Category Archives: International Expertise

Independent Contractor or Employee?


Author:
Mariana Villa da Costa – Littler Mendelson

There are many situations when companies consider hiring “independent contractors” rather than direct employees.  When considering such a step in an overseas market, each country’s labor law should be consulted to determine the specific requirements of independent contractors in that country.  Here are some issues to consider that are commonly addressed by most country labor laws.

Independent Contractor or Employee?
The difference between an employee and an independent contractor is determined based on the requirements that one must have to be an employee.  While each country is different, generally, an individual will be considered an independent contractor and, therefore, will not be covered by the labor legislation, if he or she has independence to perform the work and it is not subordinate to a company’s directives and regulations, and when there is no exclusivity in the relationship between the parties.

5 Questions to Assess Independent Contractor Status

Here are 5 questions to help you determine if a relationship is a true independent contractor:

  1. A worker is an employee if the company has the right to control the manner and means of accomplishing the result desired.
  2. An employee is paid for his/her time and bears no risk of wage loss if the employer’s product is unprofitable.  An independent contractor has the opportunity to profit from the project and the risk of loss, depending on the worker’s managerial skill.
  3. An employee is not required to invest in the employer’s business.  An independent contractor makes some investment in tools, equipment, supplies, and facilities appropriate for his/her business.
  4. An employee may receive training.  An independent contractor has the skills necessary to perform the task without additional training.
  5. An employee enjoys a continuing relationship with the employer.  An independent contractor generally works on one project and moves on, accepting additional projects when and if available.

Key Considerations for Independent Contractors

Before engaging an independent contractor, be sure to consider the following:

  1. Determine the real need to have an independent contractor.  Could this work be done by an employee instead?
  2. Draft an independent contractor agreement that makes the case for real independence. Prepare a very clear and specific agreement.  Address all possible issues and avoid having the contractor sign non-compete restrictions.  Avoid mention of bonuses or other provisions, such as  vacation, work hours and other stipulations that look like employment terms, in the independent contractor agreement.
  3. Structure the day-to-day working relationship to support the contractor’s independence. For example:
    1. Do not put the contractor in the employment list or in the payroll and keep the contractor off organization charts.
    2. Do not provide an office or company business cards and do not schedule hours.
    3. Avoid constant email with requests that are more closely to control than simply guidelines on how the company wants a final product to be delivered.
    4. Do not pay the same amount every month.
    5. Ask the contractor to invoice the company with detailed information on hours worked and project deliverables to justify payment.

Additional Tests to Assess Independent Contractor Status

This checklist is based on the one developed by the US Internal Revenue Service (IRS).  It gives valuable information that characterizes most independent contractor relationships across the globe:

  • No instructions
  • No training
  • Services do not have to be rendered personally
  • Set own work hours
  • Not a continuing relationship
  • Control their assistants
  • No interim reports
  • Paid by job
  • Time to pursue other work
  • Decide on job location
  • Order of work set
  • Work for multiple companies
  • Pay business expenses
  • Have own tools or equipment
  • Significant investment in their business
  • Offer services to general public
  • Can make entrepreneurial profit or loss
  • Cannot be fired at will
  • No compensation for non-completion

Maintaining the proper classification of employees versus contractors is very important to ensure compliance with labor law regulations.  The rules are unique to each country, and HR professionals are urged to review the specific requirements for each country as needed.

Important Note: These guidelines are intended to provide a brief overview of the independent contractor issues in foreign countries.  It is not intended as a substitute for professional legal advice and counsel.

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“Think Globally, Act Locally” for Compensation Design

Author:
Warren Heaps – Birches Group LLC

A recent post by Chuck Csizmar focused on the “Easy Road to Global Compensation Success.” In his post, Chuck emphasized that taking a headquarters-country approach to managing compensation systems around the world might not be best, despite some perceived administrative advantages.

“Think Globally, Act Locally”
To steal the popular phrase used to describe environmental strategies, it’s really important to recognize that markets are different around the world, and company compensation programs should reflect a balance between global corporate philosophy and local practice and culture.  Successful companies already recognize this when deciding which products to make and sell, how to market and promote them, pricing strategies, etc.  So, it should not be surprising to find out that local reward practices differ from country to country.

Salary Scales – A Simple Example
Let’s look specifically at salary scale design to illustrate why local practice matters.  Employers use salary scales to define the range of pay that is associated with particular grades or bands within their organization.  The definition of the grading scheme should be global; there should be consistent measures of contribution used to determine job level, regardless of market, and they should reflect the corporate culture as well.  But should there be one universal salary scale across multiple countries?  I believe the answer is no.

