Global Compensation Philosophy: One Brand, 31 Flavors

Multinational companies have enough complexities, why add to them? This is a refrain I hear from people who promote “global” programs in which a single tool is used across all regions to help build a corporate culture. For the sake of simplicity, let’s will call this the vanilla plan. In all the years I have been in this industry, I don’t think I have seen a vanilla plan work for more than a couple years. Tons of money can be spent in design and communication, but global markets, regulatory changes, management goals and other factors all change too fast to allow any long-term traction to this type of program.

I prefer a more flexible concept where everyone gets a similar tool. You can build in variations on the theme to ensure everyone gets something that works for their needs.  Let’s call this the 31 flavor program. Everyone gets ice cream, but there are enough flavors to keep nearly anyone happy. Some flavors are always available and in use, while other flavors are traded out as seasons and tastes change. These programs allow better alignment with current rules and an easier path for making modifications to meet future changes.

Some companies claim to have these programs, but when you look closer they actually just have many different variations of vanilla. Handling these multi-vanilla programs is nearly as difficult as those with many flavors, but without the added flexibility.

Obviously, there are tons of reasons to stay away from 31 flavor plans, but few of them are based on the fact that they don’t work. Administration can be a real issue, but systems are getting better everyday. Communication, though, is not a valid argument. In fact, designing programs to better fit local norms can allow for a far more streamlined and effective communication effort.

Company A decides to roll out equity around the world. They read that RSUs (Restricted Stock Units)are fairly easy to get approved in most countries and design a typical US-style program with units vesting annually over three years. They roll out this plan around the world without regard for average tenure of employees in different locations. They work to create competitive global market differentials, but don’t put much research into the tools and associated features their non-US competitors are using to deliver those pay levels. They spend a ton of time and money explaining how the program works, why the international employees have a plan that does not take advantage of their local tax-qualified plans and how the plan is designed to motivate and retain them for the future. Employees get similar pay offers from competitors with tax advantaged plans, or plans that simply fit their cultural norms and key players slowly drift out the door.

Company B spends a bit more time working to create a more flexible framework. Not only does the plan allow for multiple variations of features on RSUs, but they also offer locally tax-qualified sub-plans in locations with large enough, or critical enough, populations. The plans are communicated by combined teams of professionals from the corporate headquarters and locals with experience and expertise in the specific plans and local culture. Employees see no reason to leave as long as the company performs, because both their pay levels and delivery mechanisms are competitive. More importantly, they can understand the programs and talk to friends or colleagues who have similar compensation. As rules change, headquarters stays updated via the local players. Changes are made when needed and desired employees become long-term team members.

Yes, the examples above are simplified. Of course, there are implementation and administrative costs associated with the 31 flavor approach. But imagine if you walked into a store that sold only ice cream and when you looked into the freezers you saw tub after tub of slightly off-white vanilla ice cream. No matter how great it tasted, you wouldn’t want to come back often. Most importantly, its unlikely you would ever recommend the place to your ice-cream loving friends.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Comments

[Jacque Vilet]

Another example with a wellness program.

Company A implements a program that's "one size fits all". They focus on heart problems at all locations/countries regardless of what each location's main health problem is. (It is not clear whether heart problems are based on prevalence in the U.S. total or the specific health problem of their U.S. employees.)

Company B works with local insurance providers to determine the top health issue of their population in each country and uses it as the focus of a local wellness plan.

Takes longer to implement but has more value than Company A's plan.

[Dan Walter]

Thanks for the great example Jacque. I think this concept can be applied to commissions, STI etc...

[Warren Heaps]

Amen, Dan. Well stated. The analogy I usually refer to is "Think Globally, Act Locally." Same idea - adapting global norms to local reality is the only sensible way to proceed.

While you gave an example from the equity comp side, the same things are true for "regular" compensation. In the developing countries in which we specialize, the mix of compensation is like an infinite menu of ice cream choices - 31+ flavors. I heard today of a company offering a mountain allowance - that's a new one.

At the end of the day, companies should pay attention to national norms and culture in designing their so-called global programs. Without local input, it just doesn't work.

Kudos to Jacque for her example. I have heard also of a company that figured out for the diet portion of their wellness program in a large African country, to focus on food choices that were common in the local diet rather than the standard US ones. By adapting the program to local culture, it was very effective and well received.

There are some posts about these topics on my blog, International HR Forum (www.internationalhrforum.com) as well.

[Dan Walter]

Warren,
Thanks for your comments and great example. You are absolutely correct. There are an infinite menu of flavors, that's what makes our jobs interesting and difficult.

[Jeffrey Haynes]

Dan - this post is spot on... definitely in the strategic design of plans as noted above. This puts obvious pressures on technology to enable that consistent corporate approach yet remain flexible enough to accommodate the local nuisances and exceptions.

Another twist to the consistent v. local conversation is about an organization’s market matching strategy. For example, if a global organization has agreed on what a “Sr. Engineer” does (which implies they have done a ton of good global job structure design work to define the vanilla Sr Engineer) they then have to reconcile how to match it in different geographies, from different sources (is it a level 3 in Singapore but a level 4 in San Jose?; Is a level 4 in Towers Watson Asia survey comparable to the Radford 4 from Asia?). Often times this reconciliation process is even harder than the design of the job to get consistency globally but still locally relevant…. But, the key to it all is the consistent yet flexible framework you outline.

[Dan Walter]

Jeffrey,
Thanks for your comments. You mention two key points. 1) technology and 2) reconciliation.

Technology is improving, but many companies are scared by the implementation schedules that stretch beyond the people projected careers at a company. More work needs to be done to roll out new system in a staggered manner that focuses on high priorities early and evolution over time. Often it seems like this big HRIS, Comp System projects are an all or nothing task.

Reconciliation. More than anything this requires people. Better data would dramatically help, but there is a lot of "people work" to build in the art around this data science. Comp leaders need to be taught how make more convincing ROI arguments for this additional staff. I recently did a presentation on Compensation Planning (https://www3.gotomeeting.com/register/392570366) peak times so packed that compensation departments can't focus on strategy. Later Summer is usually slower. Companies should put global strategies on their June/July calendars now in order to ensure this item gets addressed when they have the time for it.