- What would best meet their needs?
- What would cause less harm?
- In an ideal world, how would we like to pay our team? If we cannot get there today, what does the path to get there look like?
Step 2: Explore the options for paying globally
Before getting ethical, we have to understand the nuances of paying global teams and what options are available to us for structuring pay.
Option 1: Localized: this means paying your employees based on where they live. If you decide to go down this route, we recommend rooting pay in a country average versus by city. Tethering each person’s pay to their city gets tricky because:
- It requires a lot of upkeep. You’d have to produce salary bands for each city you hire in, and you’d have to update someone’s salary everytime they move (which can happen frequently in a distributed team).
- It relies on employees being honest about where they’ve moved, which they may not be if disclosing a move means taking a pay cut.
When working with this model, we’ve seen team members opt not to disclose their new country of residence as they knew it would result in a salary cut. From a compliance perspective, the company may also unknowingly be liable for employing someone in a new jurisdiction where they’re not authorized to operate.
While localization closely mimics current pay structures in non-globalized teams, it is also the most complicated to maintain as it requires constant market checks to see what different regions are paying, and keeping up with fluctuations. If going local, you should expect questions from staff around the value of roles and why they might be getting paid less than their counterparts in another region.
The pros: it’s cost-effective. The cons: it’s not equitable, it’s complicated.
Option 2: Blended: This means picking one benchmark for your salary bands (e.g. the US, or your headquarters) and paying a percentage of this salary band based on where employees live. It’s a blend of a universal salary and localized approach. Buffer is a great example of the blended approach as they group their places of employment into tiers based on cost of living or cost of labor and pay between 70% - 100% of the benchmark salary based on the tier (with the highest tier receiving 100%, and the lowest tier receiving 70%).
If going with the blended approach, you can utilize a resource such as Numbeo to group countries of employment into tiers based on cost of living indexes. It’s important to note that if you structure tiers based on cost of living, you should be mindful of accounting for inflation in pay to truly align with a localized pay structure. If you want to have a mix between cost of living and cost of labor, you'll need to do separate pay market research for those regions to get a more accurate read of each.
The pros: it’s more competitive; it’s more cost-effective than applying a universal salary across the board. The cons: while it does help bridge pay gaps between low and high-cost markets, it’s not 100% equitable, as equal pay for equal value of work may not be met.
Option 3: Universal: This means picking one benchmark for your salary bands (e.g. the US, or your headquarters) and applying that benchmark across all locations. Since this approach aims to provide equal pay for equal value of work, you’d need to define the value of each role prior to deciding pay. You can do this by outlining the competencies and skills of each role.
Once we define the value and impact of a role, we’re able to assign pay to it. For example, an office manager who also owns IT administration will have a different impact on their team versus an office manager who focuses more on event programming. These roles may be valued differently since their contributions are different.
The pros: it’s the simplest, most equitable, and most competitive. The cons: it’s the most costly, and the company needs to do the prep work to define a universal salary.
One last consideration: contractors. Many teams onboard global team members as contractors (instead of full-time employees) as a workaround to avoid implementing an Employer of Record or establishing an entity in a new country. This is not 100% compliant. Is it 100% unethical? Not necessarily. Depending on where your team members are based, they may prefer to be employed as a contractor to protect their income from devaluation due to local currency fluctuations. However, due to misclassification risks, companies are unable to provide the holistic compensation someone merits when they’re contributing at a full-time capacity, such as health benefits, paid time off, and longer leaves like parental leave.
Some teams we've worked with have opted to keep international folks on contract. To ensure they’re being paid fairly, we’ve adjusted their pay to ensure they can pay for benefits and time off. We’ve also seen companies pay out of pocket for individual health plans of contractors, or promise the same length of paid parental leave. However, these strategies may open you up to compliance issues, as it becomes murky to draw the legal line between contractors and employees. Definitely consult an employment lawyer to navigate, and consider using an Employer of Record. However, understand that using one of these services doesn’t absolve you of risk; always read the fine print.
So now that you understand your options for global pay, how do you choose?
Step 3: Incorporate your values and ethics
If you’re trying to figure out what global ethical pay looks like for you, start with your broader values and how your approach to global pay aligns with them. Feel free to reflect on the questions below to define your ethical pay approach:
What are my company’s values?
What do my company values look like in action if we align it to global pay?
How do I want to implement pay equity? Do I want to focus on pay equity in the regions that legislate it, or is it important to me that it’s applied to all our teams regardless of location?
What is our ideal state? Where do we want to get to in terms of global pay?
What are our current limitations? What prevents us from getting to our ideal state?
What does equality mean to me? Does it mean equal pay or equal standard of living?
What do I believe should affect how someone’s pay is decided? Should their location impact it? Should their work and contributions impact it?
If I had a localized pay strategy, what would I do if…
An employee moved to a lower cost area? Would I adjust their pay or would I leave it as is? Why?
A candidate I really need to hire in a lower cost area is asking for a US-based salary to match other offers? Do I make the hire because our team really needs this talent and is understaffed, or do I reject the candidate? Why?
What am I comfortable explaining to an employee? If this leaked to the public, will I be able to stand behind my decisions?
To put it all together, let’s use the above questions to build a global pay approach for our sample company, Merry Go Round:
Merry Go Round is a startup disrupting the ice cream space. MerryGoRound does not have a lot of money to pay top percentile salaries, but they are rapidly expanding, taking the global ice-cream market by swirl. They are strongly values-driven and have early equity they can leverage. They value equity, inclusion, and wellbeing.