Why?
The basic approach to designing a salary scale is defined by the span (difference between minimum and maximum) and the inter-grade differential, or IGD (increase from one grade to the next, usually measured at the midpoint).  The table that follows shows two typical salary scale designs, for the United States and Kenya:

Grade US Kenya
Span IGD Span IGD
Support (4-7) 50% 15% 400% 27%
Professional (8-10) 50% 14% 400% 27%
Manager (11-12) 50% 15% 250% 54%

You will notice several differences, including:

  • Spans in Kenya are much wider than in the US
  • Spans in the US are consistent between employee groups (although in some models there can be slight variations, usually wider for higher levels)
  • There is a much higher IGD between Professional and Manager in Kenya, than between Support and Professional; in the US, however, the IGDs are consistent

You can see the differences more dramatically when looking at a graphical representation of the scales in the two figures that follow (click the graphs to open full-sized views in a new window):

US Salary Scale Example

Kenya Salary Scale Exampe

One of the most dramatic differences is the big jump in Kenya between grades 10 and 11, and 11 and 12.  In fact, we see this pattern in many developing countries around the world.  The shape of the scale midpoints (the pink line) looks like a hockey stick, with the Managers grades (11 and 12) forming the head, while the other grades form the handle of the stick.  Contrast this to the shape of the line in the US, which illustrates a more even rate of increases across all levels.

If you dig a little deeper into the numbers, you can identify some reasons why the scale designs in these two countries differ.  For example, the market movement for salaries in the US averages around 3.5% (maybe even less last year).  In Kenya, market movement in 2009 was over 20%.

With market movement over 20%, if the spans were like the ones in the US, employees would move through the band too fast, and quickly reach the maximum.  The wider spans in Kenya also indicate there is great variation in pay levels in the market for the same positions.  The Kenyan scale also illustrates that there is a much higher level of difference between the higher paid and lower paid staff, compared to the typical US scale (note:  The US scale in this example excludes Senior Executives and CEOs).

There are many other examples of differences in how compensation is defined in a country, which elements are included, and how companies choose to adapt their rewards policy to reflect local culture and practice.  Compensation and human resources practitioners are well-advised to become knowledgeable about each market and adapt their company practices accordingly.

What experiences have you had managing compensation in different markets? Share some by adding your comments.

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The Easy Road to Global Compensation Success?

 

Author:
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.

The Challenge

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 Not?

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.

More About Chuck:

Three Rules for Compensation Surveys in Smaller Developing Markets

Author:
Warren Heaps – Birches Group LLC

Almost every day, I hear from a client or prospect looking for reliable market data in some small developing market, usually located in a part of the world that the big consultants have not yet discovered.  After all, our company focuses on those places!

One of the most common discussion points is about the difficulty the client is having in finding a survey which meets their needs in these markets.  You see, most clients have a very “developed world” view of what makes a good survey. But in smaller markets, you need to look at surveys through a different lens.

What Makes A Good Survey?
The exchange is typically something like this:

Client asks, “Do you have a survey for Gabon, in West Africa?”

I say, “Yes, we have a survey there, and for all of the countries in Africa.”

“Wow,” says the client, “that’s impressive.   How many bio-tech companies are in your survey?”

“Bio-tech?  None, I’m afraid.  We have a pharma company, but their office is very small.  Are there even any bio-techs in Gabon?”

“Well we are looking to open an office there, so we need to be competitive in our sector.  Do you know any other surveys I could look at?”

And so it goes.  This client, like many others, is looking for a survey in Gabon, a relatively small market, with the same parameters as they would apply in Germany.  Sector based surveys are very popular in developed countries, but in many small, developing markets, sector surveys just don’t work.

Rule #1 – Think Outside Your Sector

Why?  Simple.  The sector just isn’t big enough.  There might only be two or three similar companies, or like in our Gabon example, none at all.  To get a good sector survey together you would need at least eight to ten companies with a workforce of at least 20 to 25 staff.  But sometimes that’s not even enough.

I remember reviewing a survey once in a Central American country when I was a corporate compensation executive.  I was excited that the survey included 12 consumer goods companies (including my former employer).  We thought that with 12 companies, there would be enough data for some robust statistics.  It turns out there wasn’t.   Only 4 of the employers in the survey had a large presence in the country; the rest had small sales offices, and some had less than 10 staff in total.  Our company had staff over 150, including a regional headquarters and a factory.

So you see, a sector-based survey with 12 employers yielded good data for only a handful of positions.  My company, along with the others that had larger operations, were unable to use most of the sector data due to lack of matches.

