Global Rewards PDF

Second
Edition
Global
Rewards
A Collection of Articles from WorldatWork
GlobalRew_CVR_final.indd 1 8/4/11 7:57:34 AM

Second
Edition
Global
Rewards
About WorldatWork
The Total Rewards Association
WorldatWork (www.worldatwork.org) is a not-for-profit organization providing education,
conferences and research focused on global human resources issues including compensation,
benefits, work-life and integrated total rewards to attract, motivate and retain a talented
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Table of Contents
Compensation | Equity | Sales Comp | Variable Pay
Make the Most of Your Expatriate Compensation Strategy 7
E. Michael Norman | James Whitbeck
Performance-Related Pay in the Context of the Global Crisis 17

Pat Gurren, GRP
Better Benchmarks for Global Mobility 23

Carlos Mestre | Anne Rossier-Renaud | Madeleine Berger
Business as Unusual: Making Global Compensation Work for You 31

John M. Bremen | Marcus Minten | Jon Randall
10 Ways to Shore Up Your Global Equity Plan 41

in Troubled Economic Times
June Anne Burke
Trends in Global Employee Equity 47

Jennifer George
Signs on the Road to Global Sales Compensation are in Local Language 53

Warren Mueller, CCP, CSCP ,GRP
Going Global? Get Local! Tips for Increasing Success 61

in the Transformation to a Global Sales Comp Program
Scott Barton
Using Consistency and Flexibility to Localize Global Sales 67

Compensation Plans
Kevin OConnell
Creating a Sales Incentive Plan that Works Locally and Globally 77

John Bremen | Ted Briggs
What in the World is Happening with Long-Term Incentives? 85

Peter Acker | John Cummings, CCP
Broad-based Variable Pay Goes Global 91

Ken Abosch | Jill Schermerhorn | Lori Wisper
HR Practices | Recognition | Retirement

Designing Employee Policies for an International Workforce 101
Ute Krudenwagen | Susan Eandi
Communication Strategies for Effective International HR Management 109

Susan Allerow | Rebecca Rosenzwaig, CPA
Helping Expats Get Ready for a Healthy Assignment 119

Frank Gillingham, M.D.
Human Resources in Emerging Markets 129

Carol Neumeister | Ruxandria Stoian, GRP
HR Outsourcing and the Bottom Line 137

Jeff Miller
A Best-of-Breed Approach: Addressing the ROI and 145
Retention Challenges of Global Workforce Management
Thomas Shelton
Applause Heard Around the World: Designing & Implementing Global 151
Recognition Programs
Marc Wallace, CSCP
Retirement Abroad: Employer and Employee Considerations 159

Serena Hubbell | Matthew Pascual | Cheryl Spielman
Beyond Borders: Mastering Pension and Benefit Issues

in Global M & A Transactions 165
Adam Rosenberg | Noam Lakser
Talent | Management | Strategy

Think Global Act Global: Integrating International 179
Assignments into Talent Management Programs
Esther Hahm
Best Practices for Integrating Talent Across Cultures & Geographies 187
Rajiv Burman, CCP, CHRP, SPHR
Tackling Global Talent Management During a Recession 197

Bill Leisy, CCP | N. S. Rajan
What Most Admired Companies Know About Expatriates that You Dont 205
Mel Stark | Tom McMullen | Richard Bednarek
Repatriation Considerations in a Cost-Aware Economy 211

Vadim Kostovski
Reward Management in Multinational Enterprises: 219

Global Principles; Local Strategies
Robert J. Greene, Ph.D., GRP, GPHR, CPHRC
Appendix: Country Specific

The Australian Way of Compensation: Today and Tomorrow 233
Mariana Uzcategui | Fermin Diez, CCP
China and Total Rewards: A Look at Workforce Issues

and Business Strategy 247
Pengpeng Zhou
China & India: Demographic Change, HR Challenge 257

Guo Xin | Ramamurthy Sankar
The Growth of Expatriate Assignments into the Middle East 263

Geoffrey W. Latta | Siobhan Cummins
Total Rewards in Singapore 273

Hesan A. Quazi, Ph.D.
How Legal & Cultural Environment Impacts Reward 279

Practices in Switzerland
Agnes Blust, GRP
WorldatWork Survey Results 287
WorldatWork Books 328
About the Authors 333

