Category Archives: Compensation

Postings and discussions about compensation topics

Africa Compensation Update – 2010


Author:
Warren Heaps – Birches Group LLC

Back in April of 2009, I published a post entitled “A Glimpse of Pay and Benefits in Africa.”  A few weeks ago, I had the pleasure to speak at an International Compensation and Benefits meeting in Houston, Texas, hosted by the National Foreign Trade Council, where my topic was also focused on Africa in general, and some information about pay practices there.  I thought it would be nice to share some highlights here.

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Employment in France – A Quick Checklist for Employers

Guest Author:
John Tinsley – Compandben.com

Editor’s Note:  This post is written by John Tinsley, Managing Director and Owner of Compandben.com, a Geneva-based HR consultancy.  John is an HR practitioner with over 25 years of experience in Europe and the Middle East.  John’s company offers assistance to employers in finding reliable local payroll partners in over 100 countries.  He also provides consulting services in areas such as labor contracts, employee handbooks, benefits, and compensation.

Employment in France has some unique requirements and challenges.  For employers establishing businesses in France for the first time, the following checklist is a handy guide of what to consider:

  1. All employees in France are notionally attached to a “Convention Collective” or Collective Agreement for their industry. The agreements are very similar but there are variations between industry in terms of vacation, social charges, and termination indemnities, so employers need to define what their business is. As an example,”Telecoms” wouldn’t be detailed enough. “Provision and implementation of routers for wide area networks” would be ok.
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Competitive? It’s All Relative.

Author:
Jacque Vilet – Vilet International

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:

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Managing Pay in a Global Enterprise


Author:
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.

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The Case of the Twisted Quota

Author:
Chuck Csizmar –
CMC Compensation Group

For many global companies with a direct sales force the design and administration of their compensation program is in a constant state of flux.  It always seems to need a further bit of tweaking, as dissatisfaction follows in the wake of any plan design.  Why?  Every uncomfortable participant who’s on the receiving end, from senior management to the employee pounding the street, feels that they know what’s wrong.  The verdict is that not enough money is offered for successful performance.

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Ten Steps For Building A Salary Structure

Author:
Warren Heaps – Birches Group LLC

A salary structure is commonly used by employers to set out the range of pay, from minimum to maximum, associated with each salary grade or band. By associating each position with a grade or band, employers can use a salary structure to help manage compensation in an optimal way.

Here are ten steps to develop a salary structure for your organization, with some special considerations for international developing markets:

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Transitioning Compensation from Classroom to Reality


Author:

Chuck Csizmar –
CMC Compensation Group

I once supervised a Compensation Analyst who had learned her craft through professional seminars and workshops.  One result of that education was her favored response when faced with a challenge at work:  “the greatest minds in Compensation say that . . . ”   It took patience to educate this budding practitioner about the difference between classroom / textbook answers and workplace reality.

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Localizing Expatriates – Trap or Solution?


Author:
Warren Heaps – Birches Group LLC

Expats are expensive. With more and more focus on the cost of international assignments, companies are looking for ways to reduce expenses. The challenge is finding the most effective way to do it.

I believe one of the alternatives companies should consider is to simply reduce the number of expats! But this is easier said than done.

Localization is one approach which can be used to achieve this goal, but it’s hard to get it right.  Let’s look at some approaches and pitfalls when considering localization.

Localization Approaches
One of the most common approaches to localization is to convert the expat to local terms and conditions, and provide a phase-down of expat allowances and benefits.  For example, the expat would receive a salary according to the host country salary scale and participate in the host country benefits.  During a transition period (usually one to three years), the employee also would get some expat benefits.  This usually includes a transition allowance which provides the full net difference for a year, reducing in equal installments to zero after three years.  In addition, companies often provide continued schooling assistance for several years.

Some of the challenges with this approach are in the areas of benefits, taxes, immigration, schooling and housing.

