Location-Based Compensation: Global vs Local Pay Strategies

As companies expand globally and embrace remote work, designing location-based compensation becomes a critical challenge. How do you balance fairness, market competitiveness, and budget sustainability across cities and countries?

This guide explores proven frameworks for structuring location-aware pay policies.

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Global vs. Local Pay: Choose Your Philosophy

The foundational decision: Does location influence compensation?

Global Pay

• One unified set of ranges applies everywhere
• Simplifies administration and promotes equity
• Best for small, remote-first teams or when attracting talent trumps cost control

Local Pay

• Tailored ranges per country or city based on local markets
• Aligns with regional talent availability and cost structures
• Standard for scaling international companies

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Your choice depends on:

• Geographic footprint and team distribution
• Budget constraints and growth stage
• Whether you prioritize simplicity or market competitiveness

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Document this decision clearly in your compensation philosophy to guide all future pay decisions.

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Why Location Matters

Global pay sounds equitable—but often isn't sustainable:

• US rates in Eastern Europe inflate costs 3-5x
• Low-cost regions get overpaid relative to local markets (hurting retention elsewhere)
• Exchange rate volatility and varying employer taxes create hidden inequities

Local pay aligns reality with strategy:

• Matches what talent expects and competitors offer in each market
• Controls costs while remaining competitive
• Reflects genuine purchasing power differences

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Thus, a majority of companies tend to choose local pay and set specific compensation ranges for each country based on the country’s market, linked to the company’s compensation strategy.

This approach makes compensation practices consistent from your compensation philosophy, while considering the options talents have within their country.

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In GitLab’s article on paying local rates, the CEO explains the reasons that drove this choice:

If everyone is paid the same role-based salary, the company would not be able to hire as many team members, and those that are brought on would not be as widely distributed. [...] If we pay everyone the San Francisco wage for their respective roles, our compensation costs would increase greatly, and we would be forced to hire a lot fewer people. And if we started paying everyone the lowest rate possible, we would not be able to retain the people we want to keep.

If everyone is paid a standard salary, those who live in high-income areas would have less discretionary income when compared to their counterparts in lower-income communities.

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Again, taking your own company’s context and culture into the analysis will help determine the right philosophy.

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Structuring the approach

If your compensation philosophy includes location as a factor for compensation decisions, several considerations can be taken into account.

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Three Frameworks for Location-Based Ranges

As you are considering multiple locations, your ranges can be established based on cost of living, cost of labor market or a combinaison of both.

• The cost of living is the cost associated with providing a standard of living within a location. It takes into account items such as rent and housing costs.
• On the other side, the cost of labor is determined by supply and demand of labor in a location. It takes into account the cost of hiring and retaining in this specific geography.

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1. Cost of Living

Using cost of living can be easier to manage and explain to your employees, although it puts a higher risk of underpaying or overpaying as the market dynamics are not taken into consideration.

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2. Cost of Labor

This approach puts market data at the center of your compensation framework. You will need to analyze different market data sets in order to build your ranges for each role / level.

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3. Hybrid model

While taking more time to administer and maintain, a hybrid approach can provide more control by leveraging both cost of living and cost of labor to determine your framework.

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To illustrate one approach, GitLab explains the rationale behind including the rent index alongside market data and other factors to determine compensation:

"If there’s a place where people pay high wages, it tends to attract people. And then the rents, almost by force of nature, start rising. It’s not that we want to pay you based on your rent or compensate your cost of living. We want to make sure that we pay at or above market. We found that the rent was a great way to calculate that, and it’s why there’s a rent index as part of our global compensation formula.”

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Define multiple sets of compensation ranges

Depending on your company’s footprint, you may want to create different sets of ranges on a country-to-country basis first, and have the flexibility to take into account specificities.

Within the country, you can group multiple locations into tiers if your compensation philosophy focuses on market competitiveness, or use another grouping method relevant to your business.

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Role and Level Exceptions

You can decide to apply a different strategy or positioning depending on the type of role or level across locations or countries. Some of your countries may have tiered locations for some sets of roles, while others are harmonized within a same country. You can also consider harmonized rules for senior management if it makes sense for your typology of company.

Based on your company’s strategy, what’s important is that you are relevant and consistent in your approach for your business.

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Implementation Best Practices

1. Annual Market Refresh: Update ranges based on inflation, exchange rates, and surveys
2. Compa-Ratio Targets: Aim for 80-120% of local midpoint for most employees
3. Promotion Consistency: Define minimum uplifts that work across locations
4. Transparency: Share your location philosophy and tiers with managers (and employees at higher transparency levels)
5. Feedback Loops: Survey employee satisfaction with local pay positioning annually

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Evolving Your Approach

Location strategies aren't permanent. As you:

• Enter new markets: Test with pilot hires before full ranges
• Scale teams: Shift from global to hybrid/local
• Face economic shifts: Adjust tiers without disrupting equity

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The goal is to have a framework that feels fair locally, scales globally, and supports your business strategy.

Manual spreadsheets become chaos at scale. A compensation platform automates calculations, tracks equity across locations, and generates reports for leadership.

The result? Managers make confident decisions. Employees understand their positioning. Your global team stays motivated and retained.

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