Expert Neil Krupp gives the lowdown on attaining and maintaining a competitive edge in the global HR marketplace.

It is fairly commonplace for an organisation to announce its commitment to providing competitive compensation and benefits programmes. It is not however a routine exercise when determining what “competitive” means in a global context. Competitive and creative compensation and benefits plans are vital to achieving successful “total rewards” programmes and an important tool in motivating employee performance toward maximising company profitability and shareholder value. However, what may constitute competitive and creative at one international location is by no means a template which can be applied to all other locations.

Those companies that will excel in the emerging global marketplace will align their human resources programmes to support their strategic business plans. This involves significant effort and dedication in developing a truly global human resources total compensation programme that supports the way the business is structured, organised, and operated both globally and regionally. In short, the most successful global HR programmes will recognise the need that is captured in the axiom, "think globally but act locally."

Two factors are most critical to a programme’s overall success:

• Ensuring that all “stakeholders” in its expansion team are educated on the costs, opportunities, and challenges of doing business in those countries in which it chooses to operate—and;
• Each understands the power of having local knowledge and implementing competitive compensation and benefits practices.

Thinking ahead is necessary, in the form of a project plan, and creating an infrastructure that comprises both identifying ways of providing competitive compensation and benefits programmes and compliance with local employment laws and labour legislation.

Effective methods of administering to a global workforce typically involve assessing the following:

• Payroll tax and legal requirements
• Benefit norms
• Compensation information on benchmark jobs
• Incentive opportunities
• Employment practices
• Payroll provisions
• Staffing issues

 
Project plan structure and process:

I refer to this aspect of a project plan as “Expansion: Human Resources Implications, Requirements, and Practices.”

In my view, the most effective strategy to achieving both short-and long-term objectives is that of a two-pronged service structure.

First of all, appointing a “home” country international human resources contact who as such, is responsible for overall service delivery of HR programmes to the Company while coordinating efforts on a global basis. The advantage of this approach is that the Company has a single, focal point of contact for all global human resource requirements.

Second, to compliment home country efforts, the Company should identify a local “host” country human resources consultant at each location who is accountable for the delivery of results. This individual will coordinate local efforts for the Company operations and be available locally on a-day-to-day basis for advice and problem resolution.

Establishing a strong HR global presence typically encompasses three phases:

Phase one: Philosophy

• During this phase, activities centre around four main objectives:
• Understanding strategic global/regional/local goals and needs
• Addressing global compensation and benefits plans
• Considering programme alternatives
• Determining how to implement programmes that are culturally acceptable, yet competitive, blending global strategies with local practices

Phase two: Design

The design phase has two major components:
Determining:

• Employment and working conditions
• Labour laws and contracts of employment
• Statutory and social security benefits
• Competitive hiring practices
• Existing talent pool and gaps
• Mobility of local workforce

Detailing or Discussing:

• Economic trends
• Compensation guidelines
•  Other legal requirements
•  Employment costs
•  Global payroll options

    
Phase three: Implementation

In this stage, one works within one’s company to:

• Further establish operations in their locations based on information gathered in the design phase—recruiting, hiring, compensating, giving incentives, paying, and administering company local and national employees
• Survey selected company competitors as identified in each location. Based on surveyed data, form recommendations of best practices and complete a “total” compensation/benefits study of key positions in each country.

Following is an illustration of how two of these major areas of concern might be broken down into their various components and further explored:   

Labour practices, legislation, and conditions of employment

A precise picture of employment and working conditions geared toward establishing appropriate practices in each country. This would address:

• Minimum wage requirements
• Benefit entitlements such as annual holidays, vacation time and pay, paid personal days etc.
• Standard weekly working hours
• Probation periods
• Overtime restrictions and payments

One would also detail hiring and termination rules and regulations covering severance practices, including:

•     Notice periods
•     Severence pay
•     Employees’ rights of appeal in each country

Yet another area to be evaluated is compliance with employment legislation in each country regarding hiring and contracts of employment, discrimination laws, and issues regarding immigration and work visas as well as obtaining information on recruitment procedures, including employment contracts and service agreements.

Competitive Benefits and Pension Plans

Local benefits plans are very much influenced by cultural values and local legislation. Tax laws vary from country to country, so designing and offering employee benefits that are tax efficient can have a significant impact on what is offered from location to location. The right benefits components will: attract and retain key employees, establish and maintain a tax effective position, and retain competitive market position

Specifically, one should obtain information regarding:

• Social security contributions and benefits
• Statutory benefits for medical, death, sickness and disability
• Workers compensation
• Group life insurance
• Maternity pay and leave, and child care
• Savings plans, profit-sharing, stock options
• Bonus payments
• Other benefits such as meal, education, and transportation allowances
• Offshore benefits plans for regional transfers and senior local management

Company-provided pension plans, including frequency, contributions, eligibility, retirement age, vesting, and funding mechanisms, and how this is integrated with mandated social security should also be reviewed.

Compensation structure and trends
For global organisations, such factors as rewards, salaries, incentives, and various forms of direct and indirect compensation must be aligned with the cultural and economic norms of each operating location. Effective global compensation planning depends on an understanding of environmental factors such as economic growth, inflation, unemployment, and prevailing pay practices in the countries where one operates. This leads many companies to ask the question: how do we create a compensation programme that supports the way our company is structured, organised, and operated globally—and to what extent do we embrace a “one company” orientation?

There is no single one answer to this question, but companies must keep in mind several guiding principles. Alternative global and or regional compensation structures and trends which may exist while offering recommendations for the Company in each country. One must also consider other questions, such as comparing what is most effective from a company cost standpoint versus what is most effective from an individual’s tax standpoint.

Finally, one must be in a position to illustrate the composition of total compensation packages: the percentage of basic compensation; variable bonus; perquisites; compulsory company contributions; voluntary company contributions; and long-term incentives for different levels. Finally, one must outline and compare each country’s compensation levels and costs.

16 June 2008

Neil B. Krupp, CMC, is the Vice President, HR Consulting Services for TheMIGroup.  He is a seasoned HR professional with over 20 years experience in the HR field.  Neil holds a Bachelor’s Degree in Political Science and Business Administration from Bradley University and a Master’s Degree in International Relations from the Air Force Institute of Technology.

[Copyright Expatica+Neil Krupp 2008]