  • Retirement Benefits – Companies face the issues of different levels of benefits, bridging of service, and shortfalls in both the home and host social security plans. Careful attention and analysis is required to resolve these issues.
  • Health Care – Many expats have coverage under global plans. When localization occurs they switch to local coverage. How does the local plan measure up? What about pre-existing conditions? College-age dependents at home? What if the local plan is not adequate when compared to the prior coverage? Some organizations allow continued coverage under the global plan in these cases.
  • Taxes – Many companies provide tax preparation assistance to newly localized staff (but not equalization). You should also be aware of trailing tax liabilities generated by incentive pay and equity compensation.  In some cases, equalization may be appropriate.
  • Immigration – Laws must be consulted to ensure expats can remain employed legally in the host country, and family members can stay in-country. This is one of the most critical issues to address, since mistakes can result in severe consequences.  In some cases, long-term expats can get permanent residence, which may also provide opportunities for spousal employment.
  • Schooling – Assimilation and adjustment of the family is a key to a successful localization. Schooling for the kids is often the biggest challenge, especially if the host country language is different from the home, or if local schools have lower standards or different curriculum options than the international schools. Many companies provide generous support for schooling during a transition period, aiming to prevent disruption in studies, especially for older students. Consulting with educational specialists, such as School Choice International, can be a very effective way to assist employees in making the best choices.
  • Housing –This is the other major element of the expat package that dramatically impacts the expat and family, and can be quite contentious.  Expat housing standards are often much more generous than local standards, and are located in the most desirable and expensive neighborhoods.  Localized expats may not be able to afford housing in the same locations.  Companies can provide limited assistance for a local move, as well as a shipment of goods from home. Assistance with buying a home is another benefit to consider.

Saving on Expat Costs
Localization generates savings for the company when the cost of local salary and benefits is less than the expat package. When calculating the savings, don’t forget to consider the cost of transition benefits (including any tax gross-ups). You may find the savings to be elusive for the first few years.

Useful Tools
One excellent tool to help employers calculate localization costs is the Permanent Transfer Calculator from Airinc. This tool calculates the net differences for all of the key package elements and illustrates the level of transition benefits needed. It is a very useful tool which enables companies to make informed decisions when localizing staff.

Other Considerations
The most common localization options are usually applied in host locations such as the US and Western Europe.  It is usually easier to localize staff in higher wage locations, and in developed countries.  Some companies localize staff in lower-wage locatio ns in the developing world, but these cases can be very challenging and demotivating for staff.  In addition, family assimilation can be much more difficult.

Companies sometimes localize staff only to re-expatriate them a few years later. This is generally a bad practice and causes a lot of confusion, especially for retirement benefits.  Instead, look at your career and succession planning and evaluate the chances of another expat assignment in the future. It may be more practical to consider reduced allowances instead of full localization in these situations.

Finally, always consult with your legal counsel when changing terms and conditions for expats. In many countries, laws limit the ability to reduce compensation.

Summary
Localization can be a useful technique to save money and reduce expat costs. Careful analysis and planning is required to make it work, and attention to family transitions is essential for success.

The Challenge of International Market Pricing

 


Author:
Chuck Csizmar – CMC Compensation Group

“What is the competitive market price for a particular position?”

It’s a simple question.  If you work in Compensation, this is what you do.  And if you’re in the US, the survey sources you can call upon are numerous and well-stocked with participating companies and benchmark matches – the blessings of a large country.  In fact, it is a common practice to segment the data (report separately) on the basis of industry, revenue size, or geographic region.  In some instances you can further refine your analysis by operating budget, staff size or even years of experience.

For those accustomed to such robust analysis it can be a real wake-up call when asked to conduct a similar analysis for operations in another country.  Suddenly your content-rich environment has disappeared, and in its place you find that the availability of good information can no longer be taken for granted.  Now what do you do?

Your large country database is gone.  Instead, you face a limited selection of survey sources and each offers only a fraction of your normal participant count – a far cry from business as usual.

Such is the key challenge when pricing international jobs – the limited number of companies included in surveys, even by the major vendors.  For example, Mercer Netherlands has 81 participating companies.  So it is not unusual for a market pricing analysis to include only 4 – 5 “matches” – but is that representative of common practice?

