Our definition of Reward Strategy is “an approach to reward based on a set of coherent principles in support of the organisation’s aims.” This works equally well if it is for one location or many.
Why introduce a global reward strategy? To the extent that the organisation has a brand and approach to its clients and stakeholders, it will want to ensure some consistency in reward, as with other HR programmes. There may be some element of control or at least monitoring from the centre to help ensure the reward spend is reasonable and reinforces the values.
When developing a reward strategy for one organisation in one country there will be some differences across the population of employees and in-country locations, but the environmental factors are the same. There are no material differences in the legal or tax frameworks etc. However, as soon as you move to other countries it all changes. Differences will include:
- Language
- Legislation
- Taxation
- Centrally agreed pay levels and increases
- Market practice on reward mix
- Forms and frequency of payments
- Levels of state provision of benefits compared with employer
- Types of benefits and allowances
- Currency
With all of these differences, there is no point in trying to impose a standard approach across other countries just because that happens to be the way things are done in the home country. Consistency may appear to be a reasonable aim, but we need to ask what is the value in doing so. In developing a global reward strategy, we do not believe in being neat and consistent just for the sake of it. So this leads to what we see as the key question. We believe that the single most important question you must ask as you develop a global reward strategy is:
What should be the same and what may be different?
We have seen organisations that have not addressed this question and simply tried, unsuccessfully, to apply the home country approach to the other territories. Rather, be clear what are the red lines, those things which must be the same across the whole organisation and what may be different which will be developed by the region or country. Here are two examples. You may want every country head to have some form of long-term incentive. However, the form and value will differ from country to country to meet the local legislation and tax rules. Grade structures are normally common globally, but the countries pay structures will differ considerably.
But, throughout the process of developing a global reward strategy keep asking this key question.
In the rest of this post, we describe some of the differences typically found in reward and associated programmes between countries as well as some approaches and questions. We do not recommend specific solutions or programmes as all organisations are different and we believe that it is better to aim for ‘best fit’ rather than ‘best practice’.
Three issues to consider;
Values
Where the organisation has a set of values it is normal to seek to apply them across the whole organisation. It will take some work to embed them in a global business as they will need to be interpreted to fit the local context. Nevertheless, the values should influence the reward strategy and help drive common reward principles.
Fairness
Treating people in a fair non-discriminatory manner may well be reflected in values and policies. Fairness in reward has two dimensions. Firstly, the extent to which in-country reward is applied. For example, relating pay levels to the relevant pay market and ensuring that it conforms to local legislation. But, there is also the global dimension. You need to be clear about what fairness means in the organisation. Potentially, you will have some very large differences between the pay level of similar jobs in different countries. Is that fair? Well yes it certainly is if you are paying at a similar point against the local market.
We have seen situations where this simple point about different pay markets (actually within countries as well as between countries) has not been explained, which has led to claims of unfair treatment. So, we suggest you establish your position and be very clear in communications.
Currencies are different and whilst the parent organisation may need to consolidate and report using a single currency, employees have to pay their costs in their local currency. Whilst it is normal practice to quote stock plans in the currency of the issuing country, this is not appropriate for other elements of reward. Care needs to be taken to ensure the competitive position is not damaged by using the parent country currency. Look at this sort of issue from the perspective of the recipient.
We have seen allowances and awards quoted by the parent organisation in their currency, which may appear fair to them, certainly neat. But they have to be converted by each country into their currency which can give inconsistent and uncompetitive local reward which no longer seems fair.
Culture
Culture gets a bit more complex as of course the culture of each country will have a material impact on how reward works. The culture may be such that it is not appropriate to try to implement an element of reward used elsewhere as it will just fail.
You need to be clear how these three issues in your organisation will impact on the reward strategy.
It is worth looking at getting local support and ongoing advice from a third-party provider, particularly where you have small operations with no internal HR support.
Set your global reward strategy taking into consideration some of the issues we have raised and implement pragmatically.
In Part Two of this blog, we explore what to consider when thinking about the approach to salary, bonuses, share plans, benefits, and allowances in a global company.