INTERNATIONAL REWARD
The importance of acting globally
The new mantra of global companies should now be “Think locally, act globally”. That’s the advice from a new paper appearing in a recent issue of WorldatWork Journal examining international compensation.
Focusing on the cultures underpinning remuneration philosophies adopted in some of the major world economies, the article argues that pay systems should be tailored to fit national cultures, but perhaps more importantly, there should also be room for “strategic flexibility” to align remuneration with organisations’ business strategies.
The report draws on previous research that highlighted the need for global companies to appreciate the diversity of national cultures in the design of their remuneration policies. In the 1990s, one such influential report stated a similar mantra of “Think globally, act locally”.
%ADVERT%
This is still true but the report questions the prominence placed on national cultures adding: “The logic of the global marketplace argues for strategic flexibility, rather then national culture, as the basis for managing compensation and reward systems internationally”.
In reaching her conclusions, the report’s author, Susie Cui, from the University of Minnesota, examined the types of employees needed to expand globally and the remuneration landscape found in the regions looked at.
Different pay for different employees
When entering global markets, the author says, organisations require the skills of employee populations consisting of:
home country-based expatriates
local nationals
third-country nationals.
While such employees may work together, they may require different pay approaches within different countries.
The report highlights the main factors that should be considered including:
standards of living
compensation rates
social security programmes
tax structures
cultural attitudes toward work
different concepts towards reward
pensions or retirement savings plans.
Examining each of these factors, the report summarises the situations found in the following economic regions:
1. United States
An individualistic system supporting performance-related pay.
Many benefits not subject to income tax with more scope for innovative compensation practices.
Incentive plans represent a high proportion of total compensation.
2. Europe
Varied practice across a large number of countries.
Many countries emphasise social responsibility.
In some countries, high tax rates on cash created a bias in favour of non-cash benefits.
3. Asia
Difference in China between practice of state-owned and private ownership with publicly-owned employers emphasising non-cash rewards.
China made up of many cultural groups itself with differing cultural preferences.
More collective value systems across the region especially in Japan and Singapore.
4. Australia
Attractive opportunities to restructure expatriate remuneration tax efficiently.
Deferred compensation not common.
More egalitarian systems of compensation.
With such variety in the cultural landscape it is inevitable that pay systems will vary but with the growth of the global economy such differences will diminish. So while cultural differences will continue to be a consideration, the convergence of economies will provide even greater scope to introduce international pay systems that can be aligned to business strategy even across national borders.
A final word
“Although the recent evidence does not suggest national boundaries (national pay systems) can be ignored or overlooked, it does suggest that sufficient discretion for individual organisations exists within these national systems to allow them to adopt compensation and reward systems to align them with an organisation’s business strategies.” - Susie Cui, WorldatWork Journal, fourth quarter 2006
Want to know more?
Title: "International Compensation: The Importance of Acting Globally", by Susie Cui, WorldatWork Journal, fourth quarter 2006.
Availability: Contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email: worldatworkjournal@worldatwork.org.
WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it "provides practitioners with knowledge leadership to effectively implement total rewards – compensation, benefits, work-life, performance and recognition, development and career opportunities – by connecting employee engagement to business performance”. WorldatWork is a not-for-profit association with a membership of more than 30,000 human resource professionals, consultants, educators and others, in 30 countries.
For further details about WorldatWork visit www.worldatwork.org