CrossCultural Equity Issues US Citigroup Expatriates in China

Cross-Cultural Equity Issues: US Citigroup Expatriates in China By Team #3: Jason Lim Calvin Mak Yao Ting Ni Hsien-Fang (Fiona) Wu Taojune (Simon) Cheng

Presentation Overview n Fiona – Planning and Strategy n Calvin – Approaches to Compensation n Yao – Pay Gaps and Compensation n Jason – Employee Morale and Motivation

The Reasons For Choosing China n One of the fastest growing developing economies in the world 2004, 9. 5% n 2006 -2010, 8% n n One of the most lucrative markets for their foreign investments n Market of 1. 3 billion people

China’s Economic Background Prior to 1977, the government owned everything n In 1978, Economic Reforms and Open Door Policy n In 2001, World Trade Organization n Today, 20 times larger n

Labor Market and Expatriates n Cheap n Skilled n Need parent country nationals n As managers n As trainers

Compensation Plan n The going rate approach n The balance sheet approach n Calvin compensation plan

Expansion of Citigroup n There's an explosion of opportunity n Half earnings should derive from international markets by 2009

Strategies to Enter China n Alliances & partnerships ¨ Joint-name credit card with Shanghai Pudong Development Bank (SPDB) n License ¨ Internet China n banking license by Central Bank of Mergers & acquisitions ¨ Acquiring stakes in China's domestic banks

Compensation Approaches n n n Ø Going rate – equal pay, but hard transition from high pay country to lower pay country. Higher of host or home – equality, but very expensive for company. Balance sheet approach – preserves living standards, but can have great disparities. Reference points

Balance Sheet Factors Hardship premium n Base pay n Cost of Living n Overseas premium n Housing n

Hardship Factors n Housing n n n Climate and physical conditions Pollution Disease and sanitation Medical facilities Infrastructure Physical remoteness Political violence and repression Political and social environment Crime Communications Cultural and recreation facilities Availability of goods and services

Average Rental Costs Beijing, $1. 82/square foot Ø Shanghai, $3. 02/square foot Ø Guangzhou, $2. 25/square foot Ø Shenzhen, $1. 14/square foot Ø

Cost of Living Most expensive cities in the world: • Beijing (11) • Shanghai (16) • Shenzhen (30) • Guangzhou (32) 2004 CPI peaked at 5. 2%, ended year at 2. 4% Income tax rate 45%

Pay Gap & Compensation n Comparison n Pay of US & China pay gap Compensation n Current job market in Banking/Financial Sector in China.

US Pay Gap n CEO-Worker pay gap ratio: 281: 1 (2002) (Business. Week) n Increasing executive pay ¨ n 2004 Avg. total CEO pay w/ compensation $10. 7 mil (+5%) (Pearl Meyer & Partners) Pay varies regionally (HR Benefits Manager) ¨ Northeast $94, 700, West Coast $99, 400, North Central $83, 400, Southeast $82, 900, South Central $87, 700 (HR Magazine, Nov. 2004)

China Pay Gap n Executive-Employee pay gap ratio: 3 -15: 1 (2004) (The Development Research Center of the State Council) n Salary Range (Domestic vs. Foreign) Avg. worker salary 7, 443 Rmb vs. 15, 037 Rmb Avg. CEO salary 212, 000 Rmb (The Beijing Labor and Social Security Bureau)

China Pay Gap n Pay varies regionally ¨ Shanghai 44, 957 Rmb, Beijing 42, 118 Rmb, Guangzhou 37, 096 Rmb (South China Morning Post 2005) n Gender Pay Discrepancy Avg. annual income of working women in cities 7, 409. 7 Rmb (30% less than men) ¨ Avg. annual income paid to female executives and professionals (57. 9% & 59. 6% less than male counterparts) ¨ (The All-China Women’s Federation and the National Bureau of Statistics)

CEO Pay Components

Current China Job Market n Hot Banking/Financial Market ¨ High turnover rates 10 -20% ¨ Executive incentives: stock options (38%), home leave & company car (52%) (CFO Asia)

What Is Motivation? • • Basic psychological process which explains why employees behave the way they do in the workplace. Willingness to exert high levels of effort toward organization goals, conditioned by the effort’s ability to satisfy some individual needs

Unmotivated, Unhappy Chinese Employees n Highest among State-owned companies n Smaller amount for Joint Venture, Foreign Invested Enterprises n Higher rate of leaving for high/educated level employees

What Motivates Employees? n Cash Incentive If stay in the company for entire contract length of time ¨ Reimbursing employees tuition ¨ n Treating Employees Guanxi ¨ Feelings of belonging ¨ Saving faces ¨ Loyalty ¨ n Special Training and Programs ¨ Ex: Citigroup’s Financial Education Training/Programs n n Financial service Training Banking Programs

Other Motivational Factors n Career Development ¨ Promotion n Performance evaluation ¨ ¨ n n Include capabilities, skills, achievements and actions Employees with higher rating should promote to higher post Denied promotion to lower rating employees Avoided seniority-based promotion Shelter Saving plans Gift certificates Rewards ¨ Travel

Morale Factors Affecting Worker n n Wages Stock options ¨ Degree of understanding about the stock option ¨ Useful in preserving employees who have worked with a company for a few years and have seen the value of their stocks appreciate ¨ Create sense of ownership n Work more harder to obtain higher future growth

Morale Factors (Cont. ) n Recognition systems ¨ Ex: Achievement in R&D prize, Improvement proposal prize, Excellent in customer care prize ¨ Public Recognition Allow them to compare against their colleagues n For better-educated workers, this recognition can satisfy more than financial benefits n

Conclusion- Putting it Together

Thank You For Your Attention! Any Questions?