Author:
Chuck Csizmar – CMC Compensation Group
Many companies with international operations are reluctant to purchase compensation surveys covering their multiple countries, on account of the cost. To them it’s like having to survey multiple USAs, no matter the headcount involved. As discussed in an earlier post, Shock and Awe, the cost of these international surveys can be prohibitive.
For example, if the US-based Acme Manufacturing Company has operations in Germany, India and Argentina, survey costs for these three countries would be 2-3 times the cost of comparable US surveys. As most compensation experts recommend using multiple sources to better gauge market trends, the cost factor very quickly becomes an eye opener. The more countries you operate in – well, you get the point.
Hence the hesitation.
However, is putting off a competitive pay analysis a good business decision? What is gained by keeping ignorant of whether your compensation packages are competitive or not? Of course, by happenstance you may be lucky and are already providing compliant and competitive rewards. More likely though, the odds favor that you’re either overpaying or underpaying your employees.
Long term Impact of the Status Quo
Let’s look at the scenarios that can be playing out while you remain unaware.
Over Payments:
- Where local compensation costs are higher than the competitive market, without a corresponding ROI in productivity or performance (more pay is not a 1:1 correlation). You are wasting money.
- Most employees will not recognize that they’re being paid above average, so any presumed positive perception is only an illusion.
If you’re overpaying, but don’t realize it because you haven’t obtained credible survey data, you will likely presume that everything is okay. In other words, you’ll think that your pay is on par with the market, when in fact you are paying at above market rates. How much money (the differential) will you be needlessly paying out on account of this presumption? Chances are, the cost of finding out – of potentially identifying a key problem – would be a small fraction of the money being misspent. Is this an efficient use of your reward dollars? I don’t think so.
Underpayments:
- Employees feel that they are not being compensated fairly
- Your ability to attract the right caliber of employee for your operations will be weakened by low compensation rates
- Employee engagement, productivity, morale, attendance etc. will be less than what they should be, feeding off negative employee perceptions
If you’re underpaying, but don’t realize it because you failed to obtain credible survey data, you may also blindly consider that everything is okay. After all, anyone who leaves does so for more money, right? But doesn’t everyone? So you may not learn much through staff defections. Have you considered the annualized cost of losing just one experienced staff member? And should you lose more?
Choosing instead a course of hesitation and delay will not rectify any festering issues; they don’t go away or fix themselves. Instead, your inaction will worsen the situation and make eventual corrections more painful.
Cost of doing business
Do you remember that ad line, “you can pay me now, or pay me a lot more later”?
While squirming to avoid costs the company might try to obtain free data off the internet. Good luck there. Pundits will tell you that the value of free data, even if available is usually less than what you paid for it.
Instead, ask yourself if you would spend a dollar today to save three tomorrow? That’s the question you must answer, to gauge the economic value of knowing the competitive position of your international employees.
Your financial folks might see it another way. They might see only a finite dollar amount being spent, against a “maybe” savings estimate. They will ask you for guarantees you cannot give. It’s not like buying a machine that will increase productivity, lower production costs, raise profit margins and lower the cost of sales – all measurable.
Would you pay to learn how competitive are your services and product lines?
To make informed and effective business decisions, management requires knowledge of present circumstances, the challenges being faced, the import of the status quo and the implications of change. When dealing with the single greatest cost to your organization, employee pay, it would be well worth your effort to spend what is necessary to give senior management the proper ammunition for decisions that could drive the business forward.
Yes, it would be well worth the cost.
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