Increasingly, sourcing talent no longer means being confined by geography. Finding the right candidate for the job may entail a permanent transfer or cross-border hire, whether it be domestically or internationally. While this greatly expands hiring opportunities, it does present some interesting challenges.
Traditionally, compensation professionals consider the prevailing cost of labor for establishing an offered salary in a location. For example, what does a software engineer typically earn in Manila?
A reference company salary structure may or may not be in place for a hiring location. A salary benchmark may or may not be available or current for a given country. How do you know if your offered salary is attractive enough to entice the candidate to take the position in another city or country?
Even if your offered salary is similar to the candidate’s current salary, the candidate will consider the potential change in net income should she accept the position. While a cursory comparison of net income highlights the tax differences, how do you or the job candidate know what the offered salary truly affords in the new location?
Cost of living plays a role
Different rates of pay support different living standards or purchasing power in a location. While salaries may be similar between locations, there may be differences in taxation, housing costs, and costs for goods and services in addition to differences in currencies, cultures, benefits, etc. This consideration adds new complexity to salary analysis but opens up a more complete review on what the candidate will experience economically. From the job candidate’s perspective, this could make or break the acceptance of the job.
The question then becomes how does the offered salary stack up from a purchasing power perspective? In addition to a typical review of changes in net income, ideally there would be a review of cost differences. Are the costs for housing and goods and services the same, more expensive, or less expensive in the offered job location? Understanding the costs not only guides a discussion if costs are higher, but can allay concerns in situations where the offered salary is lower but with equal or stronger purchasing power. Understanding the cost of living impact will better support transfers of critical talent.
What is affinity?
Affinity is the evaluation of cost and cultural differences between locations. How similar or dissimilar is the candidate’s current location to the offered location? For example, a location with high economic affinity may have similar salary levels in addition to similar taxation, housing costs, and/or costs for goods and services. A review of overall cost of living illustrates a complete picture and helps the candidate understand what to expect in terms of their purchasing power. Is the offer enough to offset cost differences or changes in purchasing power? The more similar two places are, the easier the discussion. When economic affinity is low, it could be a tougher discussion depending on the situation. It is challenging to move talent from high-wage, developed economies to lower-wage, emerging economies with a reduction in pay and purchasing power. To gain acceptance, the company may need to provide temporary allowances which consider cost differences. The job offer should be reasonable for the person’s context.
Series of case studies
At AIRINC, we work with companies daily to build the complete picture needed for transferring key talent both domestically and internationally. We offer the crucial tax and cost of living data along with our affinity insight to help companies prepare for critical conversations with job candidates. We will be posting a series of case studies in the coming weeks to illustrate some real-life examples of affinity and purchasing power. You can access the first one on Attracting Talent here. Please contact us if you would like to learn more.