Note: The work here is inspired by Gitlab's approach to international compensation, which we believed to be a good starting point.
We hire people in different regions and countries. Every market is different, and it can be challenging to be competitive and fair in making an offer for the same role but in a different region. The best way to deal with that is by introducing a Location factor.
Why we pay local salaries
The reasons why we value this policy as a critical success factor, both in hiring talented people and being fair and profitable as a company, are:
- having a strict salary structure will bring low competitiveness in high salary regions – this mainly means that we can't hire people in that area;
- having a strict salary structure will bring high competitiveness in low salary regions – this will bring a geographical concentration of team members, instead of a distributed team which represents our main goal. Besides, we don’t want unhappy employees keeping their job at Nebulab simply because they have a competitive salary;
- it's fair for anyone having the same relative wage for the same role – team members are treated equally by the company, which brings a sense of fairness to the team.
The Location factor
The Location factor is a multiplier of our former salary matrix.
An important note is that we determine factors by using each country's labor index cost instead of the cost of living. The difference between them is thin but still relevant:
- cost of labor is the cost to hire and retain local nationals;
- cost of living is the cost to maintain a certain standard of living within a geographic location.
It goes without saying that the latter can be far higher than the first one; in some cases, it will result in paying someone far more than what he's going to obtain from his local market just because he lives in an expensive area.
E.g., taking Atlanta, GA, as the home base (100%), the cost of labor and the cost of living in Manhattan, New York are respectively 123% and 217%. This means that the cost of living increase in Manhattan is more than proportional than the cost of labor one (ref. ERI Blog).
Get the indexed salary
Once we get the candidate's area, we pick the corresponding Location factor within a list of worldwide locations.
The calculation basis is the average Italian salary matrix for that role. The Location factors are modulated on the Italian location factor that represents the unit basis. So we obtain the indexed salary by multiplying the average Italian revenue for that role and the Location factor of interest:
(Average Italian salary)*(Candidate's Location factor)
We don't feel ready to share our compensation packages publicly yet, although they are readily available for employees to consult.
What if someone relocates (for the long-term) outside their current area? We use the Location Factor for the Offer step only to define the candidate's level.
If someone relocates, it is at the company's discretion whether or not to offer a new contract in the new location.