Here's a compelling insight from the UN report, "International Migration 2020 Highlights": India boasts the world's largest expatriate population, with a staggering 18 million, followed closely by Russia and Mexico, each with 11 million expatriates, while China and Syria have 10 million and 8 million, respectively.
For individuals aspiring to pursue global careers, international assignments present a remarkable opportunity for personal development. However, what about the intricacies of global compensation? This article delves into essential factors such as remuneration, tax considerations, legal nuances, and cultural integration.
Elements of a fair global compensation strategy
In simple terms, global compensation includes both its direct and indirect elements. While direct compensation accounts for salaries and bonuses, extra benefits such as health insurance, pension contributions, stock options etc., become part of the indirect compensation that employers offer to attract and retain talent. There is also a legal component of compliance that is very critical, but often invisible to many employees who evaluate their global compensation package. For example, in the US, there are social security taxes and other different state and federal requirements that employers have to factor in the payroll. In the UK, pensions, and national insurance deductions are some of the mandatory elements.
Let’s look at the basics of any global compensation structure:
Base salary, which considers the role and seniority level, local purchasing power and inflation rates (in some compensation models), special tax policies operating in the region (such as the Income Tax (Pay As You Earn) Regulations 2003 and National Insurance contributions in the U.K.) and the minimum wage mandates.
Allowances that are based on the standard costs of living in the operating country and region. In the US, for example, while state minimum wages must be complied with, cost-of-living raises are not required by state or federal law.
Benefits, including both mandatory (for compliance) and discretionary (for the competitive edge). For example, in the US, the Fair Labor Standards Act (FLSA)does not mandate an employer to pay vacation, holiday or sick pay. Nor does the employer have to pay raises or any fringe benefits.
Additional incentives such as stock options, bonuses and variable pay – are based on the employers’ discretion
Remember, a lot of thought has gone behind the global compensation offer that is made to you. Your organisation would have ensured that the compensation structure is compliant and equitable — and that the total rewards offered to you address your key motivators, both monetary and career growth.
Look at your offer holistically from these perspectives. Know, from your HR compensation and benefits partner, the different compliance elements. Understand the global compensation strategy that your organisation has adopted — and the monetary and non-monetary elements of your offer.
The four strategies of global compensation:
For candidates looking for global postings, it is important to be familiar with the four broad global compensation strategies that organisations adopt. While employees cannot change the strategy used by organisations, the knowledge can prepare them for what to accept and what to negotiate.
The first is the global pay system, where roles, not regions, determine the salaries. While this seems simple and easy, it disregards the cost of living in different cities and regions.
The second pegs the salary to the role and adjusts for the cost of living in different cities or regions. This model strikes a fair balance without the disadvantage of pay inequity.
The third uses a cost-of-living calculator, to which it ties the salary portion of the compensation. While it provides transparency, there is a downside too. Maintaining the variables of cost of living can be tricky in today’s rapidly changing scenario.
The fourth, and perhaps the smartest, is the total rewards model, where employers create customised and scalable solutions, based on the market and industry trends, performance and experience.
Is your global compensation fair, equitable and smart?
As a candidate and potential employee, you have your priorities and expectations from your compensation package. While you cannot change the global compensation policy or strategy adopted by the company, make sure it is clear and transparent. Does the process drive fairness and equity? HR teams are open to explaining the details, so get all the answers to your questions. This way, you can start your global journey on the basis of trust.
Your organization would most probably have undertaken a pay equity audit to ensure an effective compensation strategy. Find out how much employees at the same seniority level earn. Look at how your experience, tenure and performance have been recognized and rewarded in the offer. Are there any discrepancies and justifiable differences?
Ask about global fluctuations in tax and contributions. Additionally, do you see intelligent differentiators in your compensation mix — such as flexibility of remote work and working hours, location independence, home office stipends, etc.? Don’t shy away from asking reasonable questions in an appropriate manner. It will actually forge a warm and intelligent bond of trust with your employer.
In today’s global economy, a well-adjusted mobile workforce is a competitive necessity. There are two important tenets that must be remembered. One, there is no ‘one-size-fits-all’ magic formula. Two, a winning global compensation is more than just salary. A well-designed compensation policy and practices that are equitable, competitive, and innovative can be a win-all advantage for both employers and employees.