Fact: Happy employees increase productivity.
It’s true. When people feel valued, supported, and fairly compensated, they’re more engaged, motivated, and willing to go the extra mile. And fair and competitive pay isn’t just about attracting top talent; it’s about keeping the ones you have and retaining that all-important company knowledge.
So, how can you ensure smooth, accurate, and fair compensation for a global team?
This article will explore the ins and outs of global compensation management so you can learn how to create a global compensation plan that ensures fair pay, compliance, and efficiency across borders. It includes insights from:
- Menaka Karthikeyarayan, Global Payroll Director at Multiplier
- Michael Nierstedt, Payroll Product Director at Multiplier
- Natalie Lloyd, Global Customer Success Manager at JGA Recruitment Group
What is compensation management?
Compensation management ensures employees are paid fairly, competitively, and on time.
It’s a key function of HR and covers everything that makes up an employee’s total pay package. This includes monetary benefits like salaries and overtime and non-monetary benefits such as healthcare, professional development opportunities, and wellness programs.
Why is compensation management so important for a global team?
Handling compensation is tricky enough with local employees, but with global payroll, things get even more complicated.
Without a clear payroll strategy, it’s easy for inequities and confusion to creep in. Employees in different regions might feel undervalued if they discover discrepancies in pay, especially if there’s no transparent rationale behind it.
Meanwhile, without consistent guidelines, managers can end up improvising salary decisions, which can lead to inconsistencies and compliance issues in different markets.
As laws continually evolve, the risks only grow. For example, the EU Pay Transparency Directive will soon require companies to share salary ranges and justify gender-based pay differences. Companies that can’t will face not only a loss of employee trust, but fines and penalties.
How to create a global compensation strategy
So, how do you manage compensation fairly across borders? It all starts with a solid global compensation strategy that takes into account local data. Lloyd recommends, “establishing a unified set of compensation principles that apply globally ensures consistency and fairness across all markets, but tailoring strategies to fit local laws and cultural expectations.”
Here’s how to create a global compensation strategy in seven steps.
1. Define a global pay philosophy
Your pay philosophy sets the tone for how you attract, retain, and reward talent across all regions. And payroll must support the C-suite in determining the company’s position in the global talent marketplace.
Teams should ask whether they should compete by paying top-tier salaries, or optimize costs by targeting median benchmarks. Can you offer rich, localized benefits packages, or should salary itself be the strongest draw? As Michael Nierstedt puts it, “You need to ask how much you’re willing to pay. Are you going to be at the 50th or the 90th percentile? What level of experience do you need? Can you offer stock and rewards?”
2. Understand local markets
A one-size-fits-all approach to compensation doesn’t work for global teams. What’s competitive pay in the UK might not hold up in Egypt. Likewise, offering unlimited vacation in the US may not be as appealing to workers in Japan, where employees typically take fewer but longer breaks.
These subtle, but uber-important differences highlight the need to tailor pay, benefits, and incentives to each region.
Start by building relationships with local HR experts and consultants who can provide boots-on-the-ground insights into employee expectations, regulatory changes, and evolving market trends. Tapping into global compensation surveys and benchmarking tools can also help paint a more accurate picture of what “competitive” really means in each location.
Here are some key questions to find data on for a deeper understanding of local markets:
- What are our competitors doing?
- What are the regional salary benchmarks?
- How do pay scales vary across cities and countries?
- How do the cost of living and labor demand impact salaries?
- What are the legal must-haves?
- What are the mandatory benefits, tax laws, and minimum wages?
- Are there pay transparency or diversity laws to follow?
- How do economic trends affect pay?
- Are inflation and currency fluctuations driving salary expectations? Is the job market talent-short or talent-rich?
3. Build a clear picture of compensation packages
A great compensation package isn’t just about salary. It’s about offering a balanced mix of pay, perks, and incentives that attract and retain top talent.
Health insurance, travel expenses, and retirement plans are standard, but extras like wellness programs, professional development, and flexible work make a difference.
Customize non-monetary perks to meet the cultural expectations in each market. Find out which benefits matter most in each location and which cultural norms shape expectations.
4. Account for currency fluctuations
Compensation fluctuations can significantly impact the real value of employee salaries, potentially leading to dissatisfaction and payroll mistakes. To mitigate these risks, consider the following strategies:
- Pay in local currency to shield employees from exchange rate volatility.
- Regularly monitor inflation rates in each operating region and adjust salaries accordingly.
- Use a global payroll platform to pay employees in their desired currency without extra hassle. With Multiplier, you can make payments in over 100 currencies inside one platform.
