How to manage international benefits and compensation

Working with global teams opens up vast opportunities for businesses. But it also poses new challenges, one of them being international compensation and benefits management.

When hiring international employees, organizations cannot just take the compensation and benefits package they offer employees in the headquarters country and roll it out across different markets. Instead, they need to take a different approach and manage international compensation and benefits properly if they want to attract and retain talent in different locations.

In order to prepare for managing benefits and compensation for a global workforce, businesses first need to understand what special compensation and benefits issues arise in international HRM. Let’s take a closer look at the different challenges before going through a step-by-step process for setting up an international benefits and compensation management strategy.

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Managing employee compensation and benefits for a globally distributed team comes with a unique set of challenges. These challenges include: 

• Creating global benefits and compensation standards that guarantee fairness 

• Designing compensation and benefits packages that are competitive

• Ensuring compliance with statutory benefits requirements and compensation laws in all countries

• Choosing a global compensation strategy that aligns with company values and the organization's overall financial strategy

Let’s look at these four aspects in more detail to work out how businesses can tackle their international compensation and benefits management.

Guaranteeing fairness in international compensation and benefits

International compensation and benefits strategies can follow two different approaches. They can either determine employee pay and benefits based on employee location or define a universal standard that is then rolled out across all geographies. Both approaches have their pros and cons and opinions differ as to which approach should be considered as fair when it comes to global teams. 

On the one hand, offering all employees the same compensation and benefits package regardless of their location is the only way to ensure total fairness. On the other hand, one might argue that offering employees the same standards everywhere is unfair towards those living in countries with higher cost of living. In the end, every organization needs to decide how it defines fairness. 

For a full rundown of the respective pros and cons of localized pay and location-independent pay, check out this chapter of the Lano Payroll Academy: How to develop a global compensation strategy?

Making international benefits and compensation packages competitive

Offering competitive compensation packages is the only way to attract the right talent. In the context of international compensation, however, competitiveness reaches a whole new level. For one thing, businesses need to offer better benefits than local competitors that are already established in the market they have only just entered. And for another, it’s important to keep an eye out for international competitors that might be recruiting for specific talent and skills in the same markets.

Ensuring compliance when managing international benefits and compensation

Minimum wages, statutory benefits requirements and compensation laws differ from one country to the next. In order to avoid financial penalties and other legal consequences for non-compliance, businesses with a globally distributed team need to know the specific rules and regulations of each country where they have employees—and strictly adhere to them. This also includes keeping track of legal changes and adjusting company policies on an ongoing basis.

Aligning international benefits and compensation strategy and company budget

In a perfect world, businesses would have indefinite financial resources to create the ultimate benefits and compensation package for their global team. In reality, however, HR and Talent Acquisition need to juggle employee expectations and tight financial budgets. Mandatory employee benefits and minimum compensation standards are non-negotiable, but anything beyond usually needs to be debated with the Finance department. And finding the middle ground can be quite hard.

With so many aspects to keep in mind, it can be difficult to know where to start. Here is a breakdown of the process organizations should follow to create an international benefits and compensation structure.

1. Market research: Collecting all the necessary information on compensation and benefits requirements in each country where the business has employees

2. Global employee population analysis: Finding out how many employees are on the business’s payroll in each geography and which global minimum standards the business has to offer (also considering future expansion and hiring targets)

3. Centralized knowledge base: Consolidating all the information regarding compensation and benefits in the different countries in a centralized knowledge base (and keeping it up to date)

4. Competitor and expectations analysis: Checking out what the competition offers in terms of benefits and compensation (both local competitors and multinationals sourcing talent in foreign markets) and what expectations local employees have 

5. Pay structure: Defining which factors should influence employee pay, e. g. qualification, position, location, and length of service

6. Budget planning: Setting a budget for international compensation and benefits management that is aligned with the organization’s overall strategy and objectives

7. Objectives and targets: Working out what the organization wants to achieve through its global benefits and compensation management, i. e. attracting top talent, enhancing employee retention, providing additional motivation or other

8. International compensation and benefits strategy: Developing a clear strategy that brings together all the different aspects and consideration as outlined so far

9. Staff training: Providing training to HR, legal and payroll teams to make sure the strategy is applied and respected throughout the entire organization

Following the step-by-step guide outlined above is a good starting point for businesses that are new to the challenges of managing a global team. But there are some additional considerations that can help organizations make their international compensation and benefits management even more successful. These considerations include:

• Offering more than the minimum standards required by law

• Combining statutory employee benefits with additional perks that can be made accessible to employees across all locations

• Getting help from local experts like Employer of Record services or in-country payroll providers who can provide guidance on compensation rules, customary benefits and cultural expectations

• Considering collective bargaining agreements that can influence required compensation and benefits standards

• Taking into account currency exchange rates that can impact payment amounts

• Measuring and tracking employee satisfaction regarding their compensation and benefits packages

• Keeping an eye on employment costs and adjusting the organization’s global compensation and benefits strategy over time

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