GLOBAL COMPENSATION STRATEGY Professor Srividya Iyengar Coverage What

GLOBAL COMPENSATION STRATEGY Professor Srividya Iyengar

Coverage What is a Global Compensation Strategy? Why have a Global Compensation Strategy? What are the Influencers and Factors? Attraction Factors Workforce Demographic Issues Cultural & Local Country Issues What are the Best Practice Approaches? Market-Driven Questions Total Rewards Concept HR & HRIT Approaches

What is a Global Compensation Strategy? A carefully thought out company-specific approach to determining and delivering total compensation to the organization’s employees Recognizes differences in pay practices, taxation, benefits, market conditions, and regulations across the globe

Why Have a Global Compensation Strategy? Facilitate global expansion efforts Manage labor costs Create and promote internal equity Ensure effective governance Promote leadership development Support mobility of key talent

Influencers and Factors

Global Compensation Influencers & Factors Global Compensation Influences Changing Political & Ideological Beliefs Competition for Customers and Talent Capital Markets Regional/ Worldwide Manufacturing And Distribution Employment Relationships Social Contracts Systems Practices Borderless Information Flow -Web Diverse and Dynamic Cultures Innovation and Technology Advances

Local Compensation Factors Economic: Business: Tax / Legal Cultural Demographic

Top 10 Attraction Factors by Age Group Globally, the attraction story is quite similar; in fact, attraction factors are remarkably consistent around the world Top 10 Attraction Factors by Age Group Parameters Competitive Base pay Work / Life balance Challenging Work Career Advancement Opportunities Pay raises linked to individual performances Learning and Development Opportunities Reputation of Organization as a good employer Competitive retirement benefit Caliber of Co-worker Organizations financial health Variety of work assignment High Level of autonomy Age Group 30 - 44 45 - 54 1 1 2 3 3 2 4 4 Global Overall 1 2 3 4 18 - 29 2 4 5 1 5 6 5 5 6 3 6 7 7 8 9 10 7 7 9 10 8 9 6 10 8 8 10 9 55 + 1 4 2 9 5 8 3 7 10 6

Workforce Demographic Issues How different generations view the world: Workforce Demographic Issues Veterans Born Outlook Boomers X'ers New Mils 1922 -1943 How different 1943 -1960 -1980 generations view the employment situation: Born Practical. Veterans 1922 -1943 Boomers Optimist 1943 -1960 Work Ethic Employer /Dedicated Driven Employee View of Relationship Company Loyalty Career Loyalty Authority Attitude towards Respectful Rebellious Hard work is good in Meet or surpass own itself Leadership Compensation by Hierarchy Employees Skills & Transportation & expectations Consensus Relationship Information Competencies. Sacrifice Telecommunication gratification Employees view of Compensation The Job change Get it over My Achievement Create it 1980 -2000 X'ers Skeptical New Mils Hopeful Balanced Determined 1960 -1980 Selective Loyalty Unimpressed 1980 -2000 Balanced Loyalty Polite Continious learning & Work is self-fulfillment change Competence Collaborative Reluctance Technology My Skills Make it work for you Integration of Inclusive Information & Techg Work I Do Inevitable & Increasing Competitive wage Four generations. Fairworking simultaneously the workplace have wage Wealtheach accumulation Stable employment in. Wealth Work-life balance Indulge interests What employees Stable employment Meaningful work differentareimpacts on the best ways toretirement attract, Earlyretain, looking for Secure retirement Comfortable retirementengage, Work in motivate, retirement compensate, and sustain workers “One-size-fits-all” management approaches are obsolete

Contd…. How different generations view the employment situation: Veterans Boomers X'ers 1922 -1943 -1960 -1980 New Mils 1980 -2000 Born Employer / How different generations view the employment situation: Employee Veterans Boomers X'ers New Mils Relationship Company Loyalty Career Loyalty Selective Loyalty Balanced Loyalty Born 1922 -1943 -1960 -1980 -2000 Attitude towards Hard work is good Meet or surpass own Work is self. Continious learning Employer / Compensation Employee in itself expectations fulfillment & change Relationship Company Loyalty Career Loyalty Selective Loyalty Balanced Loyalty Employees Skills Transportation & Integration of Attitude towards Hard work is good in Meet or surpass own Continious learning & & Competencies Telecommunication Information Technology Information & Techg Work is self-fulfillment change Compensation itself expectations Employees view Make it work for. Integration Inevitable & Employees Skills & Transportation & of Information Technology Telecommunication Information & Techg of change Competencies Get it over Create it you Increasing Employees view of Competitive Get it over Create it wage Make it work for you Inevitable & Increasing change Wealth Stable employment Fair wage Wealth accumulation Meaningful work Competitive wage Fair wage Wealth accumulation Stable employment What employees Stable employment Comfortable Work-life balance. Wealth Indulge interests Work-life balance Indulge interests What employees Stable employment Meaningful work are looking for Secure retirement Work in retirement are looking for retirement Secure retirement Comfortable retirement Early retirement in retirement Flexibility in rewards processes (e. g. , pay, perquisites) differentiate effective global compensation strategies from ineffective ones

