In the evolving landscape of global business, the complexities surrounding employee compensation are heightening due to the increased mobility of highly skilled workers and the growing prevalence of remote work. As companies expand across various regions, the traditional method of determining pay based on local market conditions faces new challenges.
Pawel Adrjan, a director at hiring platform Indeed, highlighted the shift in employee expectations, stating, "The most skilled workers are more mobile and are likely happier to move across regions for higher-paid professional roles." This adaptability among employees, particularly in fields like law, software engineering, and finance, means that organisations may find it essential to establish salaries that are competitive on a global scale, regardless of local benchmarks.
The current trend sees US firms often offering salaries that exceed local pay rates in countries where they operate, which is pushing up wage levels across international job markets. This shift reflects a turning tide in the global economic landscape, where cost-saving measures associated with hiring in traditionally cheaper regions may no longer apply. For instance, top law firms in London have had to increase the base salaries for newly qualified solicitors to £150,000, competing with US firms that offer up to £175,000. Similarly, The Washington Post has advertised a London-based reporter position with a salary of up to £85,000, which is typically reserved for more senior roles within the UK media industry.
Andrew Curcio, the global head of reward and benefits at PwC, articulated the tension created by varying pay scales across different markets, saying, "Inevitably, pay differentials do cause friction, because it’s such a personal assessment of what’s fair to you as an individual." This sentiment resonates particularly in sectors where the pay gap between positions in the US and UK, especially in STEM fields, continues to widen, despite adjustments for local living costs.
Global companies traditionally approached compensation either by establishing pay bands centrally and adjusting according to local cost-of-living or allowing individual countries to determine their pay scales. However, Curcio noted that these methods often lead to rigidity or complexity, respectively. To adapt, organisations are increasingly favouring a hybrid model where executive and senior staff salaries align globally, while local branches maintain the discretion to tailor packages to their specific market conditions.
Amidst these changes, the intricacies of relocating employees further complicate compensation strategies. Helen Mildred, group head of consultancy at ECA International, explained that when employees are moved, additional allowances are typically added to cover the higher costs faced in the new location, illustrating a significant financial impact on the organisation.
There are also challenges when moving employees to locations with lower costs. Employees often resist taking pay cuts, and disparities in pay can foster resentment, as noted in research conducted by academics from City University Hong Kong, which indicated that locals in China may feel disadvantaged when comparing their wages to expatriates.
To address the demands of the remote work era, some companies, including Reddit and Airbnb, have adopted "geo-agnostic" pay structures that maintain a single salary scale per country. This approach allows employees to move to areas with lower living costs while retaining their pay. However, Daniel Seligman, CEO of offshore recruitment company Talently, suggests that such practices may not gain widespread acceptance as they can diminish the cost-saving advantages of hiring in lower-cost markets.
Moreover, evolving employee preferences indicate a shift away from solely focusing on higher salaries. Research by PwC shows that the percentage of employees preferring higher pay has decreased by 20 per cent over the last decade, with a growing interest in benefits, development opportunities, and work-life balance. Notably, nearly half of workers would consider accepting a pay cut to secure remote working arrangements, as indicated by a study from the University of South Australia.
In light of these developments, organisations are under mounting pressure to reassess their salary benchmarking strategies. Curcio anticipates that the coming 12 to 18 months will see substantial shifts as businesses grapple with enduring cost pressures, including rising inflation and changes in taxation, alongside the lasting impact of hybrid working arrangements.
Source: Noah Wire Services