5. Address pay compression
Pay compression happens when new hires earn close to (or more than) experienced employees. It’s a morale killer and can drive top talent away.
Fix pay compression by:
- Creating and regularly reviewing salary bands (structured pay ranges by job level and location.)
- Defining clear criteria for pay and career progression.
- Offering raises to experienced employees who are underpaid compared to new hires.
6. Get buy-in
Creating a global compensation strategy demands full support from both leadership and employees.
Leadership must see how your compensation plan aligns with key goals like talent acquisition, retention, and business growth.
Meanwhile, employees need transparency. When they know how pay decisions are made, morale and productivity soar. Clear communication on compensation keeps teams engaged and reduces turnover.
7. Choose the right tools
Getting compensation right is crucial. Yet, managing different tax laws and currencies and ensuring fair, competitive pay is no easy feat. With 30% of professionals wasting up to 12 hours a week chasing data, choosing the right tools to streamline payroll is essential.
Global payroll platforms like Multiplier simplify processes and track compensation across regions, ensuring consistency, compliance, and accuracy, especially in dispersed teams.
As Nierstedt puts it, “If you’re hiring in more than one country, you need a solution that supports payroll across regions. It ensures employees have the same HR and payment experience, no matter where they are.”
By automating reports and calculations with Multiplier, you can free up time for strategic tasks, such as compensation and workforce planning.
8. Conduct audits
The global job market and tax laws constantly change, so your compensation strategy needs to evolve. Think of it as a living, breathing document–one that’s fluid and adaptable to new trends and shifts in HR practices.
This means regular audits are essential to ensure your compensation plan stays aligned with your goals. Without them, it’s easy to overlook pay differences between employees and contractors in different countries.
Set a recurring calendar for compensation reviews—quarterly or bi-annually—to assess internal pay equity, benchmarking data, and legal compliance. Use centralized dashboards and reporting tools to spot patterns, anomalies, or gaps that need immediate attention.
The need to conduct regular audits presents another argument in favor of using a centralized global payroll solution. As Karthikeyarayan points out, “When you’re using local vendors with different systems, it’s hard to get a centralized view. And this can cause major problems at audit.”
Simplify global compensation with Multiplier
A well-crafted global compensation strategy does more than ensure compliance and operational efficiency; it serves as a catalyst for cultivating a motivated and loyal workforce.
By aligning compensation practices with local market expectations and cultural nuances, organizations can foster a sense of fairness and value among employees, leading to increased engagement and productivity.
What’s essential is that payroll teams have the right data and the right tools; both of these can be found within Multiplier’s global payroll platform. Centralize data and view key reports while automating tasks to free up time for strategic work.
Ready to take the stress out of global compensation? Book a demo today.
FAQs
Q. What are the challenges of compensation management?
The most difficult parts of compensation management are:
- Managing compliance. Navigating different tax laws, minimum wages, and mandatory benefits across multiple countries.
- Ensuring pay equity. Avoiding pay disparities and addressing pay compression between new and existing employees.
- Handling currency fluctuations. Keeping salaries competitive while managing exchange rate changes.
- Balancing global vs. local needs. Maintaining consistency while adapting to local market expectations.
- Reducing payroll errors. Preventing late or incorrect payments that can damage trust and increase turnover risk.
Q. What are the main components of compensation?
Compensation includes a base salary, the fixed amount an employee earns before bonuses or incentives. Bonuses and incentives can be placed on top of this to reward performance and can be tied to individual, team, or company goals. Benefits and perks include health insurance, retirement plans, and paid time off.What is a deferred compensation plan?
This arrangement lets employees delay receiving part of their salary until a later time, usually after retirement. This helps employees save on taxes and plan for the future–often used to attract and retain top talent.
Q. What regulations affect compensation?
Compensation is influenced by several regulations, which can vary by country or region:
- Minimum wage laws which set the lowest legal pay an employee can receive.
- Overtime pay which means extra pay for hours worked beyond a certain limit. The rules differ by region, such as the U.S. Fair Labor Standards Act (FLSA) or European Union directives.
- Equal pay laws that ensure employees are paid equally for the same job, regardless of gender or race.
- Tax laws that dictate how employee wages are taxed, including income tax and social security. Tax rates and rules vary widely between countries.
- Benefit regulations that define the required benefits employers must offer, like health insurance or paid leave.
Q. What is performance-based compensation?
Performance-based compensation ties employees’ pay to their job performance, rewarding them for meeting or exceeding specific targets or goals. This can include bonuses, commissions, or profit-sharing based on individual, team, or company performance.