Here’s Merry Go Round’s approach to global pay:
Our mission at MerryGoRound is to add sweetness to the everyday, bringing a sense of fun and whimsy to anyone who enjoys our sweet treats. This mission drives our delight-centric culture, where we aim to bring joy to not just our users but our employees. We believe that as a company, we have the responsibility to ensure our employees are heard, supported, and taken care of. As a globally distributed team, we believe that all our team members bring immense value to our mission, which is why we believe in paying ethically.
To us, ethical pay means that everyone is rewarded equally for their contributions, regardless of location, and that employees are paid according to a livable standard that enables them to thrive and do their jobs well. Our goal is to have a place where we provide a universal pay structure as we believe that location has nothing to do with how someone should be paid in a remote-first work setting.
We’re not at a place today to implement universal salaries, so we’ll start with a blended approach and build regional tiers. We’ll set up milestones over the next 5 years so that we can get to a place of universal pay.
Customers will enjoy a universal delight and our people will be paid, universally as well. What a treat!
*Merry Go Round is a fictional company.
Step 4: Get the data
Now that you’ve picked your approach, you’re ready to benchmark data to form your salary bands. No matter what pay approach you choose, you’ll likely need salary data from other parts of the world. Here are some resources you can check out as you start to find benchmark data to inform your salary bands:
Figures: Europe & UK
Oyster (for EOR customers): Global
Pave: US, Canada, UK
Option Impact: US, Canada
Radford: Us, Canada
Comptryx (Mercer): Global
Economic Research Institute: Global
National Statistic Offices (Free): Global
VanHack Salary Calculator (Free): Global
Step 5: Put it together
So now you’ve chosen a global pay approach, you’ve identified what ethical pay looks like for you, and you have the data you need to build your pay structure. Let’s put the pieces together:
Set milestones: It may take you a while to get to your ideal state for ethical pay, especially if you’ve chosen a universal approach as your long-term goal. To get to that goal, you can set milestones. For example, if your ideal state is to get to universal pay, start with a blended approach for the time being and give yourself a timeline (e.g. 5 years) to get to your goal.
Build the infrastructure: Part of an ethical pay approach is maintaining accountability towards the milestones in your pay journey and upholding the integrity of the data behind your pay structure. For instance, if you choose localized pay, you will need someone to conduct frequent market checks for each location in which you employ, and update salary bands accordingly. You’ll also need someone to own the evolution of your pay structure over time towards your ideal state. As well, if you want to work towards universal pay at some point, you’ll need to define the value of your roles. Building a careers framework to articulate this is an important precursor to universal pay.
Build your philosophy: Get it on “paper”! We have a super helpful template in our Guide To Paying People to help you get started.
Steph 6: Avoid ethical pitfalls
No matter what pay approach you take, there is a way to make it ethical. Here are some common pitfalls, and how to avoid them.
For localized pay structures:
❌ Avoid: treating lower-cost economies like cheap labor centers.
✅ Consider: aiming to bridge pay gaps between lower & high cost economies. You could do this by paying in the 75th - 90th percentile of your lower-cost economies, and in the 25th - 50th percentile in higher cost areas. For example, you can apply a baseline minimum salary akin to the minimum living wage at a headquarters in the US to all lower-cost markets where they are employed.
❌ Avoid: only applying a localized strategy where it benefits the company financially.
✅ Consider: staying consistent. This means addressing inflation on an annual basis, adjusting salaries when employees move to higher or lower cost areas, and ensuring other parts of your total rewards match the local context. For example, you may provide a flat stipend for employees to source their own hardware that matches the price of the hardware in their particular region, since it may be higher due to procurement costs and inflation.
For universal & blended pay structures:
❌ Avoid: picking a salary benchmark that does not meet a competitive and living wage for your higher cost areas of employment.
✅ Consider: examine the spread of locations in which you benchmark and pick the highest benchmark you can afford to ensure those that live in higher cost areas are still paid fairly. For instance, if you have employees spread across Canada, the US, and Turkey, the US would be the highest benchmark.
❌ Avoid: arbitrarily assigning value to roles, or determining the value of a role based on biased markers such as the location of where one is employed.
✅ Consider: putting in the work to articulate the value of each role by building a careers framework that identifies the competencies, skills, and impact of each role. This is important for any pay structure you choose, but especially for a universal or blended pay structure!
For all pay structures:
❌ Avoid: treating your contractors as full-time employees without revisiting the missing elements of their compensation, like benefits.
✅ Consider: giving them a choice. If folks choose to remain as contractors, provide a stipend for them to pay for their own benefits. You can also allocate unpaid time off and revisit their pay to make sure that it offsets their lack of paid leave. If folks would like to onboard as full-time employees, implement an Employer of Record to do so without the hassle of opening a new entity for every country where you hire (note: check with your employment lawyer when it comes to employing contractors vs. full time employees).
As companies bring equity and inclusion to the forefront of their employer branding and hiring strategies, we encourage them to walk the walk when it comes to compensation, too. Ensuring everyone gets equal pay for their equal contributions is part of building a more equitable environment. Building a fairer pay approach will go a long way.
The Bright + Early team
Want to dive in deeper? Bright + Early offers compensation research, strategy, and philosophy development for companies that care. Drop us a note at email@example.com to get started.