As another sign of the increasing globalization of business practices, a significant number of multinational firms today are managing their compensation programs worldwide. A new survey of global employers from Mercer Human Resource Consulting reveals that 85% currently have a global compensation strategy in place.
About half of these (42% of the total) have had the strategy in place for less than four years, while the remainder (43%) moved to a global approach more than four years ago. Just 15% of the firms surveyed do not have a global compensation strategy; however, all of them say they intend to introduce one within the next three years.
Mercer’s survey, conducted in August 2004, includes responses from nearly 90 firms based primarily in the US and Europe. Three-quarters (75%) of the respondents have annual revenues of US$1 billion or more, and all are multinational, some with operations in up to 100 countries.
“Pay strategies play an important role in the success of multinational organizations,” says Mark Edelsten, a London-based international consultant with Mercer. “Increasingly, pay is being managed from a global perspective - to facilitate global expansion efforts, better manage labor costs, create internal equity, or ensure effective governance. In addition, these strategies typically apply to all employees, not just a select group, such as executives.” (See Figure 1: Reasons for Introducing Global Compensation Strategies.)
While compensation and broader reward strategies can encompass many elements, the survey respondents indicate that their global compensation strategies focus strongly on four areas:
Somewhat less prevalent are strategy elements related to desired pay mix, benefits, and consistent methodologies for salary structures (each cited by 45% of respondents). Elements not commonly found in global reward strategies include work/life programs, perquisites, training and development, recognition programs, and career programs, according to the survey findings.
Respondents indicated that their global compensation strategies are fairly detailed and specific, with most including either fixed guidelines (52%), detailed policies for all employees (22%), or detailed policies for senior employees only (16%).
Despite the prevalence of global pay strategies, Mercer’s survey suggests that monitoring these strategies can be a challenge. “Only half of the respondents said that the local HR function has a direct reporting relationship to corporate HR,” says Corinne Carlson, a Chicago-based international consultant with Mercer. “This can make it extremely difficult to monitor pay strategies on a global basis to ensure their implementation and effectiveness. As a next step in the evolution of global compensation programs, we expect to see employers devoting more time and attention to these governance issues over the next few years.”
Some respondents indicated that monitoring of global compensation programs is achieved primarily through the annual budgeting process (42%), global HR information systems (41%), and regular audits of country and business practices (34%).
Other key findings of Mercer’s survey on global compensation programs:
“As companies expand their global reach, they need to make sure their compensation and other reward programs support their business strategy,” Ms. Carlson says. “An effective global compensation strategy creates consistency in pay management, facilitates global employee mobility, and ensures that the money spent on compensation is used wisely. That’s why we’re seeing heightened interest in global compensation programs among multinational firms.”
Mercer Human Resource Consulting, one of the world’s leading consulting organizations, helps employers create measurable business results through their people. With more than 14,000 employees serving clients from some 145 cities in 41 countries and territories worldwide, the company is part of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific, and London stock exchanges.