Establish Your Compensation Philosophy

7 minutes, 7 links

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Establish Your Compensation Philosophy

importantMany compensation considerations are seemingly practical. But compensation is not just a set of practical choices; it’s ambiguous, emotional, and symbolic. People will interpret their value at work based on how much you pay them and on how the company evaluates that pay in comparison to others. It’s not wise to choose a framework based only on what is most practical or what is cheaper. It’s critical for your compensation policies to be aligned with your company’s philosophy and values, and hold up to principled inquiry. That is what will gain you the loyalty and trust of your staff, who after all just want to be paid fairly for their work.

controversyWhat fair pay means in the context of remote work is unclear, and experts disagree.

Juan Pablo Buriticá argues that remote and office jobs come with different expectations and challenges, and that this should be a consideration when it comes to pay:

I believe compensation should consider responsibilities and effort over location. A remote worker and an office one may have the same job, while requiring them to do different tasks to meet their expectations; and this should be factored into how they’re compensated. This doesn’t mean one mode is worth less than the other. If you require me to commute to an office, I may have higher compensation expectations because it’s additional effort. The same works if you ask me as a remote worker to adapt to HQ’s core hours over my local one. A one-dimensional approach to compensation can disadvantage some workers over others if the efforts are different, and this should be considered to build an equitable workplace.*

GitLab pays local salaries, using a fairly complex formula. Basecamp and Zapier state that they don’t “use remote as an excuse to pay less.” Both companies pay global salaries, independent of location.

Some people interpret this as equal amounts for equal contributions: all level 1 engineers are paid $90K. Another interpretation is that people are paid equal “lifestyle amounts” for equal work since $1 goes much further in Sri Lanka than in the Bay Area. In practice, it appears that this means that all level 1 engineers are paid the purchasing parity equivalent of $90K per year so that all level 1 engineers can maintain a similar lifestyle.

Philosophically, if you are a fully remote company or have a “remote-first” attitude, and you consider yourself as operating exclusively in the remote job market, then paying the same fixed amount may be more aligned with your overall approach.

On the other hand, if you believe that a remote job and an in-office job are fundamentally different types of jobs (even for the same role), then you might not choose to pay the same amount in each location.

story “I strongly suspect we’ll see something emerge along the lines of a remote pay band. It might sit somewhere in between local and global pay models. Instead of ’your’ geography and ’their’ geography, there is a ’remote’ geography, which stipulates what the remote-based pay is for people in a certain field, title, and level. For example, if you’re in San Francisco for a company that pays local salaries, you might not make as much as you could just working locally. But if you’re really good—if you’re at a high level—you should be able to still command a high salary while living in a Tier 1 market but working for a company elsewhere.” —Greg Caplan, CEO, Remote Year

importantWhichever approach you take, it’s wise to take the time to think through how to structure compensation and to develop a consistent formula, guideline, or salary band guidance. The next step is to be prepared to share your reasoning with your staff.

Remoter has an excellent breakdown of how to determine the best compensation model for your remote team. You can also visit our Guide to Technical Recruiting and Hiring for more on developing a compensation philosophy.

Have A Plan For Benefits

As you hire remote employees in more locations, you’ll begin to run into variations in local laws pertaining to benefits like paid vacation, parental leave, and more. This can lead to similar forms of inequity, where some employees have more extensive benefits than others. Take family leave in the U.S., for example. Many states have or are enacting more comprehensive Family and Medical Leave Act (FMLA) laws than what is currently mandated at the federal level (which requires up to 12 weeks leave, unpaid, for anyone who has been working longer than a year at a company with more than 20 employees). As we cover in detail in Legal, Tax, and Operational Concerns, any company that employs someone in a different state has to comply with local employment laws. So an employee in Washington must receive at least 12 weeks of paid FMLA leave, whereas someone in say, Alabama, isn’t required to get paid for any time off due to FMLA.

As a company grows, these variations will both become harder to keep track of and lead to more instances of different coverage across the workforce. Here also, your company philosophy and values will guide how you proceed. Tim Burgess, co-founder of ShieldGeo, notes these pressures that he sees with companies they work with:

Most distributed companies start with comp and benefits inspired by their home-country norms. Then they try to globalise policies to be generous in most locations. As they grow, there is increasing localisation. It’s complex to shoehorn global policies into many different countries.*

Basecamp provides what they call “global PTO” (paid time off), which offers the same set of benefits, including vacation and parental leave, regardless of location. They feel their benefits are generous enough to cover both U.S. and international employees. Remote Employ, a new global PEO startup, has the same philosophy.

contributeDoes your remote company approach compensation differently? If so, we’d love to hear from you!

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