As an organization expands internationally, its market share grows, revenue increases, and workforce diversifies. Underneath all these positive happenings, the complexity of compensation management also increases.
When companies start out business units in a different country, it’s a common practice to send an employee to the local region (host country). Employees on international assignments present a challenge to HR and payroll functions in organizations. Compensation professionals need to delicately balance rewarding expatriates, motivating them, and incentivizing them to move to a new country (which can be for several reasons including personal travel interests) while controlling the costs for the corporate headquarters.
Even if your compensation and incentive designs are straightforward, being a multinational organization means you need to whizz through the intricate bureaucracy and needs of dissimilar countries in terms of culture, living costs, currencies, languages, time zones, and more. Another challenge lies in balancing global views and local execution. It’s extremely difficult to maintain consistency in bonus plans and reward schemes among all your centers because local contracts require flexibility. Also, controlling the workflow process and meeting timelines can be a challenge in itself because of the language and time-zone barriers.
Having a long-term vision and a strategy in place to handle the multifaceted nature of global compensation is essential for any business that’s in the process of internationalization. If your company has left or planning to leave a global footprint, then these five tips are for you:
1. Don’t replicate your headquarter’s policies, localize them effectively
It’s quite often the case that companies replicate their headquartered company policies as they expand. According to a survey conducted by Watson Wyatt Worldwide of 275 organizations located in more than two countries, one in two companies takes a standardized approach to handling global compensation. These one-size-fits-all policies create concerns with internal pay equity, adverse performance achievement, employee retention, and most importantly, profitability. You need to design customized compensation structures that specifically cater to the varied needs of each region.
2. Ensure compliance in the home and host countries
According to a report from EY, compliance ranks as the number one challenge organizations face in global compensation. This is because of the increased intervention from local tax and revenue authorities. You’ll need to pay attention to the regulatory compensation laws of the host country when you consider hiring a local team. This includes immigration and employment laws, minimum wage laws, income and social security withholdings, insurance, and intercompany charging/transfer pricing. A significant effort is often required to maintain compliance in all countries, and substantial penalties and fines may be imposed if a company is not compliant with both home and host payroll regulations.
3. Ensure the same (or better) standard of living
One of the main goals of global compensation is to maintain the expatriates’ standard of living in the home country. Maintaining an equitable structure can be extremely challenging but you can use the balance sheet approach to tackle that challenge. Build a balance sheet that lists the costs of major expenses in both the home and host countries. Pay attention to differences and use that to increase or decrease the compensation to keep it balanced.
4. Create benchmarks for local salaries
Benchmarking compensation for local subsidiaries is a real challenge because the pay structure is designed based on the local practices (tipping, for example) and laws. Some companies create bands to maintain internal pay equity, irrespective of the geographic location. However, this may not be the best course of action as it can have the opposite effect, creating inequality in countries with high costs of living. Your goal should be to create pay equity within each geographic location rather than the company as a whole.Create local benchmarks for base salary, bonuses, commissions, and other rewards.
5. Continuously improve with reporting and analytics
Leveraging the data and feedback you receive, both quantitative and qualitative, can greatly contribute to the success of your global compensation programs. You need to establish a robust data collection and validation system that gives you the confidence that costs and compliance can be managed across geographies. Periodically review reports about the global compensation and individual country-wise costs and drill down into pay bands, grades, or even pay components. This will help you identify areas of potential costs savings either in your existing business units or when your organization explores a new market.
How can Compport help?
Compport is a complete compensation management suite for global organizations to manage salary increases, bonuses, sales incentives, long-term incentives, and any rewards. Compport’s easy-to-use platform supports multiple currencies and pay periods which is crucial when handling global compensation. It easily enables you to design and execute diverse compensation plans for any geography, business, employee group while giving you the opportunity to efficiently govern the overall process and manage budget (with break-ups) centrally. You can create multiple scenarios to decide on the optimal budget allocation across different regions, divisions, and business units. It gives you complete control to manage the compensation process with both flexibility and consistency, With Compport, you can keep the core rewards philosophy the same and consistent while making necessary adjustments to serve the diverse/ local needs. Join us for a free demo and see what we can bring to the table.