Salary Scales – Why Can’t We Have Just One?

Author:
Warren Heaps – Birches Group LLC

Organizations operating in dozens of international locations have a lot of work to do to maintain separate salary scales in each country. Every once in a while a client suggests they are considering using just one scale for all their countries globally, or in a region. Then they ask me what I think. I tell them it’s a bad idea.

Now, those of you that know me realize this is a self-serving answer. My company is in the survey business, after all, and a single scale would require a lot less market data. But honestly, that is not the reason it’s a bad idea. There are so many reasons…here’s a few to think about.

  1. Each country has a separate labor market, with different levels of talent affecting supply and demand. Labor regulations, social taxes, income taxes and of course, culture differ, too. The scale should be unique, too.
  2. Just because countries are neighbors, doesn’t mean wage levels are similar. Consider the example of Nigeria and Ghana. These West African neighbors have distinctly different wage levels for the same jobs. And you needn’t go to West Africa to understand this — the same issue exists between the United States and Mexico, and many other country neighbors.
  3. Countries (outside the Euro zone) have different currencies. What currency would you pick for your single scale? Let’s suppose you decide on US dollars. If you had a dollar-based scale this year, the local currency equivalent would have increased in Malawi by 47% in one day in May, and about 75% in South Sudan over the course of the year. But countries whose currencies revalued against the dollar would receive less in local currency. And these changes have no relation to the cost of labor, which is how employers establish proper wage levels.
  4. What market data would you use for your single scale? If you use the highest paying market, you will increase costs in the other markets. If you choose a lower-paying country, the opposite happens. You can just take an average, right? Sure you can, and you get the worst of both situations!
  5. Which pay mix is appropriate for your single scale? Most countries have statutory requirements such as 13th month and other cash payments. If you set your scale with just basic salary, you will have wide variations against the market when mandated allowances are considered. If you decide to include cash allowances, which ones do you use?
  6. Just use a scale from headquarters, and convert to local currency. It’s easy and based on a single scale. But it’s still a bad idea, for a lot of the same reasons stated above. A few years ago, Chuck Csizmar wrote an article exploring this idea called “Can’t You Just Convert the Currency?” Check it out for further discussion.

These are just a few reasons to maintain separate scales in each and every county. It’s not so easy, and it takes a big effort, but it’s worth it. Any other solution will result in excess costs for employers and a lack of engagement from employees. So don’t do it!

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One Response to Salary Scales – Why Can’t We Have Just One?

  1. a very informative, keep up the good work. this is so great!