The Beginner’s Guide to Designing a Compensation Strategy for the Hybrid Future of Work

HR Voice
HR Voice
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The Beginner’s Guide to Designing a Compensation Strategy for the Hybrid Future of Work

As the world’s largest vaccination program gets underway in India, organizations are wrestling with the idea of how to best transition their workforce back into offices after spending most of 2020 and the better half of 2021 working from home. Many organizations have already embraced a hybrid work model where employees have the option to telecommute for at least a few days or weeks every month.

Hybrid work models have emerged as a cornerstone to corporate reopening strategies. Major IT and service companies were the first to announce that their intention of offer full-time hybrid models as a part of their back-to-work programs. For executives, the health and safety of their employees is a top of mind concern – with most predicting that hybrid models will take shape in the second quarter of 2021.

With hybrid work models here to stay, how can Indian firms rationalize and create more competitive compensation structures that empower employees to be at their best regardless of where or how they work?

The answer, of course, encompasses several variables that employers must consider carefully when rolling out their hybrid workforce compensation strategy. We’ll closely examine some of the key considerations that will play into your compensation strategy over the next few sections.

A Guide to Designing Compensation Strategies for Hybrid Workforce Models in India

Let’s begin by examining some of the basics – why should you have a different compensation structure for hybrid employees in the first place? The simple answer is – it’s cheaper and more cost-effective. Like real estate, your compensation strategy is largely based on a single factor – location.

If you’re operating in a Tier 1 city or metros (Mumbai, Bengaluru, Delhi, or Chennai) your operating costs and wages for employees will be higher than comparable organizations operating in Tier 2 cities. Your compensation strategy will typically be determined by factors such as higher rental prices, commute, and higher costs or living.

The next crucial component of your compensation structure will likely be based on salary benchmarks, both internal and external. For instance, internally, you may have levels that represent the knowledge, skills and role complexity of your employees. Pay ranges are usually determined by these levels. Run a quick analysis of your internal benchmarks using your talent management software. This is an example of internal benchmarking.

Similarly, understanding how your competitors interpret these levels and set salary benchmarks for their employees can be considered as one of the external benchmarking factors. Mapping your benchmarks to where your employees are located and the levels they currently operate in should help you arrive at a rudimentary figure or salary range.

Finally, the most important element of the outcome of your transition to a more competitive hybrid model is budget impact. How is your new hybrid compensation model affecting your annual or monthly budgets?

So, now that we’ve looked at some of the fundamental considerations of why and how to design a compensation strategy for hybrid workforces, let’s look at some of the steps involved in creating a competitive hybrid compensation strategy.

Step #1: Determine if Employee Location Should Be a Factor

There are two major schools of thought when it comes to considering how important location-based pay is in your overall compensation strategy. The local base pay model suggests that organizations should adjust wages in accordance with cost of living for employee locations. The global base pay theory, on the other hand suggests that in keeping with an organization’s commitment to transparency and culture, pay ranges should be standradized or harmonized regardless of employee locations. So, for instance, the base compensation for an employee working out of their hometown in Indore will be equal to an employee working from Mumbai.

The idea behind local vs global pay theories is to position your employer brand more competitively in the employment market. Location-based pay incentivizes employees to live closer to your operating locations while global pay-standardization model enables your organization to choose from the best available talent in a multi-national or multi-location operational framework.

Both have their pros and cons but most companies realize that the cost-efficiencies of the hybrid workforce model are more easily realized in location-based pay.

Step #2 Establish Your Compensation Philosophy

The tricky bit about designing compensation strategies is that while most of the decisions seem practical, some variables can be ambiguous, emotional or symbolic. In short, there is no one-size fits all approach to designing a strategy that aligns to your core brand values.

In the book titled, Remote Work, author and former Head of Engineering for Stripe , Juan Pablo Buriticá argues that remote and office roles bring a different set of 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.”   

Some of the companies that pioneered the remote work revolution even before the pandemic use global or location-based pay exclusively, or a combination of both. 

Step #3: Design Your Benefits Package

As you operationalize your hybrid workforce strategy, you’re likely to begin hiring employees in more locations, which means you’ll run into variations of local laws pertaining to benefits like paid vacation, paternal leave, taxes, and more. This can lead to a fragmented benefits experience for your employees where some are offered more extensive benefits options than others.

As your organization grows, these variations will become harder to keep track of and lead to inconsistencies in coverage across the workforce. While most companies start with benefits inspired by their head-office locations, understand what is generous or fair in different local contexts is crucial. For instance, Basecamp offers what they call “global PTO” (paid time off) that offers all employees in the company the same set of benefits regardless of location. They believe their benefits options are generous enough to cove both U.S. and international employees.

Over to You!

We’ve only begun scratching the surface of one of the most-important yet overlooked aspects of transitioning into a hybrid workforce model. You can use the steps outline above to gather insights on how you wish to structure your compensation strategy in light of recent workforce changes. However, we highly recommend that you base your decisions and calculations on existing data – if you already use an HCM suite or a compensation analytics solution, you can directly begin keying in the values and come up with a compensation matrix that best fits your business.

If you are still developing your HR tech stack, talk to us to learn more about how you can apply Adrenalin’s HCM App to inform your compensation strategy in 2021.

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