Competitive Compensation? It’s All Relative in the Global Marketplace

© TheSupe87 - Fotolia.com
© TheSupe87 - Fotolia.com

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.

Why market position can change between countries

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:

  1. China and India are “hot” markets even now with the shaky global economy. Having a market position of 50th percentile at least for salary and bonus/commission would neither attract or retain employees. In addition, if a company is new to China or India, has a small operation or doesn’t have a strong brand name, it would be even more difficult to attract new employees. Employees in China and India tend to be attracted to multinationals that have a strong brand name in the market. High pay is also important to them. Multinationals are in fierce competition, and paying higher than the 50th percentile is a must.
  2. Multinationals with operations in Taiwan are seeing Taiwanese-headquartered companies as major competition. Local employees view Taiwanese companies as attractive for career growth and development. In addition, they believe their chances for promotion into top management positions are greater than with companies whose headquarters are overseas. Therefore, there is a heated battle between overseas multinationals and Taiwanese-based companies for talent. Again market position of 50th percentile for cash compensation would not attract and retain talent in this example either.

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.

10 factors you should consider

Here are some factors that a company should consider before making a decision on market position:

  1. What companies in your industry are present in a country? Are they in the same location in the country where your facility will be?
  2. Are the companies that are present well-known multinationals or are they unknowns?
  3. Does your company have a brand name in the country?
  4. Is the government giving incentives for companies to move in? This will increase competition for talent.
  5. Are you in a remotely populated area of a country where there is not much competition for talent?
  6. Is there a surplus of the type of skilled talent your company is looking for?
  7. What is the unemployment rate for skilled talent in the country?
  8. What has turnover been for skilled and critical jobs for the past couple of years? Local consultants should be able to give you the information.
  9. What is the cultural preference in each country — high cash compensation and lower preference for benefits? Or the reverse?
  10. What is the number of graduates from universities that have degrees relevant for your operation?

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.

Base strategy on competition AND local culture

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.

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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.

One worldwide position is not the right idea

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!

Jacque Vilet, president of Vilet International, has more than 20 years’ experience in international human resources with major multinationals such as Intel, National Semiconductor, and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career. She has also been a speaker in the U.S., Asia, and Europe, and is a regular contributor to various HR and talent management publications. Contact her at jvilet@viletinternational.com.

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