With globalization comes added complexity for Human Resources.
Multi-national companies often have a well-documented compensation policy that outlines the specifics of their competitive market positioning. But should there be one market position across the entire global operations of the company? I don’t think so.
Let’s explore the realities. Assume, for example, that the company decides on the 50th percentile (median) as their desired a market position. Here are the problems with this approach:
- China and India are “hot” markets even now, despite the shaky global economy. Having a median market position, at least for salary and incentives, would neither attract nor retain employees. In addition, if a company is new to China or India, has a small operation, or doesn’t have a strong brand name, it would be even more difficult to attract new employees. Employees in China and India tend to be attracted to multinationals that have a strong brand name in the market, and believe such organizations provide more opportunities for career development. Multinationals are in fierce competition, and paying higher cash compensation may make the difference.
- Multinationals with operations in Taiwan are seeing Taiwanese headquartered companies as major competition. Local employees view Taiwanese companies as attractive for career growth and development. In addition, they believe their chances for promotion into top management positions are greater with local companies as compared to those headquartered overseas. Therefore, there is a heated battle between overseas multinationals and Taiwan-based companies for talent. Again, a median market position for cash compensation would not attract and retain talent very effectively in this case.
Not all countries are as competitive. But before you set your total compensation strategy at a single market position worldwide, you need to do your homework.
Setting Your Strategy
Here is a checklist of factors that need to be considered before making a decision on market position:
- What companies in your industry are present in a country? Are they in the same location where your facility will be?
- Are the competitors in market well-known multinationals, or lesser known firms?
- Does your company have a strong employment brand in the country? A good example of this is the struggles IBM experienced when expanding into new markets. They were known only as a computer manufacturer, not a services business, and needed to educate the market about their other activities.
- Is the government giving incentives for companies to move in? This will increase competition for talent.
- Are you in a remotely populated area of a country where there is not much competition for talent? This could work both ways – you may be able to pay less due to the lack of competition for talent, or more to attract the right talent to the remote location.
- Is there a surplus of the type of skilled talent your company is looking for?
- What is the unemployment rate for skilled talent in the country?
- What has turnover been for skilled and critical jobs for the past couple of years? Local recruitment consultants are a good source for this data.
- What is the cultural preference in each country — high cash compensation and lower preference for benefits? Or the reverse? Be careful in developing countries, where customary elements of compensation might be very different from headquarters. Always try to consult a high-quality survey.
- What is the number of graduates from universities that have degrees relevant for your operation? This data could be useful in determining whether there would be enough graduates to start hiring entry level talent.
Total compensation includes not only salary, but other cash components (such as bonus, incentives and allowances), as well as benefits. A company doesn’t necessarily have to target the same market position for each component of the package. You may decide, for example, to set a target for base salary and incentives at the 75th percentile, and for other cash payments at the median. Or total cash compensation at the median, and benefits at the 75th percentile. The approach you take should be based on the competition as well as the culture of the country. For example, Chinese tend to be prefer cash, while some European countries may be more focused on benefits. Culture should always be considered when setting your total compensation strategy.
In countries where talent is scarce, turnover is high and there are many multinationals that are either larger or much better known than your company, you may have to set your market position, at least for cash, higher than the median just to get noticed. In countries where there is a surplus of talent, or not much competition, then paying at the median for total compensation may be totally acceptable.
By now you probably realize that having a the same market position or target in every country around the world might not offer the flexibility you need to be competitive in each and every place around the globe. It would be better to have a strategy in line with this example:
“XYZ Company will have competitive total compensation in each country based on factors that will be reviewed annually, and that may change over time.”
This statement is generic, but does allow for flexibility and does not require constant updating.
Defining a global compensation strategy is a critical step for companies to ensure they are competitive and can attract the right talent. Adapting your strategy to account for differences in the country markets and culture are critical to the success of your strategy.
Please feel free to share your experiences — good or bad —- about designing your company’s compensation strategy. We can all learn from each other.
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