Cultural Dimensions Independent versus Interdependent Visible Dress Monuments Art Behavior Food Fashion Corporate Culture Customs Nation al Culture Risk versus Restraint Language Direct versus Indirect Task versus Relationship Job Function Assumptions Beliefs Region Religion Egalitarian versus Status / Hierarchy Family Values Gender Short-term versus Long-term Mono-chronic versus Poly-chronic Sense of Space Receptivity to Diversity Values Histor y Personality Tolerance for Change Invisible Acceptance of New Ideas

Individualistic and Collectivist Cultures Individualistic Cultures Collectivist Cultures Individuals are seen as independent, self-directed, and autonomous; able to make proposals, concessions, and maximize gains in their own self-interest. Duty, honor, and deference to authority are less prominent. Individuals are seen as part of a circle of relations. Identity as a member of a group comes first, members are rewarded for allegiance to group. When conflict arises, behavior and responses are jointly chosen. Characteristics: • Independence and individual achievement • Self-expression, individual thinking, personal choice • Egalitarian relationships, flexibility in roles • Achievement involves individual goal-setting & action • Autonomous, decisions based on individual opinion • Accountable to self • Belief in equality and personal choice • Private property, individual ownership Characteristics: • Interdependence and group success • Adherence to norms, respect for authority, consensus • Hierarchical roles (gender, family, background, age) • Decisions should not disrupt group harmony & cohesion made in consultation with family & authority • Accountable to the group • Respect for hierarchy and acceptance of higher status • Shared property, group ownership Examples: US, UK, Canada, Australia, Denmark Examples: Singapore, Japan, France, Italy, Spain

Low Context and High Context Low context Cultures High Context Cultures Societies where people tend to have many connections but of a shorter duration. Societies where people tend to have close connections over a long period of time. Aspects of cultural behavior and beliefs are explicit in the culture Aspects of cultural behavior and beliefs are implicit in the culture Characteristics: • Individualistic • Shorter term, compartmentalized relationships • Tasks more important than relationships ! • Logical, linear, rule-oriented • Reliance on the verbal over the nonverbal • Knowledge is transferable (above the waterline) ! • Explicit knowledge, consciously organized • Competitive; short interpersonal connections ! • Change over tradition; present & future-oriented ! Characteristics: • Collective • Long-term relationships • Relationships more important than tasks • Intuitive and relational • Reliance on the non-verbal over verbal • Knowledge is situational (below the waterline) • Implicit knowledge, patterns not fully conscious • Cooperative; long-term relationships • Tradition over change; past-oriented Examples: • Large US Airports, supermarket chains, cafeterias • US, UK, Canada, Germany, Denmark, Norway Examples: • Family gatherings, neighborhood restaurants • Japan, China, Egypt, Saudi Arabia, France, Italy, Spain

What does it mean for Compensation? Some Typical Compensation Practices Individualistic Culture Collective Culture Highly-leveraged incentive programs (e. g. , lower base, higher bonuses) Focus on stock/equity plans Strong ties to performance More focus on base pay & allowances Team-based bonuses (e. g. , 13 th month) Across the board profit-sharing plans Tied to position, seniority & relationships Low Context Culture High Context Culture Plans visible and available to all Based on objective, controllable metrics Meritocracy moving to Egalitarianism Subjective performance bonuses Individual and personal goals Relationships, positions, and titles

Best Practice Global Compensation Strategies

Some Market-Driven Questions 1. Which employee classes and group should be considered global? Executives, key technical and operations staff, R&D 2. What is the optimum ratio of variable pay to total compensation? Executives 30 -50% Professional/Technical 20 -30% Non-management 10% or less 3. Do we understand how variable pay links to business goals? 4. What role does your expatriate strategy play? New model is moving to 3 -12 month assignments Fewer allowances (e. g. , hardship, schooling) 5. Should we customize rewards for different business units? 6. Are we operating in countries that embrace the “acquired rights” concept and have government-directed benefits?

Total Rewards Concept Different factors are in play for what attracts and retains employees • Base Pay • Health & Welfare Benefits • Variable Pay • Recognition • Challenging work assignments • Decision-Making authority • Customer orientation • Training and development • Perquisites • Work-life balance • Longer vacations • Sabbaticals • Retirement benefits • Job Sharing • Job Security • Career advancement opportunities

Total Reward Options Choices Customized Assignments T&D Core Cash Customized Benefits Job Factors Base-Variable Mix Tax-Deferrals Stock Schedules

Global Compensation Strategies Best practice companies pick one of these: 1. Adapter/ Localizer Tailor to fit local market compensation 2. Exporter Drive plans to be like your home country plans 3. Integrator Take the best of all locations and create new models

Global HR Strategies Global Compensation must tie to the overall business strategy Helps drive growth (revenue, earnings, market share, customer satisfaction, new products) Must have a good performance management process Enforceable and able to segment the mission-critical functions to differentiate high performance Manage costs Low cost provider status difficult to maintain in face of quality and customer service Where necessary include work councils and unions Help with innovation, operations excellence, M&A Develop great managers Promote an “engaged” workforce

Global HPIT Strategies HRIT strategy must be tied to both business and HR strategies and support key initiatives IT strategy must be incorporated to ensure consistency with the overall platform and architecture Understand global HRIT objectives, e. g. , Greater visibility and transparency across the world Better information and communication for managers Surface and fix “broken processes” Streamline processes and reduce costs Eliminate disparate, separate systems Improve HR service delivery Evaluate requirements and select best-of-breed system