How to determine salary: A global perspective

Salary is an essential aspect of a global hiring strategy. Organizations with distributed teams often tailor compensation to fit each job title and location. 

HR should understand how to determine salary based on local cost of living, regional economic conditions, and cultural expectations regarding wage negotiations and salary ranges. Otherwise, companies risk overpaying or underpaying employees, which can seriously affect an organization’s financial sustainability and international reputation. 

This guide will show you how to define a flexible, site-specific payscale or hourly wage policy that contributes to a competitive and equitable total rewards strategy.

What to consider when determining salaries

As a hiring manager or HR leader, you should carefully evaluate several key factors to ensure fair and competitive salaries:

1. Experience: An applicant’s experience and skillset determine where they land in a salary range. Experienced professionals typically command a higher salary or hourly rate due to their advanced knowledge and industry expertise.  
2. Job title: Different job titles require varying levels of responsibility and specialization. They also provide various levels of value to the organization’s overarching goals. A high-level position often requires niche skills that tend to warrant greater compensation. 
3. Market rates: Net pay should align with industry standards and market rates for similar roles to attract and retain top talent. Extensive market research helps ensure a competitive total compensation package that factors in raises, base pay, and employee benefits.
4. Location: The cost of living and economic ecosystem in the employee’s location ultimately determines whether their net pay can support their desired quality of life. Adjust salaries to reflect local living expenses and lifestyles to maintain fairness and boost employee satisfaction.

Gross pay isn’t the only compensation to consider. Incentives, bonuses, and a comprehensive benefits package motivate employees and reward exceptional performance. In some cultures, significant financial perks may be expected. Additionally, employers should expect to offer higher pay to independent contractors who don’t enjoy the same tax benefits as exempt employees. 

Additionally, currency fluctuations impact salary. In areas with extreme currency issues, organizations may consider setting an hourly wage or annual salary in a more stable currency to avoid processing frequent pay raises or salary negotiations. 

Steps to determine employee salaries

A suitable annual salary should fulfill an applicant’s expectations and preserve the organization’s financial health. Here are four easy steps to ensure that everyone is happy:

1. Evaluate the position

Define the job role’s responsibilities, required skills, and experience level. Additionally, evaluate the position’s relative importance in achieving the organization’s short- and long-term goals. This insight helps you develop a salary that is attractive and motivating. 

2. Do market research

Job seekers search through dozens of job posts—the role’s compensation package is likely what motivates them to click on one listing and not another. Conduct market research to confirm that your salary package is competitive. You’ll avoid underpaying or overpaying talent and develop enticing salary ranges compared to the competition.

3. Choose a realistic and affordable salary range 

After conducting market research and defining the job’s value, evaluate the organization’s finances. The salary range in which you are willing to negotiate should be attractive to potential candidates without compromising the company’s budget.

Determine how much money the employee will generate for the company and ensure that your maximum salary offering doesn’t exceed that number. Now, you’re ready to go into employee salary negotiations. 

4. Stay open to negotiation

Leave room for salary negotiations within your salary range to avoid missing out on high-quality candidates. A back-and-forth negotiation helps you secure top talent, and new hires get to start on a high note.

Which approach to setting salaries is right for you?

Every day, more companies embrace remote work and realize the benefits of hiring teams from around the world. With more options than ever, fair compensation has become a hot topic. Uneven or unfair compensation packages can undermine hiring strategies and team cohesion. 

Paying international employees requires a nuanced vision that goes beyond examining competitor rates and industry standards. Here are three approaches to calculating pay ranges for global workers:

Local or national compensation rates 

With a location-based pay approach, employers negotiate employee salaries based on the average salary or market value for a comparable job title in the employee’s home country. Cost-of-living and labor statistics help you determine a base salary—typically the median salary for the area—and adjust depending on the applicant.

A strategy that aims for equity and locally competitive compensation requires additional adjustments or distinct benchmarks to account for various cultural or regulatory expectations. Depending on the worker’s location, employers may need to negotiate extras, such as end-of-year bonuses, overtime pay, or paid time off. 

Standard of living compensation

Some companies negotiate an annual salary based on the standard of living in the employee’s country. HR typically establishes a salary benchmark (e.g., a percentage of the industry’s average gross pay where the company is headquartered) and adjusts according to the local cost of living.

Although this method promotes fairness by considering living costs, higher pay in certain regions can create discrepancies among team members. Likewise, employees who relocate may receive lower compensation to maintain fairness, which could motivate them to find a new job.

Location-agnostic compensation

A location-agnostic approach to compensation means the company pays a salary based on the job description, regardless of where the candidate lives. In other words, employees in Italy and New Zealand get paid the same, ignoring local cost of living or salary range expectations. Companies often benchmark employee salaries to a mid-cost city to avoid overpaying in low-cost areas. Although this may sound fair on paper, it discourages applicants in areas that require higher pay to live comfortably.

Additional factors for setting global employee salaries

Setting a fair annual salary or hourly wage requires employers to balance international employment law, local payroll taxes, and an employee’s quality of life. Let’s dig deeper to calculate fair pay for global workers:

Legal pay requirements

Most nations have strict requirements regarding the minimum hourly wage and obligatory employee perks. Mexico and Portugal, for example, require employers to pay a 13th month of salary every year. Work with local experts to avoid compliance issues, costly fines, and legal repercussions when hiring an international worker.

Taxes and payroll deductions 

Every country has its own set of required payroll deductions for taxes, social programs, insurance, and more. Employers may be expected to contribute to social programs on their employees’ behalf. The salary you offer should be influenced by your required contributions and how the country calculates their deductions (e.g., a flat rate or percentage of the salary).  

Cost of living 

Employers should consider whether their proposed salary promotes a high quality of life for their workers. HR, company leadership, and hiring managers should outline clear policies for handling salary negotiations in regions with varying costs of living.

If you decide to heavily weigh the local cost of living when calculating an annual salary, you need to develop benchmarks and formulas to avoid overpaying or underpaying employees. Be careful about creating significant discrepancies in regional pay ranges for the same job. 

Industry standards

Industry-specific payscale standards vary from country to country depending on factors like market demand, skill shortages, and regional specializations. Employers should analyze local labor statistics and standards when calculating compensation for remote workers.

Need more help? Turn to Oyster 

Navigating the challenges of global salary regulations and international employee payment is a big job, but you don’t have to go it alone. Use Oyster Total Rewards to gain insights from expert-made benefits packages and access consultation services to craft your global compensation strategy. Request a demo today and see how Oyster makes it easy to handle global salaries.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.