It's human nature to look for simple solutions when faced with perplexing problems. Simple answers avoid confusion, keep you “on message” and help (you think) create greater employee awareness and appreciation of programs and policies. It used to be called “pushing the EASY button,” but now we call that effort “transparency.” However, when you're dealing with the diversity and complexity of international compensation it's just not going to be that easy – nor should it be. For those seeking the simple life it can be difficult to understand and accept that each country operates in a different environment from the next.
There is no cookie cutter out there.
Perhaps because of its long history of isolationist tendencies, or perhaps it's due to a bit of Yankee arrogance, but U.S. managers tend to struggle with the challenge of this "no, we're not all the same" concept more than many other players on the global scene.
“Why can’t we do it our way?”
For the most part U.S. managers don't want to hear that pay levels in Finland, or Argentina or Tunisia are different from the U.S. - even for identical jobs. Instead, they would rather treat everyone the same, call it globalization and with a pat on their shoulder consider themselves a one-world player. But those who push such an agenda of simplicity foment and spread a misleading distortion of the facts, a twisted sense of reality that they'll find very costly to implement, and its inevitable results will more than likely irritate key talent within their workforce. Plus, you’ll be caught in a crossfire between uncontrolled over/under spending and wasting money.
Consider the senior manager who simply wants to convert a foreign national’s salary into U.S. dollars – based on a concern with what they call “internal equity”? The assumption is that everyone pays approximately the same for an “XYZ Manager” - or should.
"We pay $60,000 for the job; what's that in Euros"? Or worse . . ..
"When we convert our UK employee 's pay to U.S. dollars their pay is less than their U.S. counterpart. We have to do something."
No, no, no.
Other considerations:
- If simple conversion was a viable approach, why don't we see such formulae prominently displayed by highly reputable salary survey providers? Why are all figures still reported in only local currency?
- Local national employees will be skeptical of the simplistic approach, as in their mind too many local realities would be ignored in favor of what is perceived as Company standardization for the sake of administrative ease. And that somehow, the Company is saving money at the employee's expense.
- Lacking a strong correlation between country pay levels you will either needlessly increase your compensation costs, or under-value your employee talent and risk disengagement – or worse.
I once developed a formulaic approach that explained to a COO why he could not (should not) attempt to establish internal equity between the U.S. and the UK by simply converting GBP into USD. I factored in a host of elements, including local taxation, competitive pay levels, incentive practices, cost of living, required social charges, benefit costs, etc. to make my case. My point was that a simple conversion would be a distortion of the economic realities that drive pay levels in both countries.
Sad to say, but the explanation was ignored and the COO, though he acknowledged the logic of my argument, continued to prefer a simple conversion to establish relative values in his own mind. So, every time the conversion issue arose, we had to rehash the myriad differences between countries, to remind decision-makers that apples are not oranges. That there is no universal fruit.
That there is no series of formulae to cover every country on the planet. Because a formula used for the U.K./U.S. would not be appropriate anywhere else. And legislative, competitive, and financial issues are always evolving in countries in all directions. What happens in the U.S. stays in the U.S.
To operate successfully on a global basis management needs to understand, to genuinely believe that each country operates like a separate and sovereign national entity, with distinct economies, taxes, competitiveness, employment laws, culture, statutory benefit requirements, etc. that make a 1:1 comparison with any other country a distortion that will cause you to either overspend or under spend your reward dollars. Either result should be avoided.
So, when the question comes up, and it will, “What’s that in USD?” do not go there.
Chuck Csizmar CCP is the 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 clowder of cats.
Creative Commons image "Decisions, decisions," by torbakhopper
Always good to read a well-written explanation as to “why” Comp is not always as simple as first thought. This is a tenet we also need to look more closely at, going forward, with “work from home (within the US and around the world.
Organizations previously within a geographic footprint will be looking further afield to obtain necessary talent which may have different expectations or be subject to legal requirements those organizations may not be aware of.
Posted by: Shawn Miller | 03/11/2021 at 01:15 PM