Once employees can work from anywhere, the question of what to pay them stops having an obvious answer. Employers choose between several approaches, none of which avoids difficulty entirely.
Pay historically followed the office, not the person
Salaries were set against the market where the workplace was, since that determined who the employer was competing with for candidates.
Cost of living entered indirectly, through its effect on what local employers had to offer to recruit successfully.
Remote work severs that link, leaving the employer to decide which market is the relevant one when the employee lives somewhere the company has no presence.
Local market pricing follows the original logic
Paying against the employee's local market keeps the company aligned with whoever else is hiring in that area.
It also means two people doing identical work receive different amounts, which is defensible in principle and uncomfortable in practice once colleagues discuss it.
The approach becomes contentious when an employee relocates, since a reduction after a move is experienced as a penalty rather than as a market adjustment.
A single rate simplifies and costs more
Paying everyone the same for the same role removes the internal comparison problem and makes the structure easy to explain.
The rate must be high enough to recruit in the most expensive markets, which means paying above local rates everywhere else.
The premium buys strong candidate appeal in lower-cost locations and a wage bill that a competitor operating locally does not carry.
Banded approaches sit between the two
Grouping locations into a small number of tiers reduces the number of distinct rates while retaining some relationship to local conditions.
It avoids the impression that pay is calculated individually and creates disputes at the boundaries, where similar places fall into different tiers.
Whichever structure is chosen, the difficulty is not the arithmetic but explaining the principle in a way employees find consistent.
Employment across borders adds obligations
Hiring someone in another country involves local employment law, payroll, tax and social contributions, and these are matters of jurisdiction rather than company policy.
Employers commonly use an established local entity or an employer of record arrangement to meet those requirements.
Rules differ substantially between countries and change over time, so both employer and employee normally take specific advice rather than relying on how an arrangement worked elsewhere.