While millions of workers have grown used to the flexibility granted by remote work, employers have grown accustomed to a level of flexibility too — specifically when it comes to who they can hire and from where. But how do employers determine salaries for those hires, if not based on location?
Globally, 16% of companies hire remote-only workers, according to tech company Owl Labs. Freelancing platform Upwork reported that 36.2 million Americans are expected to work remotely by 2025, an 87% increase from pre-pandemic numbers. As companies continue to hire talent across
“Before, if you were based in New York and benchmarking someone’s salary, you would just focus on the local market,” says Matt Wilson, co-founder and co-CEO of Omnipresent, a company that provides onboarding and offboarding services for global teams. “Now that companies are shifting to remote work, they need to appeal to the broadest range of employees while being cost-effective.”
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To Wilson’s point, salary benchmarking is most often based on location, with companies striving to offer competitive salaries relative to how much similar positions are being paid in that city. But remote work complicates this simple equation. For example, the average salary of a software engineer in San Francisco is $135,464 per year, according to Glassdoor, but just $58,000 in Singapore, according to Payscale.
Is that equitable? It’s a hotly debated issue, and one Wilson spoke to EBN about, offering his insights on benchmarking and pay equity for remote, global teams.
What are three ways you can benchmark a new hire’s salary?
Are you paying people based on location, roles or a combination of the two? Remote work has forced us to question how we benchmark salaries when hiring somebody in San Francisco, somebody in London, somebody in Madrid and somebody in Singapore. The first option is for companies to pay based on local salary benchmarks. If you’re hiring a software engineer in San Francisco, you pay a San Francisco rate, and the same goes if you’re hiring someone in Lagos, Nigeria. Companies can also benchmark purely based on role. In other words, a software engineer in San Francisco should make the same salary as a software engineer in Lagos. This method can be simpler than location-based benchmarking, but more expensive and restrictive. You may get priced out in certain areas or overpay in certain countries. The third method would be to blend the first two methods and have a customized benchmark.
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Which benchmarking method is the most effective, in your opinion?
As a globally distributed company with people spread around almost 40 countries, that’s a question Omnipresent had to wrestle with, and I don't think there is a single correct answer. Ultimately, it depends on the company. What we decided for ourselves is to take a blend of location and role-based benchmarking and turn it into a custom formula. We do not want to underpay someone based on the local cost of living, but we do tweak our salaries a little bit depending on a hire’s location.
Beyond anything else, we want to make sure that we have the flexibility to attract talent from all around the world. We didn't want to lock ourselves out of any talent pool by chasing a London benchmark, and then not being able to attract talent in San Francisco. But we cannot have wide disparities in pay, so we did not base salaries on location alone. We tend to see a much more narrow gap when we apply our formula, with 10% to 20% variation on average.
What glaring challenges come with global salary benchmarking?
Employment tax and benefits expectations will differ from country to country — it's not just about picking a gross salary. What is expected in the U.S. is very different than what might be expected or needed from an employee in a different part of the world. For example, a company has to understand what an equivalent employee experience looks like in the U.S. versus France, where there is a strong social healthcare system but higher employment-related taxes. If a lot of the healthcare will be provided by the state, rather than provided privately, why would French employees value a great private health plan like employees in the United States?
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What could global hiring mean for workers around the world?
As we start to see more companies hire globally, we'll start to see waves of disparities flatten between different geographies for roles that can be done remotely. As this remote marketplace truly evolves and comes to maturity, you'll see more competition for talent, and that will drive wages up in areas where the wages have historically been lower. So, there could be a reduction of inequality around the world and great economic opportunity for those that haven't necessarily been able to access that previously.
At the end of the day, you want to build an amazing team and have the ability to hire the best people — not just the people within commuting distance from your office. I love that I could be working on a problem and have eight people from eight different countries and with eight different perspectives on that call.
