Globalization has spread rapidly and wage gaps are even more significant today. Companies that were once purely “local”, with a few “expats”, now operate internationally with multinational workforces. Managers are increasingly responsible for multinational employees across multiple locations, creating increasingly challenging demands for pay consistency within the team and company.

Just as it has become increasingly difficult to identify the “nationality” of a company, establishing the “nationality” of an employee has become even more complex. The third culture kids of yesterday are the global employees of today. The question “Where are you from?” It’s becoming a tough question to answer for more employees than ever. We have moved from answering this question with reference to “nationality” (ie country of birth or citizenship) to referring to where we are “locals”. Let’s take Ramesh as an example.

Ramesh prefers to say “I am from Dubai and Mumbai” as these are the two places where he feels he is “local” rather than having to explain “My parents were from India. I was born in Dubai and grew up there, regularly I visited my family in Mumbai when I was on vacation, but I attended university in Canada and worked in Houston for 8 years, before moving back to Dubai.My wife is Canadian and my children are American who were born there.We moved to Mumbai ago 5 years”. Is Ramesh global or local? What is his nationality?

The skills required to manage wages in the context of globalization are evolving from local subject matter expertise (local market and local practices) to building international solutions for a global landscape (global market and global practices). Today, the challenge within a multinational company is to find the right balance between global consistency and the local needs/requirements of the country and/or employees, while maintaining costs.

• Compensation: Global or Local?

• Benefits: global or local?

• Work structures: global or local?

• Incentives: global or local?

• Equity: global or local?

We now have sophisticated technology to manage multinational teams across borders, but how do we manage the differences between the global and local country?

Imagine working in a multinational company and discovering that your colleague at the desk next to you (doing the same job, at the same level, with the same experience and qualifications, and a similar level of performance) earns double your salary and benefits you are not eligible for. They are entitled to 35 days of annual vacation; you have 20 days They are provided with accommodation, health insurance and their children’s school fees are paid in full at the international school; you get none of it.

So why are they earning so much more than you? What if you find out it’s simply because you’re “local”?

With a “Local” versus “Expat” pay approach, this is the reality.

Traditionally, local pay is driven by the supply and demand for skills in a localized free market. These local markets have evolved over many decades and are dominated by nationals, most of whom have not moved or wish to move elsewhere. Depending on the prevailing job supply and demand trends, each local market is different in terms of the different skill sets of each country in different industries.

Expatriate pay, on the other hand, is traditionally determined by cost-of-living differences and hardship between home and host places, using home pay as a base and adding to this according to the calculated differences between the place of origin and the place of reception and a policy of global benefits. While the gap differs from country to country, typically in a low-income country (usually a third world/developing country), local staff are paid much less and receive fewer benefits than their expatriate colleagues (usually first-class). developed world). country), even when they do similar work and have similar qualifications.

Local staff in developed first world countries with a structurally high cost of living (high-income countries) earn much more than their compatriots in less developed third world countries with a structurally lower cost of living (low-income countries). income). That means that before any expat bonus/incentive is applied for accepting an assignment in a low-income country, an expat in a high-income country is already much better paid. The problem is further complicated by the fact that to “encourage” someone to accept an expatriate assignment to a less attractive location, albeit with a lower cost of living, often requires a significant premium, which which results in the wage gap being even greater between an expatriate from a high-income country and his local colleague from a low-income country.

These large wage differences can create significant internal equity issues. Local staff may feel less valued than their expatriate colleagues and become resentful and dissatisfied. This is made worse when the expatriate is perceived to have a visibly higher socioeconomic status, such as children attending the most exclusive private school, living in a most exclusive luxury home, or driving a luxury car.

Ramesh has and could continue to work anywhere on the planet. Should he be paid as an “expat” or as a “local” in Mumbai?

The obvious solution is to minimize the use of expatriates from high-income countries in low-income countries. Instead of sending an engineer from Germany (high-income country) to Dubai, it would be much more cost effective, for example, to send an engineer from India (low-income country) to Dubai. As the talent pool in low-income countries grows, more and more multinational companies draw talent from them, leading to “brain drain” and perpetuating the crippling skills gap in these countries. This is a double-edged sword for low-income developing countries. On the one hand, they need to retain their skilled talent to help further develop their economies and increase local skills, but at the same time, their expatriate remittances are a critical contribution to the economies of many low-income countries.

The reality is that expatriates from high and low income countries around the world will continue to work side by side in multinational companies, alongside local staff at each physical location.

Many multinational companies are grappling with these issues and developing new approaches for equitable and sustainable global compensation. While there is no easy answer, any solution will require the development of frameworks that align global wage models with local wage markets so that the principle of equal pay for work of equal value is achieved. This does not mean that everyone is paid the same. These new approaches will require years of integrating global and local wage practices. Where differences persist, they will need to be transparent and defensible on the basis of fairness.