How do you determine remote compensation and pay scale?
With the increasingly changing mode in the postmodern workplace into remote-first and remote-friendly or simply remote work, there are several things to consider with regards to compensation. It can be tricky to choose a proper standard for an acceptable yet competitive way of developing an equitable pay scale for employees. This becomes more important when workers are distributed around the globe, as different tax laws, living wages, and labor laws come into play.
In this article, we delve into how to streamline the compensation process by determining the best pay scale and remote compensation for your workers, while keeping your company competitive and profitably feasible.
Determining your remote compensation:
The 5 Factors
Before we look at the methods of working out your pay scale, it is essential to do some housekeeping to work out the factors that will influence your decisions on remote compensation.
Here are four critical factors to bring into the deliberation process.
When planning to implement a remote compensation and pay scale, it is important to work in sync with the employees’ productivity. The two are intertwined, and a setback in one can adversely affect the other. By taking a proactive approach, you can avoid unnecessary headaches.
First, measure the productivity capacity of the company and the employees on hand. This will help you evaluate the current and projected health of the organization in meeting goals and targets to keep it viable. A few questions that can be answered include:
- Is the company (and its staff) meeting the targets of their objectives and key results (OKRs)?
- Is this productivity sustainable for the company long-term?
- What are key weak areas that need attention to avoid setbacks in productivity?
- Projection of growth
A company’s sustainability and future viability in the marketplace depends on its growth and relevance. It is essential to consider these projections while determining the remote compensation to ensure realistic decisions are made, with pay scales that do not threaten future projections.
It’s not unusual for companies to be overambitious with hiring and compensation decisions, only to run into growth challenges a few months down the line. This can lead to drastic cut backs such as lay-offs. With remote work, the anxiety surrounding projected growth can be avoided by hiring contract workers. Increased transparency on the current and forecasted feasibility of the company can be useful in supporting the remote compensation demands.
- Employee level
Each of our employees has their own unique combination of talents, education, and experience. This means that each individual arguably has a different value to the business.
When it comes to pay scales, however, this is a common cause of confusion and dispute. To circumvent this, adopt a transparent leveling scale that categorizes remote staff. For example, categorizing your employees according to their levels of responsibility or position in the company, specialized knowledge, or tenure can be helpful to determine a simple pay scale from entry level, medium level to senior level.
The simpler the pay scale categories in the remote workplace, the easier it is to streamline the remote compensation process.
It is important to bear in mind that in addition to the salary you offer your employees, there will be benefits and taxes that also come with a cost. For remote teams, there may be different social benefit requirements that must be paid by the employer, or the additional packages you want to offer such as health insurance may come at a different price.
When considering how to develop your remote compensation plan, evaluate whether the company and the employee are best served by an employment relationship or by hiring the staff member as an independent contractor. Either way, it is important that all employees are offered equivalent benefit packages, regardless of location.
Transparency helps create a work environment that mitigates conflicts. In addition, it increases loyalty even if you are unable to offer the most competitive rates for your remote compensation.
Transparency and inclusive participation in decision-making in remote compensation can prevent demoralization, disloyalty, and turnovers by creating a better understanding of the decision-making processes. In addition, providing an inclusive work environment can make up for some gaps in the compensation. With that said, remote compensation ought to be fair, and the resolution depends on factors uniquely tied to the organization.
4 Tips on Placing Your Pay Scale
Here are a few methods that companies use to determine remote compensation for their remote workers.
- Based on global standardization
Global standardization means compensation that pays equally across employees who fall into the same category. Typically, the pay scale is competitive across the world. For example, a company based in Los Angeles might pay all remote workers according to the cost of living in Los Angeles or the market segment or niche’s industry pay scale. In addition, the employee categories can be classified in conventional ways such as seniority of skill, specialty, and education.
Pros of globally-standardized pay scale
- This pay scale is based on equal work-equal pay, and is usually well received.
- Employees appreciate the transparency that comes with this pay scale.
Cons of globally-standardized pay scale
- This approach is less customizable and may not reflect each individual’s contribution to the company.
- The overall cost of salaries is likely to be higher than with location-based pay scales.
- Based on seniority
This remuneration is contingent on the seniority of duration or skills, which is reflected in the workplace position. Each level is paid equally, with entry team members having the beginning wages. At the same time, the mid-level and the top-level are rewarded with greater compensation. This is best seen with the hassle-free pay scale compensation by Basecamp.
Pros of seniority-based pay scale
- This pay scale simplifies remote compensation hurdles of calculating wages. There are minimal variables to consider, including the many locations employees may be based in.
- It can boost loyalty and productivity due to the sense of fairness it embodies.
- There is equitable reward based on level of skill and productivity.
- There is a possibility of increased morale which feeds into the company's productivity.
Cons of seniority-based pay scale
- This criterion may not be a money saver, unlike many companies seeking cheap labor from developing countries to increase profitability.
- Based local cost of living
A company may decide to use location to determine pay. This involves evaluating what fair compensation would be compared to the cost of living in the place of residency.
One option is to consider competitive rates by the local companies in the employee location. To retain a competitive edge locally, it may include a slight increment.
This hierarchical individualized remuneration can affect retention and productivity by creating working conditions rife with a sense of unfairness. Moreover, there can be significant differences in wages between people who live in areas with higher living costs and those who live in areas with lower living costs.
Buffer is a key example of a company that determines remuneration dependent on the location of workers using a salary calculator.
Pros of location-based pay scale
- The company may save with remote compensation by focusing on talent in locations with low living costs.
- It may provide residents in countries with low living wages a competitive edge in a company keen on hiring mainly from these locations.
Cons of location-based pay scale
- The company needs to research every location for every employee to determine fair compensation. Relocation of an employee leads to more adjustments and recalculations.
- This individualized compensation complicates payroll processing, costing more time.
- It may fail to reward work equitably and fairly based on productivity.
- It can create demoralization and lack of loyalty leading to low productivity.
- A customized pay scale
A company may decide that none of the available cookie-cutter compensations is a good fit. In this instance, an organization may choose to create its own formula based on factors or variables that are uniquely its own.
One option, if you are, is to emulate GitLab, who have produced a pay scale calculator that can be modified with variables that the company finds relevant for its workers. These include location, experience, bonuses, and exchange rates.
Pros of customized remote compensation
- A company can modify and adjust calculations any factor pertinent to the company and workers
- Individualized compensation packages may improve productivity.
Cons of customized remote compensation
- It involves time and energy.
- Factoring different variables complicate the compensation calculations.
Remote work is an added advantage in the workplace that has leveraged the work field for both workers and companies. Therefore, it is vital to be proactive in creating a competitive workplace with fair remote compensation and pay scale.
To achieve this, a company must weigh the cost-benefits for each criterion and determine which pay scale suits the organization best. Working with an easy-to-manage payroll platform such as RemotePass is a hassle-free way to implement your pay scale. Creating transparency in the workplace, including in the compensation process, can ease the adjustment needed in remote work.
Ready to get started?
Sign up for your free demo today!