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Competitive Compensation? It’s All Relative in the Global Marketplace
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With globalization comes added complexity for Human Resources.
When companies begin to expand operations into countries outside the headquarters, local in-country managers or a local administrative assistant usually take responsibility for HR functions. This approach may work fine for a while; however, as operations grow and the company expands into more countries, problems start to arise.
Let’s take employee salary for example. If the company is organized by business unit or division, there can be big differences in how employees in the same job are paid, even within the same country. This depends on how each division or business unit decides to run its business.
These problems are eventually noticed by corporate Human Resources, either because of their worldwide “oversight” responsibility or due to employee complaints. With the agreement of top management, HR begins to work on an worldwide total compensation (compensation and benefits) strategy.
There is a strong temptation, at this point, to decide that the overall market position for total compensation should be the same worldwide. Let’s assume, for example, that the company decides on a market position of 50th percentile.
Let’s look at a couple of examples and see the problem with this approach:
Not all countries are as competitive. But the point is that setting your total compensation strategy at a single market position worldwide is not a good idea without doing your homework first.
Here are some factors that a company should consider before making a decision on market position:
This data could be useful in determining whether there would be enough graduates to start hiring entry level talent.
Total compensation strategy includes not only salary, but other cash components (such as bonus, commission and allowances) as well as benefits. A company doesn’t necessarily have to pay at the same market position for all components.
It may decide to pay both salary and bonus/commission at the 75th percentile and other cash components and benefits at the 50th percentile. Or salary, bonus/commission and all other case components at the 50th percentile and benefits at the 75th percentile. The strategy, again, needs to be based on the competition as well as the culture of the country.
For example, Chinese tend to be very cash focused, while some European countries may be more focused on benefits. So, culture should be a consideration as well when determining total compensation strategy.
For countries where talent is scarce, turnover is high and there are many multinationals that are either larger or very well known, a company may have to pay at least cash compensation at a market position higher than the 50th percentile. Sometimes, the underdog just has to offer more to get noticed.
For countries where there is a surplus of talent, low turnover, or not much competition, then paying at the 50th percentile for total compensation may be totally acceptable.
At this point — having gone through the analysis above —-you have probably decided that having one worldwide market position is not the right idea.
Given all the variables that need to be taken into consideration, having a total compensation strategy that provides details for every country is not the right approach. Having too much detail can lock the company into a strategy that does not allow the flexibility to change when market factors change. It would be better to have a strategy that says something like this:
“XYZ Company will have competitive total compensation in each country based on factors that will be reviewed annually and that may change over time.” This statement is generic, but does allow for flexibility and does not require constant updating.
Putting together a total compensation strategy for your company may be a little overwhelming at times — but you cannot argue that the task does not provide variety!