Many companies new to international operations find themselves hesitant to purchase country-specific compensation surveys - because of the cost involved. Every country, no matter the headcount involved, is priced like a separate USA.
For example, if US-based Acme Manufacturing has operations in Germany, India and Argentina, survey costs for these three countries would be 2-3 times the cost of comparable US surveys. And as most compensation experts recommend using multiple sources to better gauge market trends, the cost factor quickly becomes an eye opener. The more countries you operate in - well, you get the point.
Hence the hesitation.
However, is putting off your competitive pay analysis a good business decision? What is gained by remaining ignorant of whether your compensation packages are competitive? By happenstance you may be lucky and are already providing compliant and competitive rewards. More likely though, the odds favor that you're either overpaying or underpaying your employees.
Long Term Impact of the Status Quo
Let's look at the scenarios that can be playing out while you remain unaware.
Over Payments:
- Where your compensation costs are higher than the competitive market, without a corresponding ROI in productivity or performance (more pay is not a 1:1 correlation). You are wasting money.
- Most employees will not recognize that they're being paid above average, so any presumed positive perception is an illusion.
If you're overpaying, but don't realize it because you haven't obtained credible survey data, you will likely presume that your pay is on par with the market, when in fact you are paying at above market rates. How much money (the differential) will you be needlessly paying out on account of this mistaken presumption? Chances are, the cost of finding out would be a small fraction of the money being misspent. Not an efficient use of your reward dollars, is it?
Under Payments:
- Employees feel that they are not being compensated fairly
- Your ability to attract the right caliber of employee for your operations will be weakened by low compensation rates
- Employee engagement, productivity, morale, attendance, etc. will be less than what they should be, feeding off negative employee perceptions
If you're underpaying, but don't realize it because you haven't obtained credible survey data, you may likewise consider that everything is okay. After all, anyone who leaves does so for more money, right? But doesn't everyone say that? So you may not learn much through staff defections. Have you considered the annualized cost of losing just one experienced staff member? And should you lose more?
Choosing a course of hesitation and delay will not rectify these festering issues; they won't go away or fix themselves. Instead, your inaction will worsen the situation and make eventual corrections more painful.
Cost of Doing Business
Do you remember that ad line,"you can pay me now, or you can pay me a lot more later"?
While squirming to avoid costs the company might try to obtain free or token cost data off the internet. Good luck there. Pundits will tell you that the value of such information, even if available is usually less than what you paid for it.
Instead, ask yourself if you would spend a dollar today to save three tomorrow? That's the question you need to answer, to gauge the economic value of knowing the competitive position of your international employees.
Get ready though, as your financial folks might see it another way. They might only see a finite dollar amount being spent, against a "maybe" savings estimate. They will ask you for guarantees you cannot give. But buying information is different from a machine that can promise increased productivity, lower production costs, raised profit margins and lowered cost of sales - all measurable. It's all about using the information.
Does Marketing research the competitiveness of products and services? Of course they do.
To make informed and effective business decisions, management requires analytical knowledge of current operations, the challenges being faced, the import of the status quo and the implications of change. When dealing with the single largest cost to your organization, employee pay, it would be prudent to spend what is necessary to give senior management the proper ammunition for decisions that could help drive the business forward.
Yes, it would be well worth the cost.
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. With over 30 years Rewards experience 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.
Image: Creative Commons photo by Photos8.com
Excellent summary!
Posted by: Windsor Lewis | 09/30/2010 at 01:08 PM