How many success stories start with the phrase, “I took the easy road”?

Most companies (@85%) with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – in order to level the playing field for those with multiple country responsibilities.

However, for the rest of their international population it’s not as straightforward.

The Challenge

Companies with local national employees (hourly, professional, management) face a challenge and a risk when it comes to their decision as to how to reward (pay) in each of their operating countries.    Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to equalize pay practices?

For those developing strategies to effectively pay employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions.  However, the strategy of recognizing country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, those who traditionally look for the easy way, the simple way, and the one-size-fits all way of dealing with far-flung employee groups.  For many companies and international compensation practitioners it is actually the administrators whom you have to overcome.

The headquarters staff will ask, what difference does it make?  Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?  Here are a few metrics to illustrate what they wish to standardize:

• Value (price) jobs irrespective of locale
• The pay mix of base salary and incentives
• Universal date pay increases
• Average pay increase percentages
• Pay-for-performance vs. general adjustment increases

Why Not?

Why doesn’t one size fit all?  Why can’t you treat all employees in the same fashion – because they all belong to the same “XYZ Corporation”, right?  You should consider the following before taking out that cookie cutter.

• Economy:  When you’re dealing with country-specific inflation rates that range from flat to 20%+, do you really want to offer the same percentage salary increases?  What if one country is in the grip of recession (US), while another remains relatively unscathed (Australia)?

• Culture: in some areas of the world job and income security needs command paramount interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion.  For example, while China has a very aggressive sales compensation environment, in India there is more interest in base salary and their CTC (cost-to-company) package than variable pay-at-risk compensation.

• Competition: companies react to the cost of labor vs. the cost of living.  If the market they are in rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a different approach risk lower employee engagement as well as a talent drain.

• Representation: National unions often dictate pay actions that could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.  Works Councils will have their impact as well.

On the other hand, varying your practices according to country-specific conditions could cause a degree of consternation with the back office staff and their computerized systems.  These are folks who like things neat and pretty.  In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:

• Tabulating global statistics when definitions or methods vary

• Identifying global trends based on diverse conditions

• Balancing the impact of cross border movement

If you force international operating units to convert their practices to an uncommon format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the greater likelihood of over payments in some quarters while paying less in others – all for the sake of sameness and common report generation. This would offer up a combination of hurting employees while also hurting the business.

Remember that ease of administration is rarely an effective rationale for making good business decisions.

For those of us who have spent their entire career in the Human Resources / Compensation arena our pathway likely started at the bottom of the ladder, writing job descriptions, completing survey questionnaires and evaluating jobs.

Eventually you worked your way up the food chain into survey analysis, market pricing, structure design, incentives and program development. You mastered the various formulae, charts and graphs, could make Excel dance on a dime and you would happily debate the various and complex techniques that befuddled your HR generalist colleagues. If you stayed at it long enough you eventually became a master technician on the “hard” side of Compensation. You carried a calculator everywhere.

The Hard Side

The “hard” side?  This viewpoint represents the traditional view of compensation practitioners from the outside looking in.  We are those who manage the technical analysis of impersonal data bites – the black & white world that only deals with neutral and impersonal facts.  We are usually placed in a small cubicle, left to our own devices.    No one stops by to chat.

We don’t receive Christmas cards.

Then it happens; one day you’re asked to walk through the beaded curtain into a new world, a new career in something called Compensation Management. This is exciting, because on the other side is increased pay, a loftier title and finally recognition as a “player” within the HR community.

The Soft Side

You are assigned internal clients, managers who suddenly aren’t interested in your formulae, charts & graphs or technical babble. They want you to solve problems, provide solutions, to talk with them and explain how Compensation can help them achieve their business objectives.   You become an advisor, deeply involved in “what do we do now?” scenarios.

This is the “softer” side of Compensation, where rules become guidelines, policies become politics and the proper answer to most everything is “it depends”.

Not everyone successfully makes it through that beaded curtain, though.  Why?  Because the journey requires a mindset change as well, into a place where your comfortable analtyical tools don’t serve as well and you need something called “relationship competencies” to succeed. I’ve seen many people falter at the curtain; some do not want to pass through – and others have stumbled through, only to eventually burn out like a meteor shooting across the night sky.

Why do some fail to succeed once through the curtain?

• Non-Exempt mindset: some are not comfortable being part of management, as they continue to identify themselves with their former colleagues and find it difficult being labeled “management” and required to support a particular view of employee reward.