Okay, so now you’re just looking for a survey – any survey.  Which employers make the most sense in order to get the market intelligence you need to make the right pay decisions?

Rule #2 – Look at the Leaders

Leading employers in all sectors usually have a full range of positions, from support to professional to executive.  These employers also have a strong employer brand, making them the preferred employers in the market.  The best talent naturally gravitate to these companies, as they are the ones reputed to be the best places to work.  More often than not, the leaders are multi-national companies or international organizations.

The multi-nationals are known to have disciplined approaches to reward, governed by global principles set down from headquarters.  They view compensation and benefits in a strategic way, and know the importance of using market data to determine rates of pay and benefits.

International organizations include employers such as the World Bank, various Embassies, the United Nations, the European Union, and so on.  These organizations are usually well-established in smaller developing markets, and attract the top echelon of the workforce.  Surprised?  One of the reasons is that many international organizations have very competitive pay programs which are benchmarked not only against each other, but with the private sector as well.

Together, a combination of leading private sector employers and leading international organizations captures the top of the market in many small countries.  So it’s a good place to start.

But wait a second.  You’re thinking “How will I compare my mobile telecom company to the World Bank?  They are not comparable to my company!”

Rule #3 – Use Cross-Occupational Job Matching

First of all, there are common occupations in all employers that are easily comparable.  For example, positions from accounting, finance, human resources, procurement and IT; plus secretaries, administrative assistants and less skilled support roles common in developing countries, such as drivers, security guards and messengers.

For professional and managerial positions, the real challenge is finding enough matches for a particular occupation to be able to report the data separately.  In order to ensure that there is data available for each professional level in our surveys, we often double-match positions to both a specific occupational benchmark (e.g., Brand Manager) as well as a generic professional position (e.g., Working Level Professional).  In case there are insufficient matches for Brand Manager, we can still report the aggregated data for all positions matched to Working Level Professional.  In this way, clients are assured to get a comprehensive picture of the market, even if the specific occupational matches fall short in the survey.

Is this good enough?  How many organizations use a different salary structure for each occupational group?  There are some, but not too many.   Using cross-occupational data is not really such a stretch, is it?

In Summary
There are other factors to consider when evaluating a compensation survey in small developing countries, but these three rules will help get you started.
I will write another post in the future discussing some of the other challenges. In the meantime, please share your experiences working with surveys in these countries.

More About Warren

Warren Heaps

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Developing Markets Compensation and Benefits Group on LinkedIn

Email Warren

International Employment Law “Quick Facts”: Canada

Author:
Mariana Villa da Costa – Littler Mendelson

Hello Readers! The first edition of our “International Employment Law Quick Facts” was a success! Many readers commented on the article and asked me to prepare profiles for other countries.  Again, please feel free to add a comment, or send me a note to let me know what you think about this post.  We will try to publish additional installments in this series based on what you request, so keep checking back!

Q. What are the definitions of employee, employer and independent contractor?

A. Before going into our definitions it is important to note that in Canada, the employment practices of most employers are provincially regulated, whereas federal jurisdiction is limited to employers that deal with national infrastructure, for example, banking, railways, and airlines.  Since each jurisdiction in Canada has specific legislation, it is important to become familiar with the local specifics before engaging in any labor and employment matters.

In Canada, the statutes that confer rights and obligations to employees and employers usually contain definitions. The Ontario Employment Standards Act has a good definition of Employees:

  • a person, including an officer of a corporation, who performs work for an employer for payment (wages);
  • a person who supplies services to an employer for wages;
  • a person who receives training from a person who is an employer, and
  • a person who works from home  for an employer.

Employer, on the other hand, is an owner, proprietor, manager, superintendent, receiver or trustee of an activity, business, work, trade, occupation, profession, project or undertaking who has control or direction of, or is directly or indirectly responsible for, the employment of a person on it.

Although there is no precise definition of the term “independent contractor” the idea is always of direction and control.  An employer is entitled to direct and control how and when the work is performed.  An independent contractor is left to determine how to perform the services for the client; the firm that retains the independent contractor  can only specify the product and result of the independent contractor’s work.

Q. Is it necessary to have written employment contracts in Canada?

A. In Canada there is no need to have a written employment contract.  A contract of employment will exist if it was agreed, either orally or in writing. However, written contracts are not customary, unless it is for executive positions, or if employees are hired for a fixed term or task.

The main reason for having a contract for executives is to clarify and address the severance package.  On the other hand, the need to have them in place for employees hired for a fixed term or task is to avoid the statutory obligation to give notice of termination.