If you’re the one on the asking end of the original question, let me share the challenges your analyst is likely to encounter.

Impact of Reduced Participation

  • Limited industry segmentation:  Reported data will likely cover multiple industries, with limited or no segmentation.  If you’re in either a high or low paying industry, surveys will provide inflated or discounted  information.
  • Hard to segment by revenue size:  To the extent that larger companies pay more than smaller you lose that distinction as well.  This can be especially problematic if you’re a small company.
  • Global responsibilities vs. strictly national:  The distinction is often blurred between national, regional and global responsibilities.
  • Combination jobs not well represented:  You will find yourself matching against jobs “close to” your own, just to gain a “feel” for pay levels.  If your job content varies from benchmark descriptions, reported data might not capture such idiosyncrasies.
  • Poor matches and / or no data when less than 5 respondents:  Surveys tend to provide an “n/a” when they do not have enough participants.  When you start with limited companies it’s not unusual to find unreported jobs.
  • Forget Regional variations:  While it is often the case that certain geographic regions have higher pay levels, the reported data is usually national.  You may assume that participants are in the higher paid region, at your risk.

What to do?

Frustrating, isn’t it?  You can’t very well throw your hands into the air, complain about poor survey quality and move on to something else.  The limitations are there and you have to play with the cards you’ve been dealt. Management is waiting, wondering what is taking you so long.

Working with limited resources is a test.  Your challenge is to balance an understanding of the subject position, the industry and the vagaries of limited data points in order to determine which figure best represents your position’s competitive value.

To succeed you must utilize subjectivity and your professional judgment to consider the available data and gauge which figures best reflect the job under review.  The correct answer will no longer jump off the page at you.  Compensation has become an art, not a science.

  • To improve your matching, consider either the 25th or the 75th percentiles instead of the median or 50th percentile to reflect your position: this can be effective with poor matches, or concerns that the reported job is either larger or smaller than your own.
  • You may have to add or subtract from a benchmark job to gain a more appropriate figure for your position.  For example, if your job is a VP but the survey matches stop at the Director level (or converse), you may have to adjust up or down to create a better “guesstimate.”  Note: in such a case don’t forget that the incentive percentages will likely differ as well.
  • There is no formula in making adjustments, but changes in organizational level are usually around 15% – 20%.  Within-level description changes are usually around 5% – 15%.
  • If dealing with only a few positions you might have greater success by individually pricing jobs through a vendor’s database of multiple surveys, government sources and local surveys.  Vendors like ORC, Birches Group and a few others offer this select service.
  • Be careful of the arithmetic exercise (averaging averages, inappropriate matches, assuming numbers, etc.) that delivers a figure you cannot validate later.  Caution: a number is remembered, while often the qualifiers that follow are forgotten.  Make sure that you document such concerns before providing specific data.

All this subjectivity means that your judgment might suffer from more skepticism, even criticism, as you cannot simply point to a survey page and say, “there it is.”

Does all this subjectivity ruin the value of your analysis?  Not at all, as long as you inform management about how limited survey resources have impacted your analysis.  They expect an answer to their question (market value?) and you need do the best that you can with the resources you have available.

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Everybody Hates Performance Appraisals – What to Do?


Author:
Warren Heaps – Birches Group LLC

I read an article today from the Wall Street Journal by Dr. Samuel Culbert of the Anderson School of Business at UCLA.  In the article, the author states:

“This corporate sham [performance appraisal] is one of the most insidious, most damaging, and yet most ubiquitous of corporate activities. Everybody does it, and almost everyone who’s evaluated hates it.  It’s a pretentious, bogus practice that produces absolutely nothing that any thinking executive should call a corporate plus.”

I recommend you read the rest of the article.  You also might want to refer to this video interview with the author from 2008 – you can find it here.

It is true that most folks dislike the performance management rituals that exist in their organizations.  For the most part, few managers are very good at providing meaningful feedback, and there is a “check the box” attitude from managers and staff alike.  And the problem is with the whole concept — it’s not just a question of making a better form, or applying the latest Web 2.0 technology to automate a bad process.  That just results in a very efficient, but no more effective, bad process.

