Creating A Location-Based Competition Strategy That Actually Works

22nd Apr 2023

Figures and Flexa are continuing their collaboration series, and this time the focus is on the compensation packages based on location. Quick links to other topics covered in the series, such as remote working benefits and flexibility, are provided below for those interested in reading more.

What is a compensation strategy?

A compensation strategy is one of the most critical aspects of employee engagement and retention. With the rise of remote work, companies are now facing challenges in creating a compensation strategy that works for all employees, regardless of their location.

A location-based compensation strategy is a powerful tool that can help organisations attract and retain the best talent. However, creating a successful strategy requires careful consideration of several key factors.

In this article, compensation experts, Figures, explore some steps you can take to create a fair location-based compensation strategy.

#1 Aligning your compensation philosophy for fairness

If you don’t already have a compensation philosophy, consider this your sign.

The first step in creating a location-based compensation strategy that works is to align your compensation philosophy for fairness.

Your compensation philosophy should be based on a clear set of principles that are fair, transparent, and consistently applied to all employees. It is important to recognise that compensation is not just about salaries, but also includes benefits, bonuses, and other incentives.

Companies should ensure that all employees are treated equitably, regardless of their location, and that the compensation package is competitive with the market rate.

#2 Defining your remote compensation strategy

"When it comes time to remote compensation, there is no right or wrong decision - it varies company to company based on your compensation philosophy. You have to make the right decision for you!" - Virgile Raingeard, CEO at Figures

There are 3 main remote compensation options:

Option 1: Equal pay approach

In short, every employee is paid an equal salary, regardless of their location. This approach works well when the company is US-based with US revenue.

Make sure to consider:

  • Is it fair to pay the same salary to employees regardless of their location and spending power?
  • What happens when the company expands to different countries?
  • Will the same salary be paid in Berlin and San Francisco?

Option 2: Localised pay

The most popular option: adjusting pay according to the employee's location (city/country/continent).

There are two ways to do this:

  • Establish a salary grid in the main location and then determine a location factor based on the cost of living and/or cost of labour.
  • Use local data to determine local salary ranges and benchmark them against local roles. Figures offers the Global Salary Converter Tool to simplify this process.

Option 3: Cost-based approach

Ensures that the company spends the same amount on each employee regardless of their location. However, it is more focused on recruitment costs and less on the employee's cost of living, which makes it less popular.

#3 Communicating clearly to your employees

There is no such thing as over-communication, especially with a dispersed team.

What do you need to communicate?

Companies should explain how the compensation package was determined, what factors were considered, and how it will be consistently applied to all employees. This will help to build trust and ensure that employees understand how their compensation package was determined.

Figures Tip: Communication & transparency on compensation helps your employees to build trust.

In addition, companies should provide regular updates to employees about any changes to the compensation package, whether it is due to a change in the market rate or a change in the employee's location. This will help to ensure that employees are aware of any changes and that they understand how they may impact their compensation package.

Get the full best practices guide on communication here.

#4 Evaluation & feedback

The final step in creating a location-based compensation strategy that actually works is evaluation and feedback.

Companies should seek feedback from employees about the compensation package.

This can be done through surveys or focus groups, and it will help to identify any areas where the compensation package may need to be adjusted.

Companies should take this feedback seriously and make any necessary adjustments to the compensation package to ensure that it is fair.

Implementing a location-based compensation strategy can be a complex undertaking, but when they’re planned well, they can also be highly rewarding. Not only can you create a more attractive and supportive workplace for your employees, but you can provide lasting value that can lead to improved productivity, higher job satisfaction, and better retention rates.