Q. Are there any specific rules in regards to the duration of employment contracts?

A. In Canada, if there is no specified term, the contract will be presumed to be for an indefinite term. However, parties to an employment relationship can agree on employment for a fixed term.  In this case, the employer will not have to dismiss the employee and give reasonable notice.

It is important to note that if the fixed term of a contract expires and the employee continues to work without entering into a new fixed term agreement, it is understood that the contract becomes for an indefinite term.

Q. Are there any rules in regards to discrimination in employment?

A. Canada has very serious regulations in terms of human rights and discrimination; this is prohibited in various grounds.

The Canadian Charter of Rights and Freedoms sets a constitutional standard that all governments must follow — federal and provincial. The Charter states that every individual is equal before and under the law and has the right to equal protection. However, this Charter cannot be directly used by an employee against the employer; in those cases, the individual must rely on human rights statutes to challenge discrimination on employment terms and decisions.

The Ontario Human Rights Code is an example which defines that discrimination is prohibited in the areas of employment, accommodations, services, facilities and signage. It protects employees from discrimination on the grounds of race, place of origin, ancestry, race, ethnic origin, citizenship, creed, gender, sexual orientation, age, marital and family status, disability, and also addresses sexual harassment.

Q. What are the rules regarding working hours?

A. Different employment statutes in Canada define the work day and work week.  In most provinces, the standard work day is eight hours, but the standard work week varies in different provinces – the low is 40 hours per week, for example in British Columbia, and the high is 48 hours per week (Ontario) .

It is also important to note that most employees who perform supervisory and management functions are excluded from standard hours regulations.

Q. Are there any minimum wage requirements in Canada?

A. In Canada, an employer is obligated to pay employees wages of at least the minimum established in the jurisdiction of employment. In some cases and in some jurisdictions, employers do not need to pay minimum wage, for example, students who work in Ontario.

Q. What are the rules regarding the termination of employment?

A. In Canada the employment relationship can only be terminated for:

(i) Just Cause – When the employee engages in serious misconduct, e.g., disobedience, unlawful or dishonest conduct, violence, subordination, etc.  In this case, the employee is not entitled to any compensation beyond salary up to the day of termination.

(ii) Without Cause – Employer does not need any motive to terminate employee, however, reasonable notice or pay in lieu of notice must be provided.

Q. What should an employer know about benefits and social security in Canada?

A. Canada has an extensive social security system covering pensions and social welfare benefits, which provide coverage for almost the whole population.  Responsibility for the planning, management and delivery of social security programs is shared between the federal and provincial governments.

The universal pension system is state-funded, while employees, employers and the self-employed must contribute to the earnings related pension scheme and the employment-related benefits scheme, which covers sickness and maternity pay, unemployment benefits and other welfare assistance.

The only benefits that employers need to provide to employees are those related to the mandatory statutory social security programs, such as:

  • The Canada Pension Plan (CPP) for residents outside the province of Quebec and the Quebec Pension Plan for the residents. The CPP is a national social security program mandatory for all employers.
  • Federal employment insurance – a mandatory contribution that fund income frpm loss of employment, maternity, parental and sickness benefits.
  • Provincial worker’s compensation regimes – maintained in each province –  provide benefits in case of workplace injuries.
  • Provincial health and hospital insurance plans – provide for basic medical assistance and essential hospital care.

In Summary

I hope this quick summary can be used as a road map for employers doing business in Canada.  Please post your questions and comments.

Important Note:  This posting is intended to provide a brief overview of employment law in Canada.  It is not intended as a substitute for professional legal advice and counsel.

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Shock and Awe

Author:
Chuck Csizmar – CMC Compensation Group

When you first look to purchase compensation surveys for your international population, it’s going to be a real wake-up call.  For those accustomed to only US surveys you will find that the available data in many countries is more limited than what you’re accustomed to seeing, as are the number of companies involved.  What won’t be reduced though is the expense.  Quite the opposite.  If you have multiple countries to deal with, your budget for credible compensation data will likely become a multiple of your US experience.

When I worked overseas my budget for compensation surveys was 3-4 times my previous US budget – and I only had to worry about Europe.  What a shock that was – spending much more and arguably receiving less.

Think on it, though: each country is a separate USA, a unique national entity having country-specific labor laws, employment regulations, tax structure, competitiveness challenges and variations of economic strength.  For each you will need a country-specific survey to assess the local competitiveness of your employees.

