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Dear Workforce How Can We Devise A Standardized Compensation Strategy

Our international group recently acquired certain companies and merged other smaller ones. How can we devise a standardized compensation/reward strategy that would be applied across this spectrum of companies, both locally and abroad?
February 12, 2004
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Related Topics: Mergers and Acquisitions, Compensation Design and Communication, Dear Workforce, Compensation
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Dear Uniformity:

If by standardized you mean "identical," then you have set yourself an impossible task. The sheer difference in employment laws and market practices between countries prevents finding a common "one-size fits all" solution that will work equally well in each locale. If, on the other hand, you define standardized as having a common philosophy, your task is both manageable and important.
Before talking about the compensation aspects of this problem, you need to think through a series of business-oriented issues, namely:
1) Are your businesses significantly similar or are you trying to convey a "one company" mentality that makes such a common approach necessary? In businesses that are dissimilar, such a common philosophy may not be required.
2) Do people transfer between the various businesses so that some common approaches are necessary to the smooth transition of staff between businesses? If so, to what degree and in what kinds of jobs?
3) What is your current level of competitiveness in each country and how does that relate to your cost of products or services? In other words, if you put a common program in place, could you afford to do it everywhere?
4) What are the business purposes for having a common compensation philosophy? Will this enhance your competitiveness or does it just seem like the "thing to do?"
Unless it improves your ability to compete, drives greater levels of performance, focuses diverse businesses and cultures on some common issues, and elevates the "gene pool" of the workforce, then there is no compelling reason to have a common global philosophy. Assuming you have answered yes to these business issues and, you can now consider the specifics of the reward program.
Companies that are truly global have learned that creating a common compensation and rewards philosophy is important. Although the specific programs between countries may be quite different, the underlying philosophy of rewarding people at the 50th or 75th percentile of their relevant markets is the same. First, you'll need to consider the roles of:
  • Performance in your pay plans
  • Salary vs. variable pay programs
  • Benefits, capital accumulation, and retirement plans
  • The role of equity in the reward programs
  • The level of total remuneration you want to pay for standard performance vs. outstanding performance
  • The different segments of your workforce--do you need different approaches for technical people vs. administrative staff?
These questions form the basis for developing your global compensation strategy/philosophy. In addition, you will need to deal with the role of common local practices such as providing cars, providing specific government-mandated benefits. Are these the realities of doing business in a particular geography? Or should some or all of the value be traded off with other aspects of the total compensation program?
Your global compensation strategy also must account for two special cases of employees: executives and expatriates.
  • Executives need to be put on a common plan right from the start. It is critical that they share common programs and approaches to rewards and performance.
  • Expats and third-country nationals need to be paid competitively with their country of origin, but a separate package needs to be delivered for the living expenses associated with their current country of residence. Also, what is your position on tax equalization, and how will you handle it? World-class global companies have learned to pay this separate package in a separate supplemental check and to not "roll it into" the basic pay. This keeps it a separate payment associated with the current assignment, versus something that becomes, over time, an expected/entitled part of the basic deal.
SOURCE: David A. Hofrichter, Ph.D., principal & national practice leader,Buck Consultants, Chicago, Illinois, Feb. 20, 2003.
LEARN MORE: Read a Dear Workforce article, "What Basic Principles Should We Follow When Implementing Team Compensation," for additional information.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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