I will leave it to Dr. Culbert to describe what else is wrong with performance appraisals.  Instead, I would like to challenge you to think about a couple of concepts which could actually improve performance management for everyone.

At Birches Group, we did some research a few years ago for a client, which involved interviewing staff in every corner of the world about their  company’s performance management system.  We asked employees if they liked performance appraisals as they were conducted in the organization; they did not.  Then we asked if they could identify the “good” and “bad” performers; without exception, they could.  So we started investigating how it was possible they could figure out who was a strong performer and who was not, despite the formal performance management system they disliked so much.

The answer was incredibly simple.  For the “good” performers, the answers to these questions were YES:

  1. Do you have good ideas?
  2. Do you listen and adapt your ideas to client/customer needs?
  3. Can I count on you to deliver?
  4. Are you an effective team player?

That’s it.  Our research indicated that if we could answer these four questions we would have enough information to evaluate the performance of an individual in any organization.

Think about it.  Apply it to your company.  Does it work?  Can you think of anyone in your company that can answer yes to all of these questions?  Are they a good performer?  Imagine the implications of such a simple approach.

We built a system, called Community™, which is based on this simple model. With just four questions to evaluate performance, we gather feedback from employee, manager and peers (inside or outside the company).  The system is straightforward and requires no training (it has to be, since non-employee peers are invited to participate in the process, and there is no way they could be trained).  And, surprise, it actually works!

Another key issue with performance management is how it is used in tandem with rewards – usually merit pay and short-term incentives.  “Pay for Performance” is the rule now in most organizations, but stop and think about how performance really influences pay.

In most companies, salary ranges or bands are defined using a combination of external market data and internal equity issues.  Once these bands are defined, the range of base salary is locked in. Performance management is then used to help determine the following:

  • An annual “merit” increase – this is an annual increment based on an employee’s performance.  In many developed countries, merit budgets have been hovering around 3% or less for many years.  So, companies are expending tremendous resources to determine if an employee should be eligible for 2.5% to 5.0% (approximately) based on their performance rating.  Is it worth it?
  • Annual short-term incentives – these bonus payments are likely based primarily on company financial results.  There is usually an individual component too, but often it’s very small.  Again, is it meaningful?

Should all staff be treated equally when it comes to performance management? Certainly all employees should receive feedback on their performance from their supervisor.  But should performance ratings be used for “pay for performance” across the board?

We sometimes think about this as a wedding cake.  As you know, the base of a wedding cake is tall and wide.  Additional tiers of the cake are shorter and narrower, and as you go higher and higher up the cake the tiers get even smaller.  We can draw an analogy between a wedding cake and broad organizational categories.

For example,  the lowest tier might correspond to support staff, for whom rewards could easily be designed based primarily on basic metrics such as attendance, coupled with tenure-driven increases.  Yes, a lot like civil service, but perhaps more appropriate for these positions.

The next level of the cake covers core professionals.  For this group, the primary reward mechanism could be related not to attendance or tenure, but the demonstration of new competencies related to their job requirements.  This group would benefit from clearly defined competency milestones and peer feedback, for example.

The next level (or two) would be reserved for managers and executives – the folks who are managing the business operationally and strategically.  For this group of staff, some pay should be at risk, and rewards should be based on how well the company does in meeting it’s overall performance objectives.  Primarily financial objectives, but also consideration of leadership strengths and other key decisions made by the management team need to be considered.  Clearly, though, it is these groups that have the most direct influence over company results.  In other words, perhaps when it comes to pay for performance, one size does not fit all.

All employees deserve regular, constructive feedback about their performance.  This is not a function of the system you use or the form design; rather, it needs to be embedded into the culture of your organization, to encourage frank conversation, open and honest exchanges between managers and staff, with the aim to celebrate the good (as opposed to focusing exclusively on the best).  Rethinking how performance ratings are used to administer pay and rewards is long overdue in most organizations.

What do you think?  Please share your comments and thoughts!

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