International HR practitioners will need to adjust their thinking to react effectively in smaller countries, where the working population is limited and so is the number of survey participants.  It will be difficult to slice surveys by geography, industry or employee segment, as the data points grow smaller and smaller with each criteria.  For example, a well-regarded Mercer survey for Sweden showed 202 participating companies, while the Netherlands counted 81.  Meanwhile the US survey totaled 500 companies.

To compound this dilemma of accessing credible data you will typically be required to pay “list” costs for each survey, as compared to the US where I was able to gain lower 2nd copy costs and often times managed to wheedle discounts or “anticipated” participation rates.  Such tactics are not as readily available overseas.

Availability of locally-grown survey data is another challenge.  I have tried to locate such sources, even those provided in the local language, in order to create a greater “buy-in” sense from management, but with very limited success.   Even global companies with non-US headquarters tend to use the multi-national consulting firms.

Accessing International Resources

Should you require information for international compensation practices, below are a number of useful sources, each of which can be tapped via a Google search.  Note: many of the non-US sources focus on limited employee segments or functional areas, which may limit their usefulness during a general search.

Towers Perrin Mercer Culpepper
Hewitt Associates PwC CSi Remuneration
(AUS)
AON Hay Group VenCon Int’l
Reseach (GER)
Radford McLagen Economic Research
Institute
IPAS TymWork (SWE) Western Management
Group
Taylor Root (UK) CFA Institute EuroComp
(Western Mgmt)
Federation of
European Employers
Executive Resources
Limited
Watson Wyatt
Birches Group LLC Euro Remuneration
Network (GER)
Organization Resources
Counselors (ORC)
Ernst & Young Croner Reward (UK) Robert Walters (UK)
Baumgartner & Partner
(GER)
Interconsult Ltd
(UK)
Australian Institute of
Management

Should you only have a few positions (2-3) in a given country you can reduce costs through individual job pricing, vs. the purchase of an entire survey.  More than a few positions though, would render this tactic economically unfeasible.  A few notable sources (though others from the above list may also be able to help):

  • ER Limited
  • ORC
  • Birches Group

Note that I have not included sources from the current vogue of online surveys, like PayScale and Salary.com.  To my mind these sources still have credibility problems to overcome before they would be accepted by senior management as a viable resource.

Another effective strategy for reducing costs is to age current data forward, coupled with the use of biennial purchasing.  However, if utilizing this strategy have a care to limit its use to countries with stable economies.  Using such standard growth figures would miss the mark in countries showing greater volatility.

The Cost of International Operations

Too many HR practitioners and their Managers fail to take into account the expenses involved in keeping their international compensation programs competitive, especially where the organization has a small footprint in a given country.  For companies new to the international scene, and for those with small populations in several countries, the shock of survey costs could be daunting.  Many times the result is a reluctance to purchase the data, in some cases letting matters on the ground continue to fester – potentially overspending and / or creating debilitating equity problems for themselves.

Call it the cost of doing business, but if you’re going to maintain effective operations overseas, and you want to provide a competitive reward package (of course you do!), it would be unwise to shortchange the process by guesstimating or otherwise trying to make-do without credible information.

The cost of surveys is a fraction of the possible financial impact that could result from retaining non-competitive reward programs.

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HR and Reward Challenges in Developing Markets – Beyond BRIC

 

Author:
Warren Heaps – Birches Group LLC

We are all hopeful that 2010 will be a better year for business than 2009. When that hoped for upturn finally takes hold, where will your company find growth?  If your company is like many others, the answer to that question points to developing markets in Africa, Asia and Latin America, where growth rates are higher and opportunities are great.

Growth is Robust
Post-recovery estimates from the IMF for 2010 indicate worldwide GDP growth of 5.7% is expected, while GDP growth in developing countries is expected to climb 9.5%.

Regional comparisons are even more dramatic:

  • Sub-Saharan Africa – 9.6%
  • Latin America & Caribbean – 10.5%
  • Middle East – 14.9%
  • Central and Eastern Europe – 1.4%
  • Euro Zone – 3.6%

As you can see from these figures, growth in the developing world is expected to be almost three times greater, on average, than in the Euro Zone.  Investors have already discovered this; according to Bloomberg Business Week, the top ten performing stock market indices since December 31, 1999 are all developing markets, ranging from 901% gain in Ukraine, to just 318% in Brazil. With potential like this, it’s not surprising that more and more companies are focusing on new markets in these regions.

HR Challenges
The landscape for operating in developing countries is different from what many companies may be accustomed to in Western Europe, the US and elsewhere in the developed world.  For HR, the most prominent challenges are in two areas – talent and reward.

