Chuck Csizmar – CMC Compensation Group
How many success stories start with the phrase, “I took the easy road”?
Most companies (@85%) with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – in order to level the playing field for those with multiple country responsibilities.
However, for the rest of their international population it’s not as straightforward.
Companies with local national employees (hourly, professional, management) face a challenge and a risk when it comes to deciding how to reward (pay) in each of their operating countries. Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to equalize pay practices?
For those developing strategies to effectively pay employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions. However, the strategy of recognizing country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, who traditionally look for the easy way, the simple way, the one-size-fits all way of dealing with far-flung employee groups. For many companies and international compensation practitioners, it is actually the administrators whom you have to overcome.
The headquarters staff will ask, “What difference does it make? Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?” Here are a few metrics to illustrate what they wish to standardize:
- Value (price) jobs irrespective of locale
- The pay mix of base salary and incentives
- Universal date for pay increases
- Average pay increase percentages
- Pay-for-performance vs. general adjustment increases
Why doesn’t one size fit all? Why can’t you treat all employees in the same fashion – because they all belong to the same “XYZ Corporation”, right? You should consider the following before taking out that cookie cutter.
- Economy: When you’re dealing with country-specific inflation rates that range from flat to 20%+, do you really want to offer the same percentage salary increases? What if one country is in the grip of recession (US), while another remains relatively unscathed (Australia)?
- Culture: In some areas of the world, job and income security needs command paramount interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion. For example, while China has a very aggressive sales compensation environment, in India there is more interest in base salary and their CTC (cost-to-company) package than variable pay-at-risk compensation.
- Competition: Companies react to the cost of labor vs. the cost of living. If the market they are in rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a different approach risk lower employee engagement as well as a talent drain.
- Representation: National unions often dictate pay actions that could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees. Works Councils will have their impact as well.
On the other hand, varying your practices according to country-specific conditions could cause a degree of consternation with the back office staff and their computerized systems. These are folks who like things neat and pretty. In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:
- Tabulating global statistics when definitions or methods vary
- Identifying global trends based on diverse conditions
- Balancing the impact of cross border movement
If you force international operating units to convert their practices to an uncommon format and methodology, the result could be more than just confusion and local administrative difficulties. It could also mean the greater likelihood of overpayments in some quarters while paying less in others – all for the sake of sameness and common report generation. This would result in a combination of hurting employees while also hurting the business.
Remember that ease of administration is rarely an effective rationale for making good business decisions.
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