Should You Use a Global or Local Remote Pay Rate?

Does your company have a compensation strategy that covers remote team members? A recent report found that 81 percent of employers don’t. This is a mistake for any company that will have even a single remote worker, as decisions you make now can have consequences down the road. 

Let’s say you currently have one office location and a team member who plans to relocate to an area with a lower cost of market. You choose the path of least resistance and decide not to change that person’s compensation to align with local market rates. You’re now using a global remote pay rate. That employee becomes accustomed to living with the additional discretionary income, perhaps living in a bigger house or sending their child to a more expensive school. It would be a burden for that employee to take a pay reduction later. And if you approve more remote workers in the future, the most equitable approach would be to offer them your global rate as well.

That’s fine, so long as that’s what you choose to do—but you should be intentional about this decision. Here are some things to consider when deciding between a global or local remote pay rate.

Address ‘The Great Resignation’ 

In what’s been dubbed ‘The Great Resignation,’ between 26 percent and 41 percent of workers are considering leaving their jobs. Compensation is often listed as a top reason. 

This has the potential to be complicated by other organizations’ remote pay strategies. Some companies are paying global rates equal to the top labor markets in the world. Other companies are paying above the cost of market where the employee is located, though still somewhat below what they’d pay a colocated employee. For most companies, the rise of remote work means that your team members will have access to opportunities that pay more than yours.

If you’re already in an area with a high cost of market, offering a global rate to remote workers can make compensation-related turnover less of an issue. It should be noted, however, that paying the highest rates isn’t enough in itself to retain top talent. It’s also not an option for many employers due to the sheer cost.

Stand out in a competitive talent landscape 

In addition to retaining talent, paying a global rate that exceeds local market rates can help your opportunity stand out to in-demand talent. While compensation isn’t the only factor in a candidate’s decision, it’s still an important one. And when all other factors appear more or less equal, compensation is a quantitative way for candidates to rank job opportunities. Considering the highly competitive talent landscape we’re currently facing, this approach can be highly beneficial.

But again, paying a top market global rate isn’t financially feasible for many organizations. For this reason, some companies use this strategy for their most high-priority roles, while using a local market compensation strategy for all other roles.

Beware of “Golden Handcuffs”

If you pay people more than they could earn at other organizations in their geographic area, they’re incentivized to stay at your company—even if they’re unhappy. They know that leaving your organization would result in less pay, so they instead stick it out. This is called “Golden Handcuffs.”

Team members solely incentivized with cash to stay at your organization will likely be less engaged, which can impact both their morale and productivity. This can also impact the rest of your team members, who will have to pick up the slack for their disengaged colleagues. Further, it prevents you from bringing in someone new. Reasonable turnover within an organization is healthy, allowing new team members to bring in fresh perspectives and ideas. 

Provide a comparable standard of living

Some argue that paying a global remote pay rate is the most fair approach because it allows you to compensate team members based on their value, contributions, and output. But doing so can lead to vastly different standards of living across your team. 

Those living in more expensive areas would have little to no discretionary income, as they have higher rent and mortgage costs, higher childcare expenses, and overall less buying power. Meanwhile, team members in areas with a lower cost of living would be able to enjoy more leisurely activities, vacations, and perhaps a higher overall quality of life. From the perspective of your company, is that really fair? There’s no single right or simple answer. It greatly depends on your company’s culture and priorities.

Evaluate your infrastructure

The world of work has changed dramatically in recent years, and organizations are reevaluating their HR tech stacks to ensure their infrastructure will meet their current and future needs. This should include a good look at your compensation tools. Do you have the right infrastructure to support your remote compensation strategy, or can you invest in new solutions?

Even considering different currencies, global remote pay rates will be much simpler to execute at scale. Local pay rates may require some changes to your technology or increased HR headcount. Factor that into your decision so you can ensure consistent execution of your remote compensation strategy.

Final thoughts

The decision to choose a global or local remote pay rate is one that each organization must make for itself. Weigh the pros and cons of each, research what your competitors are doing, and get feedback from your team around their preferences. Then commit to a decision and communicate it with your team so they understand why you chose that approach and what it means for them. 

Remote work is here to stay, and it’s high time organizations addressed how that might impact compensation.