The Talent Challenge
Developing country markets are smaller than big developed country markets.  Fewer employers participate in the market, and not all sectors are represented, but those that do are all vying for the same people – the best talent.  Highly educated professionals are often in short supply, especially those with advanced degrees which are often obtained in the US or Europe.  While professionals may have training and education in a particular occupation, it is very common for these individuals to switch occupations for advancement opportunities.  They become generalists rather than specialists, and switch between sectors often as well.

Leading Employers Play a Key Role
Certain employers are found in a lot of developing countries, and help to define the labor market.  These employers include companies from the banking; consumer products; oil, gas and mining; and telecom and technology sectors.  Many of these companies are global multi-nationals which have been operating in developing countries for many years, and have a lot of experience with the conditions.  The other major players are international public sector organizations.  This group includes employers such as embassies, development banks, multi-lateral agencies such as the UN, and leading international NGOs.

Know Your Competition for Talent
Many private sector companies are surprised when we suggest they consider the international public sector as part of the group of leading employers with which they compete for talent.  After all, what do oil companies or banks have to do with embassies or the World Bank?  The answer is a lot!

International public sector employers are involved in a lot of the same activities as private sector companies.  For example, an MBA graduate being recruited by a consumer goods company for a brand manager role is the ideal profile for an embassy public information officer.  The engineers that the oil sector seeks can be deployed as project managers for infrastructure development funded by the World Bank, or an NGO such as the Global Water Project.  In addition, of course, there are occupations that are common to all employers, in areas such as administration, finance, human resources, IT, etc.  The lesson is to expand your focus in developing countries to include not only companies outside your sector, but some of the relevant international public sector institutions as well.

How Can I Be Competitive?
The second significant challenge for companies in developing markets is figuring out the reward structure.  Compensation schemes are different in each country, but there are some common themes across developing countries which differ from more developed countries.  For example, the span of salary ranges is often much wider than the typical 50% to 67% often found in developed countries.  The differential from one grade to the next can vary dramatically depending on the levels — often the jump from manager to executive can be 35% or more.

Base Salary is Just the Beginning
It is quite common to provide cash allowances, such as 13th and 14th month, as well as transportation allowances or housing allowances in many countries.  In addition, in-kind benefits such as beverages or meals, transportation (commuter buses) and subsidized loans are found in many markets.  The value of allowances and in-kind benefits can be substantial, ranging up to 30% or more in some countries.

Good Market References Are Important
One way to ensure a competitive position in the market is to establish your position with reference to the leaders, using a high-quality compensation survey.  The survey should include values for base salary, cash allowances, in-kind benefits and short-term incentives.  In addition, you’ll need to be aware of the social benefits and other statutory pay practices, how pensions and insurance are provided, and how the income tax scheme influences how compensation is structured.

In Summary
Developing markets are exciting, diverse and challenging.  Human resources professionals need to become aware of the unique market dynamics in smaller developing countries, including the role of leading employers and the complexities of how rewards are provided.

Note:  Birches Group conducts total compensation surveys in 147 developing markets.  Visit our website for more information.

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Warren Heaps

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Five Facts About International Schooling

 

Author:
Liz Perelstein – School Choice International

Most companies sending employees overseas offer some kind of cross-cultural training.  But we rarely think of cross- cultural training for school children, even though education can be a make or break issue for many families considering an overseas assignment.

As you can see from the facts below, even expats who send their children to international schools encounter cultural differences that may be significant, and may clash with family customs.  Schools – local and even international – are a microcosm of the culture they inhabit.  Without understanding the host country’s educational system children can be disadvantaged in the admissions arena, in academic performance and in the ease of transition.

Consider these facts:

1) Did you know that 8th graders in Belgium, Korea and Japan do not use calculators in math classes?

Curriculum differences like these make it hard for children trained on calculators to adapt to local mathematics instruction in these countries.

2) Did you know that German parents give their children a Schultuete, or a cone filled with treats on the day they start first grade?

Children unfamiliar with local customs can feel awkward or embarrassed, affecting the transition to their new school.

3) Did you know that in Brazil children either go to school in the morning OR in the afternoon?

Spouses may find it difficult to work in countries with a school schedule alien to them.

4) Did you know that Saudi Arabia is enforcing a law that requires expat children to attend a school of their own nationality?

Many families choose a curriculum other than their national curriculum, often to preserve curriculum continuity with former or future schooling.

5) Did you know that admissions for 4-to-10 year olds for New York City independent schools requires an entrance examination that is ONLY administered in New York City?

