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How Benefits Fit Into International Compensation Packages

Setting compensation is something every employer has to consider and the decisions they make ultimately affect everyone they will go on to hire. This makes deciding how to approach compensation complicated no matter the makeup of your team, but with more companies embracing remote-friendly policies and expanding their hiring pool internationally, the layers of complexity naturally increase. In an effort to unpack all the competing arguments and intersecting elements, our Journalist, Bree Caggiati, is sharing a seven-part article series on Compensation for Global Teams.

In the first article of this series, I talked about how compensation gets set and briefly touched on the fact that an employee’s salary is only one element of the total package. 

In this article, I’ll take us through a more in-depth analysis of a compensation package’s elements, including benefits, allowances, taxes, and extras. And talk through how companies utilize these other elements to create a more hybrid approach to compensation — rather than fitting strictly within an entirely global or localized philosophy. 

Elements of compensation packages

The specific makeup of an organization’s compensation offering varies widely from company to company and is extremely customizable by nature. The important thing to note is that compensation is about the employer’s total cost, not the total net pay to the employee

Below are some elements that may be included in a compensation package; however, not all packages will consist of every option. When employing internationally, the local regulations and requirements will differ considerably and may influence what must be offered as well as the percentages or amounts required.  

Salary and wages

The base salary is the fixed dollar amount an employee receives each year. This is usually tied to other factors such as hours worked and often makes up the package’s largest portion. 

Depending on your contract agreement and the local requirements, you may also offer overtime or commissions on top of the base salary.

Taxes

Income tax refers to the portion of income reserved for the local or provincial government, which is usually used to fund public services. The percentage of salary employees are required to pay changes depending on income brackets and local jurisdictions.

Bonuses

This covers annual or periodic bonuses as well as any special achievement-based offerings. Some companies structure bonuses to include profit sharing or equity compensation instead of cash. 

Retirement plans 

Some jurisdictions require employers to put a portion of their employee’s salary towards a retirement fund. Again, the percentage is dependent on where employees live, and there may be other requirements, including the types of funds or who is responsible for the contribution (employer or employee). 

Leave 

Paid leave covers sick, or carers leave, vacation leave, and parental leave. Annual leave and public holidays are heavily regulated around the world. This can include how leave is consumed, payment for unused leave, and different pay rates for annual leave days or working on local public holidays. However, organizations may choose to offer a company standard in addition to the local requirements.

Insurance offerings

Depending on where your organization is based, offering health or life insurance is a popular benefit that potential employees are looking for. Some countries require a portion of an employee’s salary to go towards employment insurance. 

Equity compensation 

Equity compensation may include options, restricted stock, and performance shares. It is a non-cash payment offering that allows employees to share in future profits. 

In some cases, employers may offer equity compensation in addition to (or to add up to) their base salary. This is particularly popular in startup environments where cash flow is more limited. 

Perks 

Perks can be anything from covering internet and phone bills to staff lunches or dinners. You may offer a company car or cover parking, gym memberships, company discounts, subscriptions, or incentives for further study. Essentially, perks can be anything on top of the necessary requirements. It’s really up to the individual organization what they offer their employees through their extra benefits. There are, however, trends based on industry and location.

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Compliance across international borders

Once we start thinking about compensation as an entire package — made up of all the costs to the employer — it’s easy to see how hiring a distributed team can become complicated. 

“Once you’re hiring cross-border you are hiring outside of your legal jurisdiction,” says Lawyer and Founder of All Remotely, a remote work consulting firm, Bhagyashree Pancholy. “You have to comply with local laws.”

Most countries will have different labor laws that will affect how you set up your compensation packages, which means you’ll have to become intimately aware of tax regulations, leave requirements, insurance and retirement plans in each new jurisdiction. This is in addition to all the data research around market salary rates. 

“The logistics of it are non-trivial,” says bethanye McKinney Blount, the Founder and CEO of Compaas, a compensation software and consultancy firm. “It’s not just about how much money does someone get paid. It’s also, how do we do compliance in this place we’ve never been before? How do we pay the taxes in this place we’ve never been to before? What are my health insurance obligations in this region? What are my benefits obligations? So there’s a lot to consider.” 

These are questions we, at Shield, are all too familiar with. “We’ve got our own employees in 16 countries,” says Tim Burgess, our Co-Founder, and Director. “And we’re helping hundreds of clients employ their international staff as well.”

This is one of the benefits of using an employer of record service — gaining access to a team of experts who understand compliance in all the countries you’re aiming to hire new recruits from. 

“Not only does it help you in having a team that is satisfied and at par with each other, but also, it would protect you from these unnecessary legal troubles that might cost you more than you would imagine,” Bhagyashree says. 

How to approach benefits when designing compensation packages 

Your overall compensation philosophy (whether you lean more local or global) should inform how you approach benefits too, but it may not translate as easily as you might think. 

When we start thinking about compensation as a package that includes all of the above benefits, including income tax, paid leave, and retirement funds, we can start to see that offering the same package to all international employees (in the same role) may not even be feasible. 

“Apart from USD 100k being different in the USA vs in France due to exchange rates and what the employee gets in their pocket after tax and social security, there are also all the other statutory differences,” Tim says. “US folks have co-pay family healthcare and very limited income protection if they get sick and maybe two weeks PTO. But in France, you get way more leave and heavy job protections and free family medical. So, if the salaries are the same, arguably the US employee is worse off in that scenario.”

Statutory differences make it challenging to design company-wide policies, particularly when hiring from multiple countries and jurisdictions. 

