Warren Heaps – Birches Group LLC
You work for a global employer with on-the-ground operations across the world. Your duties include “managing global pay.” Where do you start? What are some approaches to consider? If you’ve been wondering about this, keep reading.
Back in February, I wrote a post entitled “Think Globally, Act Locally”, in which I cited the example of how salary scale designs differ across markets with different characteristics. But salary scales are just one aspect of the broad range of issues faced when managing pay globally.One of the most important steps in effectively managing compensation across a global enterprise is to have a formal compensation policy.
What Makes a Good Policy?
A compensation policy should articulate the key objectives of the company’s reward strategy. A well-drafted compensation policy includes the following elements:
- Strategic Goals – The policy should describe how the organization views reward, and how reward can support the strategic business goals of the organization. These statements form the basis for the design of reward programs and structures throughout the enterprise. You should consider broader talent management impact as well as obvious areas such as incentives and benefits.
- Competitive Position – What is your target market for comparison? Is it limited to a select group of companies, or are you interested in a broader comparator group? Will you “lead” or “lag” the market — that is, will you target your market position anticipating future (estimated) market movement (lead) or use data as reported and thus trail the actual market by up to a year? What percentile do you consider to be fully comparable with your company? The median or 50th percentile is most common, but organizations allow for different approaches if there is a good reason.
- Pay for Performance? – Does the organization support a pay-for-performance philosophy? If so, be sure to define how performance will be measured. On what basis should staff receive pay increases? Strictly merit-based? How often?If variable pay (incentives, bonuses, gainsharing, etc.) is part of your program, how are these features linked to individual, team and overall corporate performance? Who in the company is eligible for variable pay?
- Compensation “Infrastructure” – Will you have traditional pay grades, more flexible broadbands, a combination of the two, or perhaps strict market pricing (i.e., no pay bands)? What process will be used for budgeting? What is the role of line managers, business heads and HR staff in the determination of individual pay increases?
- Global Standards vs Local Practice – Make sure your policy is flexible enough to accommodate local practice and culture (not to mention statutory requirements)? In my view, this is one of the most critical features of a well-written compensation policy, since it institutionalizes the organization’s view of what constitutes the global minimum for each business unit.
I Have a Policy – Now What?
Once you’ve established a strong policy and communicated it, the next step is to figure out how best to handle compliance. Two areas to focus on are governance and administration.
Governance refers to the judgment calls that occur all the time, all over the world, that require policy interpretation and decisions. How should the decision-making for exceptions be handled in your company? What latitude will local management have, and which issues will be managed by the leadership at headquarters? This is a very important issue to address. Clearly, headquarters should not be directly involved in every exception to policy, but rather, provide delegated authority to local and regional management. Where exactly you draw the line depends on your organization’s culture and structure.
Many firms also have formal processes for approval or modification of funded benefit plans such as pensions and insurance, and standards which cover the use of multi-national pooling, and integration with social insurance programs. Also, you need to think about how to keep the policy updated for any changes in strategy, competitive position and legislation.
Administration — the day-to-day delivery of reward to staff — is usually handled on a local basis or from a regional service center. But the guidance of your compensation policy dictates the standards that should be followed, both the mandatory ones, and those which can be adapted to local situations.
For example, a global minimum might specify that all jobs should be evaluated using the corporate job evaluation schema; that all businesses with 25 or more employees should have a salary structure; and that each operating unit should participate in at least one, but preferably two surveys from well-qualified third-party survey providers. Examples of areas left to local discretion might include the design of the salary scale (see my prior post referenced above) and the elements of compensation offered (such as 13th month, allowances and in-kind benefits).
There are many aspects to consider when managing reward in a global enterprise. A good policy aligned with your business goals is an excellent way to manage the global complexities, and delineate responsibilities amongst different stakeholders. The result is global consistency, where appropriate, and local competitiveness.
Does your organization have a global compensation or reward policy? What issues have you addressed with your policy? What are some of the difficult situations you’ve encountered?
Please share your experience as a comment.
More About Warren
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