How can businesses make "equal pay for equal work" work
Posted on Apr 29, 22 by Marco Pasqualin
When it comes to pay strategies, the fundamental ambition for most organisations, regardless of industry, is to be fair, leaving employees feeling properly represented and renumerated. However, fair pay is becoming an ever-more nuanced debate – and more difficult to define – as companies grapple with employing people in multiple territories, with different salary expectations and subject to diverse employment laws.
From our experience at Boundless, there are several different ways of working out pay across multiple territories. Some companies choose to pay local market rates, matching average salaries in the country they’re hiring from. Others take a lead from their country’s headquarters and implement a single wage structure around the world. And some employ a pay ‘bump’ for those who have a higher cost of living (and reduce it if someone moves to a cheaper place).
However, for progressive organisations, the strategy of ‘equal pay for equal work’ is the holy grail of compensation models. These companies believe that, when employees perform substantially the same kind of work, and the work requires substantially the same skill, effort and responsibility, they should all be paid the same.
It sounds good, but equal pay for equal work comes with plenty of additional considerations, particularly as companies expand globally and start hiring for similar roles in different cities and countries. For example, an employee’s gross pay packet could look very different in Bulgaria compared to Norway to the next due to different local taxes and mandatory benefit contributions. And net pay won’t go nearly as far if team members are based in Paris or Zurich, compared to an employee working from home in the Austrian countryside.
Truthfully, it may not be possible to arrive at a pay structure that is 100% equal for every employee, everywhere. But it is possible to employ an ‘equal pay for equal work’ strategy with fairness top of mind. The question is, how do you get started, and how can you tackle the fairness issue in a way that’s sustainable and scalable?
Find a compensation formula that works for you
Without a definition of equal pay, it’s going to be very difficult to propose a solution for your global workforce. So, you need to start there - by looking at what equal means to you.
Here are some of the key factors to consider:
Defining equal pay in terms of gross pay (i.e. before tax and deductions) will allow you to speak with clarity about how employees are remunerated and publish clear guidance about salary expectations within your organisation. However, what employees end up with post deductions will vary. Team members in more expensive locations may end up having a bit less disposable income.
If you choose to go for equal pay after deductions, your job gets a lot more complicated, as you’ll have to take the time to understand the impact of many different tax systems, depending on where employees are located. But if you can get it right, then you’ll have a pay strategy that can be seen as even fairer on your team, as everyone ends up with the same amount of take-home salary.
Local market rates
The above solutions don’t account for the local cost of living, nor does it account for how expensive it is for your company to employ people in one location versus another location (as employer taxes also differ greatly, as do operating costs).
Many companies attempt to solve these issues by paying local market rates, looking closely at average salaries in the country/region they’re hiring from - taking into account the job role and seniority ‘bands’ - and matching that rate of pay. However, defining equal pay according to comparable roles within a territory can lead to disquiet amongst employees in different locations, who might be doing the same job but receiving vastly different remuneration.
Given how complicated it can be working out territory-specific discrepancies in take-home pay and company expenses, some organisations opt for equal pay for job roles based on a median salary between all the locations in which a company operates. Inevitably, some employees will view this approach more favourably than others, but the bigger problem is one of scalability. What happens if you expand into another territory, or if you find yourself unable to offer an attractive salary in some key markets because it distorts the overall strategy?
Factoring in employee benefits in equal pay for equal work
For many organisations, the question of benefits harmonisation might be one complication too far, which is why we’re seeing more and more companies changing tack and empowering employees to choose their own benefits.
Some organisations offer stipends to employees in countries where they don’t have all of their benefits and perks ready to go. Others partner with pick-and-choose benefits providers emerging that allow employees to select from a basket of options based on their life situation and current needs – and also what is culturally appropriate within the territory they’re located.
Again, most benefits carry a financial value and there will be certain mandatory benefits in countries that you have no choice but to adopt, making equal benefits for all employees very tricky to achieve. However, fairness can still be your watchword. If you’re giving employees generous benefits and empowering them to select the options best suited to their lives, you’ll find there’s less resistance if certain benefits are only offered in some countries but not others.
Commit to open communication when it comes to equal pay for equal work
At Boundless, we believe that a consultative approach needs to be at the centre of any ‘equal pay for equal work’ strategy – and, as with so much in business, communication is key to success. It’s crucial that employees feel that their bosses are being open and transparent with what they’re offering, and how they worked it out. We all know that employees speak to each other – and even at companies where salary isn’t publicly discussed, it’s likely that off the record chats take place – so the best approach is to address any discrepancies head on.
Some savvy employers have published their equal pay ‘formulas’ publicly – presenting a transparent methodology to prospective employees, current staff and wider stakeholders. You can read social media leader Buffer’s approach here and Gitlab’s compensation strategy here. It’s perhaps no surprise that many examples of these forward-looking businesses are in the tech space, as technology companies navigate a particularly competitive market, where attracting and retaining talent is more difficult than ever.
Engage the experts on equal pay for equal work internationally
Operating across multiple territories is complex, and ensuring that your salary structure feels fair across the board is tough – even if you have the best intentions. In fact, this is probably one of the questions we get asked most often. That’s why we ran a survey, which aimed to uncover how other companies tackle compensation for remote teams and have just published the results in a handy whitepaper (grab it here).
It’s important to devise your strategy armed with all the information which might affect how much you can pay across the board, including knowledge of tax obligations and mandatory benefits under local employment law. Get this part wrong and not only could your employees lose out, but you can face hefty fines and reputational damage, which can be difficult to come back from.
Your strategy needs to work for the long-term too – taking into account what might happen as your company grows and changes. Whether you’re moving into new territories, or scaling back your global footprint, you need to know that your compensation approach is still going to work internationally.
Companies like Boundless are on hand to help as you navigate this complex aspect of global employment. Starts by talking to an expert today.
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Written by Marco Pasqualin
Marco Pasqualin leads Global Payroll at Boundless and has learned the ropes of payroll operations over the past 13 years working for the likes of Apple and Aldi. He has picked up unique insights on the complexity of global multi-country payroll, juggling dozens of inputs to produce correct payslips and compliance with local rules and laws. He shares the steps to set up international payroll in this post.
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