How global hiring is changing compensation models

The rollercoaster that is the US talent market has HR leaders looking for a change. And as anyone who’s ever studied abroad knows, there’s no better way to make a change than to expand your horizons.

The push to hire from all over the world “has been driven in large part by a 15-year high talent shortage, along with cost-saving and risk-mitigating measures that companies are putting into place,” Dave McGonegal, VP of talent solutions consulting for North America at ManpowerGroup, told HR Brew.

It’s also occurring earlier in companies’ maturity. As partners at VC firm Andreessen Horowitz wrote in July, startups and otherwise early-stage companies are no longer waiting to hire and operate globally.

“Thanks in part to the remote-only experiments that Covid forced so many to run, new companies are no longer tethered to the hometown of the founder, nor limited to hiring local talent. The first 50–100 employees may span several countries, let alone cities and states,” they wrote.

With global talent, HR leaders have the potential to address talent shortages, lower labor costs, and help their companies attract customers in new markets. But first they need to revise their company’s compensation model.

What’s your philosophy? Accessing a global talent pool sounds great—until you have to figure out pay scales. Should an engineer in San Francisco be making more than someone doing the same job halfway across the globe?

Lori Wisper, managing director at WTW, told us that it’s a matter of philosophy. She recommended that HR meet with company leaders to revise their pay philosophy and acknowledge how the talent landscape has changed.

Navigating a new landscape. The next step, Wisper said, is to “define your competitive labor market” and “determine which market data you use as a comparator point.”

Comparable data can be specified for different regions, within the US or abroad. Within that data set, companies will often decide on a pay band that is a percentile of the range.

For example, if the data says that engineers in California are paid between $100,000 and $180,000 per year, aiming for average pay would mean setting a salary of $140,000. While executive pay scales have long been moving toward broader comparative data sets, Wisper said this approach is moving down the professional ladder.

Finding comparator data sets and determining an appropriate pay level involves many variables. For example, a company paying median rates in the US may choose to pay higher than median rates in other countries to attract their best talent.

Navigating various regulatory environments—as they relate to payroll, taxes, and establishing a business entity—can be complicated, so it’s probably not practical to shop around for talent in a bunch of different countries. HR leaders should be intentional about where they hire from and set up the proper entities.

“You’re opening a work site in order to save labor costs or in order to take advantage of skill sets that exist in that country,” Wisper said. “You’re an employer in that country, you abide by all of the employment laws…that’s an investment.”

What should you pay? Employer-of-record (EOR) and other hiring services can help recruiters cross borders by either automating compliance tasks or running job boards in new markets. Though they have existed for some time, these companies are growing and expanding their product offerings as distributed teams become more common.

One of those companies is Oyster. The organization helps businesses hire around the globe and also practices what it preaches, with employees in over 70 countries.

While Wisper said it is not very common for companies to have varying pay scale decisions in different geographies, Oyster’s co-founder, Jack Mardack, suggests they may need to move in that direction.

“One of the things that we’ve done in development of our own compensation policy is aggregate data from multiple sources to create a holistic perspective,” he said.

The question employers should be asking is, “‘What should you pay here?’...rooted in what’s right and what’s fair, rather than ‘How little can you pay?’”

Also worth considering: The overall employee experience. This, Mardack said, can be as important to employees as the pay itself.

“When we say ‘global employment platform,’ what we really mean is the means to confer a level of employment at a standard everywhere in the world.”—AK

Editor's note 12/12/22: This article has been updated since it was first published.

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