Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – with the intent to level the playing field for those with multiple country responsibilities.
However, for the rest of their international population it’s not as straightforward.
Companies with local national employees face a challenge and a risk when it comes to their decision as to how to reward 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 standardize pay practices?
For those charged with developing tactics 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 approach 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.
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? The metrics below illustrate what they would wish to standardize for each country:
- Value (price) jobs irrespective of locale. Some prefer to use the US dollar as a global "common denominator."
- The pay mix of base salary and incentives. This presumes that everyone views the opportunity for variable pay in the same fashion.
- Universal date pay increases. Every employee should have their performance review at the same time.
- Average pay increase percentages. The percentage should be fixed with a global percentage, not country-specific.
Why doesn’t one size fit all? Why can’t you treat all employees in the same fashion, no matter where they're working; they all belong to the same company. Perhaps you should consider these points before reaching for that cookie cutter.
· Economy: When dealing with country-specific inflation rates ranging from flat to 20%+, do you really want to offer the same percentage salary increase? What if one country's economy is struggling (US), while another remains relatively unscathed (Australia)?
· Culture: In some regions job and income security needs command greater 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, India shows more interest in base salary and the CTC (cost-to-company) package than variable compensation.
· Competition: Companies react to the cost of labor vs. the cost of living. If their marketplace 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 and a talent drain.
· Representation: National unions and Works Council impact on pay actions could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.
To be fair, varying practices according to country-specific conditions could cause a degree of consternation with the back office or headquarters staff and their computerized systems. These are folks who like things neat and pretty, the path of least resistance. "Where's my easy button"? 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 common format and methodology, the result could be more than just confusion and local administrative difficulties. It could also mean the likelihood of over payments in some quarters while under paying the market in others – all for the sake of sameness and common report generation. This would serve up a combination of hurting employees while also harming the business.
So think about it. The easy road of simplified administration is rarely an effective rationale when making proper business decisions.
Chuck Csizmar CCP
is founder and Principal of CMC Compensation Group, providing global
compensation consulting services to a wide variety of industries and
non-profit organizations. He is also associated with several HR
Consulting firms as a contributing consultant. Chuck is a broad based
subject matter expert with a specialty in international and expatriate
compensation. He lives in Central Florida (near The Mouse) and enjoys
growing fruit and managing (?) a brood of cats.
Creative Commons image courtesy of liberalmind1012