The Guide for Compensation Strategy in Distributed Teams

Finding a fair and competitive compensation strategy for distributed teams is one of the biggest challenges for People Operation teams in 2022. Nowadays, the compensation package, company culture and purpose at work are all key factors of every employer brand. They determine if you will be able to attract top talent around the world. But let’s be honest: Salary will always be the cornerstone in a job offer. 

The obvious thought is to find talent in countries with lower income levels than your main company base and offer slightly higher salaries. However, with remote hiring increasing by leaps and bounds, US & EU companies are now competing locally in the same market. Even while having their base elsewhere. This forces them to think about their overall compensation strategy across borders.

Here is where the rest of the compensation package comes into play. It comes with complexity in terms of employee preferences, flexibility, implementation and of course budgeting.

With so many different variables at play, it can become challenging to find a fair and attractive compensation strategy for people who don’t share a physical location. 

Location-Based or Value-based salaries?

Thanks to Payscale, Glassdoor and other sources, people now know very well how much their work is worth in international markets. That’s why top talent often don’t want to accept lower salaries just because they live in ‘cheaper’ locations. Should employees be paid based on their country of residence? Or should their impact in the business be the only deciding factor when defining salaries?

Location-based salaries mean that employees receive their salary competitive for their position in a specific geographical area. While this sounds straightforward, there are several factors to consider. These include market rates, cost of living index (including housing, transportation and more), income tax rates and seniority in the role. When you hire in a new location for the first time, make sure you are familiar with the actual numbers for all of these.

Setting job-based, or value-based, salaries means you focus on salaries independent of location. Initially, this may make calculating salaries easier; a software developer in Spain would earn the same as their colleague in the same position in Ukraine or the US. However, there are two important factors to consider. The first is understanding the market salary rate in the countries you want to hire from. It’d be a waste of time if you try to recruit people from countries with more expensive salary rates than what you can afford. The second factor is finding a robust system to judge the employee’s level of experience and performance. This will impact how you will assess this in the long term.

Looking to find the correct salary strategy for your distributed team? We’re working on a full salary guide for distributed companies. Sign up to the newsletter to be the first to have it in your inbox, or schedule a free consultation with our experts to get immediate support.

How to complete your compensation strategy with benefits?

Most companies offer some form of perks and benefits in addition to salary to their employees. However, when looking at distributed teams, there are many options to add to the compensation package. These can be for all employees or individually based on the person’s preferences and needs.

Many people have reconsidered their work-life balance post pandemic, and mental health is becoming more of a priority. This offers a range of opportunities to take care of employees’ health and self fulfillment resulting in more engagement long term. 

We have put together a list of the most popular perks and benefits we have seen on the market and heard from our candidates:

Flexible working benefits:

Options such as flexible working hours give employees the possibility to work at the times they are most productive. You can allow people to make up their work if they need to leave for an appointment or an important errand. You can also have “No-Whatsapp” policies to respect people’s privacy and to create a healthy work/life balance. To successfully work together as a distributed company with flexible hours you need to master asynchronous communication.

Healthcare benefits:

Offering full healthcare coverage to the employee and the family or even sharing the costs is a big plus. Companies have a better chance to negotiate rates with insurances, which will always result in better pricing. While this is a standard in many European countries, it can be more challenging when hiring worldwide. However, an EoR (Employer of Record) can support you with this.

Growth opportunities:

Provide employees with training and professional development opportunities by allowing an individual learning budget, offering professional memberships, mentoring activities or budget for conferences. Tech companies usually have memberships in course platforms such as Udemy. This way employees can log in and easily learn something new.

Wellness benefits:

Gym memberships, pay apps with yoga and meditation lessons have been popular for a while now. Lately offering workshops around stress management and offering psychological support to reduce anxiety has become more in demand. This has also resulted in new business innovation, and there are several platforms already that provide this for distributed teams. 

Paid leave benefits:

Making sure people have enough rest and non-work activities reduces stress in the work environment and people feel more appreciated. To make this happen the company can consider offering extended vacation leave, offer leaves for personal reasons, extended parental leave or even sabbaticals (and of course the B-day off). There is a huge difference between EU countries and the US, so review some of the differences here.

Company bonus:

A company bonus is an old dog that is always appreciated. Company bonuses encourage collaboration and stretch people to perform at their best. This can also reflect on recruitment. What would you do differently if you knew your bonus will also depend on the performance of your next hire? You will want to hire a top performer and a team player! Here are some of the most common company bonuses Glassdoor has researched over the last year.

Stock options:

This has become a tricky one for distributed teams for legal and tax reasons. But Employers of Records like letsdeel can help you manage this efficiently and comply with international laws. Since some employees may not fully understand how this works, it’s important to clarify and explain how they can benefit from it in the long term. 

Workstation:

Consider paying a one time WFH setup fee to kick off onboarding. This can be with a brand new table, chair, or tech gear. It will not only make them feel really good, they’ll also have a physical reminder of their new job and company. Of course some people prefer to work outside of their house, here you can offer monthly support for a co-working space. 

Free Wi-Fi:

Pay for your remote employee’s internet plan 🙂

Insurance:

For work or vacation travels – at acework we have partners that also embrace remote work, you can check insurance for digital nomads or remote workers here, among other services.

Child care benefits:

It’s hard to focus on work if you have your baby asking to play with them! Employees that are parents will very well appreciate this help and support.

Flexible retribution:

In some countries such as Spain, flexible retribution is a specific setup that allows employees to pay certain expenses through their salary. This means paying less taxes from your gross salary, and results in a higher net salary. You can include transportation, kindergarten, health insurance, ticket restaurants and other. Check out more details about how this works in Spain here. Start your research if you can implement something similar in your employees’ countries of residence. 

Finances consultancy support:

Offering financial advice (without responsibility on any personal decision, of course), shows you care. Many people appreciate professional advice on how to better manage their savings or also learn more about their local taxes.

When choosing your company compensation strategy you need to connect the compensation package to company culture and last but not least know how you are going to communicate your benefits. Remember to check the satisfaction level and don’t settle, you need to keep the compensation strategy alive and flexible. 

Key to recruitment & employee retention 

Creating a transparent and inclusive compensation strategy impacts your hiring and employee retention. Employee turnover can cost employers a lot of time and money. However, it also comes with an invisible cost, which is the emotional impact on the team. When we lose an employee, we also lose a colleague and of course expertise. Replacing someone comes with hiring expenses, productivity cost, the loss of employee morale plus the training cost for the new hire. Studies say every time a business replaces an employee, it costs 6 to 9 months’ salary on average. Learn more about it in this Indeed article here.

How to implement your compensation strategy & benefits in distributed teams?

Keep the compensation package relevant with continuous improvements and experimentation.  Checking in regularly to find out what employees really need and value helps you to attract and retain remote top talent. 

As distributed teams continue to grow, more and more companies use Employers of Record (EoR). They not only support with hiring employees and freelancers worldwide but also allow you to offer benefits. These can include stock options, health insurance and others easily. Learn what you can do here.

As remote recruiters, we’re the first point of contact with candidates. This means we receive constant insight and feedback on preferences and expectations in terms of compensation and work culture. It has also allowed us to be on top of trends and to better advise our clients. We always aim to keep our ears open and to be empathetic towards our remote candidates. The continued disruption to the employment market provides an opportunity to rethink compensation philosophy and tactics as a whole. At acework we partner closely with our clients to help them better attract remote top talent. Our advisory on compensation strategies also results in employee retention long term.

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