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Why Do Some Remote Companies Pay a Global Salary? 

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. Still, 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 previous article, I outlined why some companies choose to localize their compensation offerings based on their employees’ lives. I talked about the cost of living, market rate, and the impact on local communities. I also shared how entrenched this approach is in the business mindset due to its cost-effectiveness. 

Here, I’ll unpack why some companies forgo localizing in favor of a globalized model that aims to pay the same amount for the same role, regardless of where the employee lives. 

Fairness over profit: a new approach

As I mentioned in the previous articles, the conversation around compensation models has become a more popular one this year in response to growing interest in remote work and large tech companies announcing their move towards localization. However, that doesn’t mean this is a new topic. Localization has been the default option for many years as the trend makes the most business sense. It considers the market rate, which has always been a part of setting salaries whether a company hires outside of their city or not, and it is, of course, the most cost-efficient choice. If talent in another city or country is expecting (and happy with) a certain amount, why would you pay far above that?

More recently, some companies have begun to challenge the validity of this approach. 

“Variable pay based on the employee’s geographic location [is] logical, rooted in good intentions, designed for transparency, and optimized for fairness. But regardless of the intention, I believe it’s the wrong approach,” Nick Francis co-founder and CEO of Help Scout said in an article titled Remote Employees Shouldn’t Be Paid Less Based on Geography, published earlier this year. 

Interestingly, Help Scout had previously embraced a localized approach, with a cost of living variable embedded in their salary calculator formula. 

“It was similar to what we have now, but we identified the higher cost of living cities. We would have the base amount that we pay, and then, [for example], if we’ve hired a software engineer in San Francisco, they got $10,000 more than what we would typically pay for that role,” says Julie Menge, Help Scouts HR Operations Lead.

“And then they would reevaluate and ask, ‘Are there any new high cost of living cities on the map where we’ve hired people?’ So, that alone is a tricky process to navigate.” 

Over time Nick recounts becoming increasingly unsure of the model’s morality and received feedback from his team to the same effect. This caused Help Scout to move to a more standardized approach which they dub: equal pay for equal work.  

“I’m borrowing [the] phrase typically used to describe the pay gap associated with underrepresented groups, but the same principle applies here,” Nick says in the article. 

“I wasn’t [with Help Scout at the time], but I can imagine it would feel like suddenly you’re less valuable to the company [if you move to a lower-cost region],” Julie says. “But then the opposite would happen if somebody suddenly moved [to a higher-cost region.] So, I think after having lived through that a few times, and people saying, ‘this doesn’t feel right’, that’s when they decided to take that off the table.”

Help Scout isn’t the only company taking this route. The long-standing remote company, Basecamp has set global compensation based on San Francisco’s salaries since their first hire. 

“There are no negotiated salaries or raises at Basecamp. Everyone in the same role at the same level is paid the same,” Founder & CTO David Heinemeier Hansson said in a 2017 article titled How we pay people at Basecamp 

San Francisco is talked about a lot because of the prevalence of software companies in these discussions, but what happens if you’re a garment maker, architect, or lawyer? And further, what does it mean for companies with various roles and even industries within its org chart? Despite choosing a global approach to step outside of the influence of market rate, companies who prefer a global compensation model will still likely be subject to its effects when aiming to hire candidates from higher markets.  

This doesn’t, however, have to be a problem. 

Help Scout base their salaries on Boston, which is part of the ‘second-tier’ city grouping in the US, including Seattle and New York City. 

“Whenever I do research and benchmark for salaries, I look at the Boston metropolitan area,” Julie says. “That does mean it can be challenging to hire a software engineer in San Francisco because we’re maybe just not going to be as competitive as some of the offers that they could get. But that’s fine because we have so many other opportunities to find great talent. We didn’t feel like we needed to be that aggressive.” 

Of course, as a second-tier city, Boston’s market rate isn’t exactly low, so they aren’t cutting out a huge chunk of potential applicants, but the sentiment is there. If you can’t afford San Francisco salaries for everyone, why offer them to anyone? 

“When we open a role, we often have no idea where the person is going to be,” Julie says. “I [go into it thinking,] ‘This is what we’re willing to pay.’ It would feel really wrong to me if suddenly we found [our pick] in this [low cost] country and offered a lower amount because they’d take it for half as much. We would just never do that.” 

This is perhaps the most compelling argument for a global approach. It only makes sense that two people doing the same job should be paid the same amount. Even strong advocates for localization agree. 

“If there’s one thing that makes me question our approach,” muses Shield GEO co-founder and Director Tim Burgess, “it’s that we’ve got someone in the Philippines and someone in the US, and they’re doing the same job, and we view them equally as valuable, but the compensation they get in real terms is different.”

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Valuing the employee’s work

A similar argument, often made interchangeably with fairness, considers the value someone brings to a company. This goes beyond maintaining equal pay for equal roles and considers the actual value someone brings to the company (monetary or otherwise).