“[My clients] really want to make it holistic, as much as possible,” says Ed Cha the Senior Vice President and Global Benefits and Property & Casualty Practice Leader at ABD Insurance and Financial Services

But, he admits that approaching something equally doesn’t always lead to an “equal” outcome. 

“I think the easiest example is life insurance, where in the UK four times base annual salary is common and typical, where in the US and Canada, it’s one or two times,” he says. “A Canadian might say, ‘Why is the UK getting four times and I’m only getting two times?’ While actually according to that local market, you are getting the same or similar treatment because that is what’s common in each country.”

So, while you may offer high-level life insurance across all employees, some may receive more or less depending on their local market’s standard if you are opting for a localized approach. 

“I don’t know if there is a true one size fits all approach that’s going to ever be completely fair for everybody,” says Julie Menge, HR Operations Lead at Help Scout who opts for a global approach.

Bhagyashree agrees. While she leans towards a global philosophy herself, she admits she still sees some merit to those arguing for localization. 

“I don’t think just because somebody is living in Asia and the other one’s in New York, [they should] have a different pay scale,” she says. “But I’ve heard the arguments on the other side saying that if you pay San Francisco based salaries to somebody living in Mumbai or Bali, that would be just too much and I think that’s also right.”

Instead, she argues there should be a balance of both. 

“It could be less on the salary part. You could equate more on the benefits part — health care for everybody, or child care plans, maybe medical insurance for everybody. Something like that?”

These hybrid approaches take elements of both philosophies to create unique packages specific to their company or in some cases, individual to each employee. 

“In the United States, it’s very common, even required, for employers to offer health care. So we offer a plan that is 100% coverage for US employees,” Julie says. “We want to be able to offer something to folks around the world too, but obviously insurance and health things work very, very differently in different countries.”

In these cases, offering health insurance to international employees who live in countries where they don’t need it would not only be wasteful but might lead to inequality in other areas. 

“Instead we offer a stipend and what we kind of say is, this doesn’t have to be for insurance, necessarily, but maybe you need to hire an accountant, or maybe you want to up the package,” Julie says. “We really try hard to make sure that the international folks are not feeling like second-class employees.” 

Shield GEO uses a similar approach for our own employees. While we comply with all local labor law requirements, all employees receive monthly health and well-being stipends and other benefits such as annual workation allowances and holiday meal coverage. 

In other areas of the package, it’s easier to offer a one-size-fits-all approach. Help Scout provide a flexible, unlimited paid leave policy to all their employees. 

“Again, it kind of comes back to that ethos of just because somebody is in a different country, we don’t want them to have more or less,” she says. “We usually try to go by what’s the most generous thing that’s required at a minimum. So we want to do what’s the best situation based on our US law that we need to comply with, and then try to mirror that wherever you are in the world.”

But despite efforts to equalize time off for everyone, she notices cultural differences in how employees from various countries use their leave. 

“It’s really interesting to look at it at the end of the year, I’ll calculate it up and see, okay, all the Europeans took their five, six weeks, while the US folks are like, ‘Oh, can we take two weeks?’” she says. “So it’s funny because we want you to take the time, but it’s usually culturally so different.”

Impact on the local community

In many cases, offering a satisfactory compensation package is about more than just complying with the legal requirements (although, that is certainly a high priority). There are also trends and standard practices that potential recruits will come to expect (even if they aren’t explicitly outlined in the labor law). 

For example, in some countries, offering medical insurance will always extend to extras like dental and optical coverage. For others, it may be more common to offer a more basic insurance plan. In some industries, benefits like company cars or childcare may be common in one country but not another. These local practices are important to understand because if you’re only offering what is standard in your own country, you may miss the mark when trying to recruit internationally. 

Furthermore, if you choose to offer far above what is standard in another country, you may unknowingly contribute to changes in their local market. 

“When I first began, no one offered private medical insurance [in Australia],” Ed says. “But then I saw Google, and Facebook and Twitter and all these large, high tech, companies come in, and they had this thought of, ‘We offer in the US what we’re going to offer in all these other countries. So, they started offering [health care] in Australia even though there’s a 49% percent fringe benefit tax for the employer to pay.”

Because of this decision, many other companies wanting to compete in the same industry and attract similar talent followed suit. 

“So because of that, that drove the market practice by saying, okay, it’s common to offer private medical insurance now in Australia,” Ed says. “Even though I would say about 51% of the residents in Australia are just on Medicare on the social healthcare system. So it’s very interesting, a US-centric company is actually changing the market practice in a different country.”

Ed shared similar examples in the UK and Singapore, where dental and optical insurance weren’t very common benefits.

“But now because US multinationals have moved in, the HR professionals are saying, ‘Well, we offer dental and vision in the US we want to offer in the UK and in Singapore and other countries,'” he says.

“I would say again, just from my viewpoint, that the US push dental and vision and now, insurers and markets are catching up and saying you know what, you have to add this if you want to be competitive.” 

While encouraging the local market to include more benefits may initially seem like only a good thing, it may also mean pushing out smaller, local businesses that don’t have the funds to compete with large US multinationals. 

Conclusion 

Creating a compensation package is about far more than coming up with a salary amount. Benefits often take up a large portion of the entire package and are closely monitored by potential employees. They also must comply with local labor laws and requirements as well as standard practices. Understanding how all of these requirements fit together can be challenging to do without experience. 

Applying a strict compensation philosophy to your benefits package can also be difficult to manage. In these cases, organizations will often create a hybrid offering that keeps the essence of their philosophy, while making individualized adjustments. 

These more balanced, hybrid offerings showcase how important company values are in making decisions around compensation, rather than sticking firmly to any particular label. 

 

— Bree Caggiati

 

Looking for more information on how to compensate your remote employees? Catch up with the full series here!

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