Admissions opportunities may be limited for children if parents are unaware of requirements.

To learn more about educational customs in different parts of the world, visit our School Choice International blog or our Fact of the Week Collection.

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Base Salary – Not So Basic!

Author:
Chuck Csizmar – CMC Compensation Group

Ever find yourself confused when asked to provide an international employee’s annual rate of pay?   Compared to the US, you will find scant uniformity between countries as to when and how monies are paid to employees, and this diversity can lead to confusion, misreporting of data and the potential for internal equity squabbles.  It is especially a concern when a US Manager attempts to hire a foreign local national without being certain of country-specific pay practices.

To a US employer, the term “annual base wage” or “annual salary” is simply the cumulative amount of payroll dollars (regular paychecks) dispensed over a twelve month cycle.  However, in many parts of the international community, it’s a bit more complicated.

Numerous countries consider statutorily required or common practice holiday (vacation) pay and Christmas (December) payments as part of what they term “basic salary” – which they report as a monthly calculation.  So what is the annual salary?

Defining Your Terms

In the US, annual salary is a common reporting term, an identifier to the company and the employee of the value paid to each position. To quote an annual salary is common practice.

The trick when considering global practices is to remember the distinction between the two annual terms:

  • Base pay – the amount of non-incentive wages or salary paid out over a twelve month period for work performed
  • Basic pay – the amount of non-incentive wages or salary paid out over a twelve month period for work performed, but including additional payments (usually in monthly increments) not directly related to the work effort

Some US companies prefer not to deal with the issue, relying instead on the US model of quoting an annual salary – then dividing by the total number of monthly payments due in order to calculate the monthly gross paycheck.

A client of mine once insisted on offering a candidate 75,000 euro, but no more for a key position.  When informed that in Belgium an extra month (13th) is common, and in fact mandated in many collective agreements, the response was “fine, as long as the total base pay isn’t higher than 75,000 euro.”

That candidate did not accept the position.

Here are a few representative examples to illustrate the diversity of practices across the globe.

  • Singapore:  While a 13th month payment (Annual Wage Supplement) is not mandated, it is common practice.  Executives typically receive 1 to 2 months pay as an additional bonus.
  • Mexico:  Companies are mandated to give employees a Christmas bonus equal to 15 days pay.  Common practice is to grant 30 days.
  • Peru:  Employees are entitled to a 13th and 14th month bonus; the 1st extra month is paid in July and the 2nd in December
  • Italy:  In December, employees are paid a Christmas bonus equal to a month’s salary.  In many contracts a 14th month’s salary is included and is paid in June.

The extra payments are not rewarding work performance, but typically provide extra monies for either vacation time or Christmas.  These practices are not commonly followed in the US.

What to do

To avoid confusion when dealing with local national employees it is helpful to talk in terms of monthly pay, the term commonly used by the employees.  No matter how many monthly payments are made, for whatever reason, simply multiply the payments to reach the annual figure.  To your international employee that is considered an annual pay entitlement, though not an annual salary as practiced in the US.

When reading compensation surveys make sure to check the definitions used; oftentimes the survey will report both an annual salary and a “guaranteed annual cash” – the latter inclusive of holiday bonuses and extra month’s pay.

Avoid setting a US-style annual salary and then dividing by the number of required payments to derive a monthly pay.  Instead, determine what you will pay on a monthly basis and multiply those payments by country-specific statutory requirements and common practice to derive (build-up) the annual salary.  It’s a bit more confusing for US companies, but it will be more meaningful for your international employees and likely save you employee relations issues down the road.

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Expat Selection: It’s Not Just Skills

Author:
Bruce Alan Johnson and R. William Ayres – Bruce Alan Johnson Associates (Pty) Ltd

Bruce Alan Johnson

Bruce Alan Johnson

Bill Ayres

[Editor’s Note:  We are happy to welcome Bruce Alan Johnson and Bill Ayres as Guest Authors.  Bruce and Bill have extensive experience working with companies to help understand how business is conducted in different cultures.  They are the co-authors of the book Carry a Chicken in Your Lap: Or Whatever It Takes to Globalize Your Business]

A large American corporation sent a senior executive to reside in an African country known for its wide religious tolerance, as the general manager of the company’s regional operations.  Managerially speaking, the man was qualified. But he brought with him a zealous sense of religious superiority that manifested itself as rigid intolerance.

