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Tech Career Insights: 3 ways companies benchmark remote salaries
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3 ways companies benchmark remote salaries

16 October 2023, by Simone Markham

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The majority of developers are now working remotely at least some of the time. That means you may need to think about how this will impact your salary.

Living in a location with a low cost of living and getting paid top salaries from big tech hubs: That’s the dream for many developers. But it’s not how all companies’ compensation models work.

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Here are three different ways companies pay their remote workers.

1. The location-based model

Employers may adopt a location-based model, where they pay market-related salaries according to where the company or the developer is based. Most employers hiring developers internationally will pay their remote employees based on the market that the employee resides in.

This is the most popular model as it means the employee receives a competitive compensation package based on where they live, and it’s more cost-effective for the employer if they’re based in a higher-cost-of-living location.

Some employers opt to pay salaries according to the market of the city where the company is based, which is more common when hiring within the same country.

Not all developers are keen on this model

Of course this isn’t always ideal for you as the developer considering you may be doing the same work as a colleague based in a higher-cost-of-living city, but being paid less for it.

In a recent poll we ran on LinkedIn and Twitter, 64% of developers said they should be paid according to the city the company is based in, whereas only 13% said it should be according to the city the developer is based in:

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It’s unlikely employers will change this approach

It’s unlikely companies hiring on this model are going to change the way they’re paying remote salaries since it’s a competitive option for many employers based. And considering we’re in a time of shrinking hiring budgets, this model is an especially attractive option for employers at the moment.

However, you can gauge how comfortable you are with the employer’s approach by having a salary discussion in the beginning stages of an interview process.

Sometimes employers hiring developers in a lower-cost-of-living city will offer a bit higher of a salary rate than what is market-related for where the developer is based.

The employer will still be paying less than if they hired locally, and the developer receives a higher salary than if they received an offer from a local company.

And as the developer in a lower-cost-of-living city, you’re still a very competitive option for international employers even if you’re asking for a bit higher than what is market-related for where you’re based. This means you could have your pick of multiple opportunities.

Tips for setting a location-based remote salary expectation

When deciding on a remote salary expectation for employers following a location-based model, research what is market-related for where you’re based and for where the employer is based.

Remember that there are costs involved for either you or the employer in international hiring, depending on which method the employer has chosen to take.

The employer may choose to:

  • Hire you as a freelancer where you’re responsible for paying your own taxes, and these costs may be potentially higher than if you were a general employee.
  • Make use of an Employer of Record in order to legally hire you, where they will need to cover fees for this service. You can download this resource for common questions about being hired through an EOR partner.

This is a conversation you should bring up early on in the interview process to account for potential costs that could fall on you. If these costs do fall on you, it makes sense to ask for a higher-than-market-related salary range. If they fall on the employer, it’s understandable that they won’t want to pay a salary based on the market they’re in, as it would be more cost-effective to hire locally.

Once you understand the employer’s chosen method to hire internationally, you can decide on an amount you’d expect in order to happily accept a job offer from them, potentially adding on slightly more or sticking to what is market-related for your city of residence.

At the end of the day, if you’re uncomfortable working for an employer that uses a location-based compensation model, then it may be best to avoid these opportunities. But it’s good to remember that this is the most common model employers are using to hire international talent in the current market.

2. The skill-based model

In a skill-based model, the employee’s salary is calculated based on the specific skills they bring to the company.

The salary ranges are based on tiers the company holds for different skills.

Investigate what tiers a company has determined if they follow this model at the beginning of the interview process. It’ll give you a good understanding of what skills you need to showcase to fall into the tier you believe you should.

How developers are thinking about it

In our poll on LinkedIn, a few developers think a skill-based model is the best way to address paying remote employees:

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Tips for setting a skill-based remote salary expectation

The more skills you possess that will assist you in the role, the higher your salary expectation can be.

Assess what the role requirements are for every job you’ve applied for. You can provide proof of your skills from your previous experience to prove to the employer that you should be compensated your asking price.

If you get any pushback from an employer for a higher salary expectation for an opportunity you’re really excited about, you can always negotiate a salary based on performance. Meaning you join the company on the amount the company has offered and if you’ve hit pre-determined metrics within a few months, the company increases your salary to your original expectation. This gives you time to prove your skills to the employer.

If you decide to follow this route, it will be important to get the pre-determined metrics and the agreement in writing to ensure both parties are held accountable.

3. The flat-rate model

Whereas a skill-based model determines a salary dependent on every individual employees’ skills, a flat-rate model means that every employee is compensated within the same range according to their seniority level.

These employers have set salary ranges for junior, medior, senior and lead developers, and compensate you within this range according to your seniority level no matter where you’re based.

The ranges they determine could be based on the market of where the company is located, or they may be based on a global scale determined by either their own collected data or data provided by companies that offer this service.

Some developers might not always be keen on this model, but we found some ways they’re thinking about setting their own salary rates in the poll we ran on LinkedIn.

A developer spoke to setting their own salary rate that they don’t deviate from no matter where the employer that’s hiring them is based:

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Tips for setting a flat-rate remote salary expectation

If you’re looking to set your own rate, research what salary ranges are market-related for your location and what the going rates are for developers with similar experience to you.

You can check out our data for South Africa, Germany and the Netherlands, or have a look at job listing boards where salary ranges are mentioned.

Be up front with employers at the beginning of an interview process about your rate and how you went about setting it. These insights will help them understand your priorities and in making a more informed decision if they can meet your expectations.

How to determine your remote salary expectations

Once you’ve done your research on different locations and their salary ranges, you’ll have a good idea what sort of amounts you can expect depending on which employer you’re interviewing with.

Ask every potential employer at the start of the process how they think about remote salaries. This will assist in determining whether your ideals around this align with the employer’s. This also gives you a chance to explain your expectations and why you’ve selected your amount.

Sometimes your ideal salary expectation won’t align with what an employer can offer you, and you’ll need to decide whether the opportunity is worth compromising on your salary expectations.

It may be a great opportunity in other aspects: Perhaps they can offer you competitive benefits or help you in moving towards your career goals. In which case, it may be worth exploring these opportunities and building your salary over a longer period of time.

Read more

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