Multi-national Firms Favor a Global Approach to Compensation Management

As another sign of the increasing globalization of business practices, a significant number of multinational firms today are managing their compensation programs worldwide. A new survey of global employers from Mercer Human Resource Consulting reveals that 85% currently have a global compensation strategy in place.

About half of these (42% of the total) have had the strategy in place for less than four years, while the remainder (43%) moved to a global approach more than four years ago. Just 15% of the firms surveyed do not have a global compensation strategy; however, all of them say they intend to introduce one within the next three years.

Mercer's survey, conducted in August 2004, includes responses from nearly 90 firms based primarily in the US and Europe. Three-quarters (75%) of the respondents have annual revenues of US $1 billion or more, and all are multinational, some with operations in up to 100 countries.

“Pay strategies play an important role in the success of multinational organizations,” says Mark Edelsten, a London-based international consultant with Mercer. “Increasingly, pay is being managed from a global perspective — to facilitate global expansion efforts, better manage labor costs, create internal equity or ensure effective governance. In addition, these strategies typically apply to all employees, not just a select group, such as executives.”

While compensation and broader reward strategies can encompass many elements, the survey respondents indicate that their global compensation strategies focus strongly on four areas:

• The positioning of pay relative to the market (cited by 72% as a component of their global compensation strategy)
• Short-term incentive design (cited by 72%)
• Long-term incentive design (cited by 68%)
• Consistent methodologies for job grading/leveling (cited by 64%)

Somewhat less prevalent are strategy elements related to desired pay mix, benefits and consistent methodologies for salary structures (each cited by 45% of respondents). Elements not commonly found in global reward strategies include work/life programs, perquisites, training and development, recognition programs and career programs, according to the survey findings.

Respondents indicated that their global compensation strategies are fairly detailed and specific, with most including either fixed guidelines (52%), detailed policies for all employees (22%) or detailed policies for senior employees only (16%).

Despite the prevalence of global pay strategies, Mercer's survey suggests that monitoring of these strategies is still a challenge. “Only half of the respondents said that the local HR function has a direct reporting relationship to corporate HR,” says Corinne Carlson, a Chicago-based international consultant with Mercer. “This can make it extremely difficult to monitor pay strategies on a global basis to ensure their implementation and effectiveness. As a next step in the evolution of global compensation programs, we expect to see employers devoting more time and attention to these governance issues over the next few years.”

Some respondents indicated that monitoring of global compensation programs is achieved primarily through the annual budgeting process (42%), global HR information systems (41%) and regular audits of country and business practices (34%).

Other key findings of Mercer's survey on global compensation programs:

• Survey respondents listed the following as their most pressing global rewards-related issues both now and in the near future: attracting and retaining key staff; using rewards to deliver performance; and strategic alignment of rewards with business strategy.
  
  
• For board members and other roles with global authority, pay decisions are made primarily at the global level. However, decision-making authority begins to migrate toward regional and local control concurrent with a decrease in the global responsibility of the employee segment.
  
  
• The majority of respondents indicated that pay mix for board-level employees is the most aggressive, split 50/50 between base pay and bonus. For global, regional and country manager roles, most respondents indicated a base/bonus pay mix of 80/20 or 70/30. For local country employees, the most prevalent pay mix is 95/5.

“As companies expand their global reach, they need to make sure their compensation and other reward programs support their business strategy,” Ms. Carlson says. “An effective global compensation strategy creates consistency in pay management, facilitates global employee mobility and ensures that the money spent on compensation is used wisely. That's why we're seeing heightened interest in global compensation programs among multinational firms.”

Mercer Human Resource Consulting is one of the world's leading consulting organizations, with more than 14,000 employees serving clients worldwide. For more information, visit www.mercerHR.com.

To learn more, consider these AMA Seminars:

• Fundamentals of Human Resources Management
• Performance Measures for Your Business

AMA On-site: Every one of AMA's 170+ public seminars can be delivered on-site. This flexible, money-saving option allows you to train ten or more people, when and where you choose, at a low cost per participant.