In his first week on the job, he screamed at Muslims who were in a corner observing one of the five prayer times of the day, and then at Sikhs whose heads were traditionally wrapped.  By the next week, more than a hundred employees had walked off the job.  Some of them brought in government authorities to the site.  In the meeting that followed, the executive said that he would accept crosses as jewelry and pins, but no other expression of religious identity!  Even though the officials tried to explain the supreme importance of religious diversity in their country, the response was an arrogant assertion of “rights” that the executive claimed he had.

Of course he had no such rights, and a week later the government informed the American corporate headquarters that this executive would have to be removed at once, or all government contracts with that company would be canceled and official hearings would be held for the aggrieved workers.  He was recalled, another casualty of the mistakes companies make in sending the wrong people overseas.

Cultural Fit is Important in Expat Selection
Every time we talk to an audience about sending people overseas, we start with one fundamental point: not everybody can do this. Not everybody will be successful in Copenhagen just because he or she did well in Cleveland or Calgary. Furthermore, no magic, single thing guarantees success. The world is a complex place. It would be surprising if we didn’t need complex abilities to deal with it.

But what if you’re coming the other direction—sending people to the United States?  Over the years it has become quite plain that the most costly mistake made by companies sending people to the US has been the blind belief that there are dollar signs instead of “S’s” in the name United $tate$.  The second error lies in believing that a country as stunningly diverse as America is in fact an homogenous market.  America is not just 50 states—it spans 11 time zones, from the westernmost tip of Alaska to eastern tip of Maine.  And its people are so diverse in culture and outlook that domestic companies usually take great care to make sure that the right Americans are matched to the appropriate areas of the country for sales and marketing.  A person who sells successfully in Mississippi will almost certainly be rejected by the more harried residents of New York.

Recently a Middle Eastern company of considerable wealth sent a two-member team to New York City to head their American office.  Not only had neither member of the team ever been to America—both made vehement anti-Semitic remarks almost every day.  Needles to say, they were strongly resented by most New Yorkers, and failed completely.  They were recalled at considerable expense, the company’s reputation in the States tattered.

HR Should Take the Lead!
When it comes to finding the right people—and avoiding the wrong ones—human resources needs to play a critical role.  The reason is simple. Understanding the keys to choosing the people most qualified for overseas assignments is something that most line managers aren’t well equipped to do. Managers’ primary purpose is to get the job done.  Often, this does involve deciding who’s going to do what.  But in the international arena, those decisions are not based on how well you know the technical field or the business goals. They’re based on what you know about your people.

This is where HR can and should play a key role. Arnold Kanarick, who headed HR at The Limited and Bear Stearns, pointed out, “HR isn’t about being a do-gooder. It’s about how do you get the best and brightest people and raise the value of the firm.” Good HR offices are staffed with trained professionals who know how to evaluate aspects of a company’s people to assist tremendously in choosing the right people to send overseas.

To do that requires recognizing a fundamental reality: the world is a very complex place that does not lend itself to packaged solutions.  The primary challenge is finding people who can deal with differences—but what kinds of differences vary widely, depending on where your organization wants to go and what it wants to do.  There are no simple tests or easy systems for scanning personnel files.

So what should you be looking for?  Here’s a profile of what a potentially successful overseas assignee should look like.  Key characteristics include:

  • Matching demographic characteristics (gender, race, religion) to the place they’re being sent.  Different cultures react differently to different sorts of people.
  • Open-mindedness toward difference.  Can the people you’re sending work well with others who are different?
  • Language facility.  People who have no facility whatsoever for learning foreign languages—or, worse still, who actively resist even a modest attempt—should not be sent overseas.
  • Language assumptions.  Anyone who thinks the world speaks English (or their native language), or that the world ought to speak English, should stay at home.
  • Acceptance of the world as you find it.  Anyone infected with the desire to change other parts of the world to be more like their home will definitely do a poor job of representing your business.
  • Tolerance of different ways of doing business.  Just because you didn’t think of it doesn’t mean it’s wrong.
  • Time-change tolerance.  The more difficult it is for people to adjust to jet lag, the effects of travel, and time-zone differences, the less they probably ought to do it.
  • Cultural-time Flexibility.  People who understand that different cultures think differently about time, and who can adapt themselves to those cultural differences, will do much better overseas than those who don’t.

So how do you find employees who fit this profile?  There are two keys here: know what you’re sending them into, and know your people.  Choosing people to send overseas can’t be done with a one-size-fits-all checklist.  But a good HR department that does know the firm’s employees, and that does its homework, can make a tremendous contribution in helping companies get the right people in the right places overseas.

More About the Authors

Bruce Alan Johnson Associates

Carry a Chicken in Your Lap: Or Whatever It Takes to Globalize Your Business

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