“If a person in the Philippines is delivering the same value as that person in the US, why shouldn’t they be compensated the same?” Tim says.

It’s an important argument to consider as both value and compensation directly affect profit margins. 

For example, a company like Microsoft makes $273,000 profit per employee. This profit doesn’t change when an employee moves cities, so why should their compensation?

This was one of Help Scout’s considerations when embracing their set compensation stance.  

“We value the amount of work and quality that you bring to the company, it’s irrelevant to us where you live in the world,” Julie says. 

On the other hand, not everyone is a Fortune 500 company, and ‘value’ isn’t always an easy thing to quantify. Do the same roles always offer the same value? Is it about hours working? Or the quality of hours working? Is it about previous experience? Or what a worker is specifically ‘producing’? 

“It’s a bit of a slippery slope,” Tim says. “Once you start saying, ‘Oh, we’re going to quantify value as a way of compensating people,’ then you can start to move into, well, this person created 20 widgets, this person created 25, the 25 person widget should get more money. We don’t want to track people in that way and, in our business, the work is not all the same, so you can’t really compare it.”

Some may argue this is already the corporate culture they’re familiar with, but for companies who favor teamwork, connection, and flexibility, tracking your employees’ productivity to such an extent could be counterintuitive. 

How employees spend their salary shouldn’t be the employer’s concern

By now, we’re all familiar with the cost of living argument. Purchasing power means that two employees living in vastly different countries will experience differences in how fair their ‘equal’ compensation will go. 

Those in favor of localizing compensation argue that paying the same dollar amount to employees living in NYC and Bangkok is fundamentally inequitable because of the power that the dollar has where each employee lives. For example, the worker in NYC may only be able to afford rent on a small studio apartment while their Bangkok colleague could afford a four-bedroom home.

However, those favoring a more global approach argue that this simply shouldn’t matter to an employer. It’s not their role to determine how or where someone should spend their own income.

“If an employee working from Argentina, Ukraine, or South Africa is making a killing relative to the person delivering the exact same business value from New York City, it’s not the business’ concern — just as what they spend on an apartment is not our concern,” Nick says. “I’m paying a price for a job to be done well, and the value is the same to me.”

When pondering these scenarios, I can’t help but think about a scene from the TV series Mad Men where one of the characters asks for a raise after his wife gave birth to another baby. His expenses as the breadwinner had increased, and he needed more income, which was the significant factor in his negotiations for a promotion. Gender inequality implications aside, to me, this always read as an entitlement. I’d always felt promotions should be granted based on merit, not how many children you have or how much your home repayments are. It’s here that I understand Nick’s point. Catering compensation to your employee’s expenses seems like an overstep at best, controlling at worst — compensation should be for the work you do, not the expenses you have or don’t have.

I will say, however, I do believe that this argument only really holds up when pushing to pay more, not less. I’ll cover this more in-depth later on in the series but, citing an employee’s expenses are none of your concern is only viable if you are already paying enough to cover their basic needs. 

I think we can agree it doesn’t make sense for a Thai company to pay US employees Thai rates. However, in the same way that Help Scout sets their salaries to a Boston market, knowing they probably won’t attract San Francisco talent, there is nothing ethically wrong with a Thai company setting their salaries to a Thai market. They just probably won’t be able to access talent from more expensive countries. The difference is that many Western companies will hire in lower-cost countries and still pay them a low rate even in that market. There is a power imbalance that needs addressing in these scenarios because it’s not always as equal as the examples portray them. 

Global salaries are more simple

Finally, setting global salaries is simple. You only have to set compensation to one market, rather than the number of different cities represented in your team. 

“If you get 100 grand for this job, you get that no matter what country you’re in, [then] that’s really simple,” Tim says. “The way that we do it, we’ve got to pull data for each region, we’ve got to match the jobs, we’ve got to try and build a matrix to support it all. And it’s really complex. So much more complex than I had thought going into it.”

If you don’t have the software, infrastructure support, or time to figure out compensation rates for each country or city you’re hiring in, you may choose to set a global rate for ease.  

“When I look back, historically, and I see this person made this, that number is not even on the formula… that’s because they lived in that city at that time… it’s really challenging,” Julie says. “And I think from a budgeting standpoint, how do you plan for that? People move, especially in a remote company, not all the time, but it happens maybe more frequently than in a co-located company.

“I really like this approach, where it’s just: here’s what we pay, everybody is the same.”

Should you choose a global compensation approach?

As with those choosing a localized approach, there are some significant reasons a company might decide to pay their employees based on their role rather than their location. Like Help Scout, they may feel passionate about equal pay for equal work, they may consider the value their employee brings to the company (which doesn’t change when their location does), or they may just find it simpler to set one salary for all. 

Regardless of the defining reasoning, it’s clear that there are many sides to each argument. You’ll only come to the right conclusion for you and your company through careful consideration. It’s my hope that as I continue to peel back the layers and intersecting issues involved with setting compensation, you’ll have a more solid foundation to make your choice.

— Bree Caggiati

 

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

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