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Many Compensation professionals working in global companies believe their jobs would be much easier if Compensation policies/practices were the same at all company locations worldwide.
There is increased talk about how Compensation and other HR practices will someday converge around the world. Convergence means that HR management/compensation policies/practices are similar across countries and cultures and divergence means that HR management/compensation policies/practices are different across countries and cultures.
"Convergence" means different things to different people:
1) To some it means that each global company will have the same Compensation policies and practices worldwide --- differing only because of local labor laws.
2) Some believe that it will be individual countries that have convergent Compensation practices ---- not global companies.
Company Convergence
The results of the 2008 World at Work Global Compensation Practices survey reveal that 53% of respondents characterize their companies compensation policies/practices as convergent. (As the date on the aforementioned survey indicates, there has not been much research done on this subject in general compensation. Most of what has been done is focused on executive compensation.)
Global companies are attempting to create global practices, but not always with success. Even when a compensation practice appears constant across business units, implementation differences may make practice the same in name only. It is probably safe to say that compensation practices are converging to the extent possible within individual companies; as to whether there will be global convergence across countries and companies the jury is still out.
Country Convergence
There seems to be a tug-of-war between company and country convergence and, in my opinion, country convergence seems to be winning.
You can argue that if a company is globally convergent, then it will likely not be convergent at the country level. If they are convergent in each of their country locations, then they most likely won’t be convergent within their company worldwide.
Country Compensation surveys over time result in “convergence creep” ---- because companies must compete at the local level. Companies that ignore this, run the risk of being at a competitive disadvantage. In the “war for talent” this is particularly damaging.
Labor law within particular countries, especially with regard to labor unions, remains a significant differentiator in terms of HR approach. Employment/labor laws and works councils are unique and must be followed on a country by country basis.
The Case for Divergence
Culture: Using “culture” as an argument for divergence has been emphasized way too much. It’s become an even weaker argument in recent years. The changing values of the younger generation have made employers reconsider some of their work practices.
For instance, in Japan, Western individualism is becoming more popular. As a result Japan has moved towards U.S. practices in performance appraisal for employees. Korea is trending towards individualism and away from collectivism. Chinese companies today --- non state-owned ---- put more pay at risk; base their employees’ compensation on skills, knowledge and abilities; base a large component of pay on performance; and include intrinsic rewards as a part of their rewards systems.
Differentiation: There is a major reason for divergence, and it is purposely caused by the company and not the country. Competitive advantage. Companies place more emphasis today on business strategy as globalization is creating intense competition. The focus on business strategy leads to increased differentiation --- in products, markets as well as Compensation and HR practices in general.
Successful companies in the same country may have widely divergent Compensation practices that work for each of them because of differences in strategy. Two companies may each choose to pay widely different pay packages to employees with specific skill-sets regardless of competitive practice.
If there is no “one best way” to compensate employees, then there is no reason to expect convergence to a single set of Compensation practices. In the case of differentiation, business strategy will trump geography and culture.
Perhaps the best way to strike a balance is to set responsibility for the design a of broad and flexible Compensation framework at corporate and allow choice of plans that fit within that framework as well as implementation at the local country level. Some companies have found this to be an effective compromise.
What’s your opinion of Compensation convergence and/or divergence? Have you seen examples of this in your own company?
Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.
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