• Too comfortable with black & white of technical analysis; figures don’t lie, they just are.  Can’t argue with that.  There’s a comfort in dealing with the neutral, just reporting the facts.  Some prefer to stay in this “safety zone.”

• Not comfortable with multiple answers for the same question – a common problem where differing circumstances result in differing answers.  Like the ground shifting beneath your feet, the certainty of sameness is replaced by “it depends.”

• Preference to let existing policies and procedures make the decisions; some folks don’t like to stick their neck out, to face being challenged and having to defend their recommendations.

• Preference in the safety of the numbers, vs. dealing with the people who are affected by those numbers.  You’re in HR, so you should be at least somewhat of a people person – sensitized by how your recommendations impact employees.  Some aren’t comfortable with this role.

Back when you were an analyst you were not expected to develop tactical strategies and recommendations; you read the surveys, tabulated the spreadsheets and reported your findings.  That was it.  Sound harsh?  Not at all, as proper analysis remains a critical component for the making of informed business decisions.

To be an effective practitioner in compensation management is to straddle both sides of Compensation, to understand the technical aspects of where the numbers come from and what they mean, as well as the brave new world where your role is as an influencer of management decisions.  To be successful you need to breathe the crisp air of business realities and shake up those technical rules that you’ve learned so many years ago; you do not let them rule you.

But you still won’t get Christmas cards.

Compensation management is a challenging role, requiring you to balance the numbers, the people, and business realities – all while sticking your neck out to recommend a potentially contentious course of action.

Or you could sit back and let established policies and procedures do the talking, though that’s probably not the intent of the increased salary and important title.

What’s it going to be?

I once supervised a Compensation Analyst who had learned her craft through professional seminars and workshops.  One result of that education was her favored response when faced with a challenge at work; “the greatest minds in Compensation say that . . . “.  It took patience to educate this budding practitioner in the difference between the classroom / textbook answer and the reality of the workplace.

A while ago I came across an HR blog where the author instructed readers in how to create a merit performance matrix.  Very good stuff, I thought, admiring the technical step-by-step directions, except I knew from long experience that the procedure being described would never work in the real world.

While it is critical to understand the technical foundations of Compensation methodology and practice, first and foremost you need to anchor yourself in the here and now, to know what will work and not work in your own organization – no matter what the finest minds in Compensation think.

Why does Compensation theory often clash with workplace reality?

• Business realities:  management knows more about a particular business situation than you do.  What you provide to the decision-making process as a Compensation professional is limited to your subject area, while management usually has the bigger picture – the perspective of multiple viewpoints.  Your advice may not fit their business reality, no matter how logical your argument.

• Bias of decision-makers:  they may feel that they intuitively know the right strategy (they’ve done it before, if-it’s-not-broke-don’t-fit-it mentality, a friend / relation / old college chum suggested an approach, etc.).  Perhaps they read an article and now are insistent to follow the advice of an author who lacks an understanding of their business.  Years ago I worked for a company whose CEO forced HR to implement a particular benefit plan because he had read a magazine article.

• Problem avoidance: short of killing the messenger, one solution for management is to do nothing (you’ve exaggerated it, the solution costs too much, there’s still time, etc.).  These senior managers avoid major decisions until it bites them in the leg.  It can sometimes be dangerous to your career if you try to force a decision.

• Business culture or model: some initiatives don’t “fit” in your organization.  Managers with a laid back organization style will not be interested in recommendations to document uniform policies and procedures and have standardized forms for every action.  Picture your head banging against the wall.

Sometimes those experts who teach Compensation techniques fail to ground their instructions with a caution: check this process out in the reality of your workplace *before* you take a classroom technique and wave it in management’s face.

For example:

When designing a pay-for-performance merit increase matrix the standard rule is to place the average increase percentage in the cell block most populated by employees (average performance and average position-in-range).   The sound reasoning for this technique is to better manage the costs associated with that year’s annual increase process.

A lot of years ago I followed that approach in my first compensation leadership role.  I still have a little bump where my head hit the wall.

Here’s the rub; such a technique requires that the matrix change every year, as the analysis demands you study where the population averages fall each year.  But management will likely have none of that. They want the same matrix every year, for ease of administration and communication.

Another area that separates the compensation technician from the professional is the ability to deal with what I call the “softer” side of compensation.  Survey statistics, charts and formulae are very good to a point, but management will want to know what it means and what to do about it.  So the answer isn’t simply reporting competitive data, but taking that next step to help management understand and strategize future action.

The contribution you can make to your organization is blending technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that is the key to success as a Compensation professional.