5
Compensation | Equity |
Sales Comp | Variable Pay
6 Global Rewards
Make the Most of Your Expatriate

Compensation Strategy
E. Michael Norman | James Whitbeck
For many years and a multitude of reasons, expatriates have been

able to fly under the radar in regard to the richness of their total
compensation packages. Recent evidence, however, shows these
packages are being scrutinized much more closely, and that evaluating
expatriate cost/value ratios is gaining prominence.
A 2009 Sibson Consulting survey examined multinational
organizations that employ expatriates in major business regions
worldwide. (See About the Expatriate Talent Market Trends Survey).
Augmented by additional research, these survey findings suggest that
many organizations are following a three-R formula to deal with
expatriate talent and pay. The three steps they are taking are:
Revalidating the value of expatriates roles in accomplishing

strategic business objectives and, in doing so, quantifying the return
on investment (ROI) over other talent-deployment alternatives.
About the Survey
In 2009, Sibson Consulting and IBIS Advisors

(an independent, international human resources
management consulting firm affiliated with
Sibson) invited professionals who work for
U.S.-based companies operating abroad to
participate in the Expatriate Talent Market
Trends Survey. Sibson received completed
surveys from 99 respondents in a variety
of industries working in various functions:
finance, HR, legal, market operations,
research and development or sales. More
than half of the respondents are in decision-
making roles (i.e., director or above). To read the survey, log on to
www.sibson.com/uploads.
8 Global Rewards
Repackaging expatriates total compensation to ensure alignment

with their contributions and length of time in the assignment
Repatriating expatriates and/or replacing them with local

nationals if the total compensation costs no longer produce an
appropriate return.
The remainder of this article will explore the three Rs in more

detail so companies can effectively execute each step and improve
the return on investment.
Step One: Revalidating

The key to this step is to confirm that the organizations expatriates
still occupy vital value-creation roles. In many cases, this may
have been validated early in the expatriate assignment, but the
roles were not re-examined as conditions changed. However, as
emerging economies expand, the knowledge and capabilities of
local workers grow commensurately, casting a sharper light on
whether it still makes sense to use, or even consider, expatriates
in positions that can be filled by qualified nationals. This evolving
local demographic creates the need to use more stringent criteria
on expatriate assignments to determine their true value and ROI.
The value that an organization receives from posting an expatriate
should be 2.5 to 5 times the cost, depending on the business
or industry. For example, if it costs an organization $750,000 a
year to deploy an expatriate, the organization will want to see a
minimum of between $1.87 million and $3.75 million in economic
value created. While media reports have proclaimed that out-of-
balance cost/value ratios have launched a new era of repatriation,
responses to the Sibson survey appear to be to the contrary. Many
companies report their expatriates are worth the cost, with 65 percent
saying they plan to either increase their expatriate workforce or
maintain current levels. The top-ranked reason for doing so is the
importance of the role in driving the companys business strategy
(see Figure 1). In fact, Sibsons research suggests that multinational
organizations are still willing to pay for differentiated talent, citing
an anticipated ROI as a primary driver.
Strong leadership and production technology expertise may not

be present where we have a new manufacturing site, said W.J. (Bill)
Schumacher, vice president, manufacturing and supply chain, for
Chevron Oils Oronite business unit, with operations in the United
States, France and Singapore. Bringing in an expat with the right
skills and knowledge can make a huge difference in cycle time
and reliability needed to get the new site performance on par with
other, more mature locations. A 1-percent improvement in plant
productivity returns a five-fold payback on the expat investment
in terms of profit after tax.
Sibsons research also indicates companies that are successful in
determining whether an expatriate or a local candidate is deployed into
a foreign assignment answer six critical role-validation questions:
To what extent does the job role create real economic value?
How directly does the role affect the companys strategic

intent?
FIGURE 1
Organizations Current Use of Expatriates and Reasons Behind

That Decision
Increase No change Decrease
18% 47% 35%
Average rank, on a
Average rank, on a Average rank, on a
scale of 1 to 4 (1 = most
scale of 1 to 4 (1 = most scale of 1 to 4 (1 = most
important), of reasons
important), of reasons important), of reasons
why organizations who
why organizations who why organizations who
are not making any
are increasing the are decreasing the
changes to the number
number of expatriates in number of expatriates
of expatriates in their
their workforce reached in their workforce
workforce reached that
that decision reached that decision
decision
Increasing Importance to
High compensation
importance to 1.88 business strategy 1.67 1.74
cost
business strategy is unchanged
Specific experience/ Specific experience/ Overall economic
2.52 2.52 2.83
capability capability environment
Renewed focus on
Intangible factors Intangible factors
3.33 3.33 development of 2.83
(i.e., trust, culture fit) (i.e., trust, culture fit)
local talent
Overall economic Overall economic No importance to
3.36 3.36 3.77
environment environment business strategy
Source: Sibson Consultings Expatriate Talent Market Trends Survey

10 Global Rewards
If not for this role, which strategic objectives would be at risk?
Is local talent available to fulfill the requirements of the role?
How long would it take a new local candidate to become proficient

in the role?
To what extent does the incumbent need intimate knowledge

of things like corporate culture, infrastructure and influential
stakeholders?
Attaining a clear perspective on each of these questions on

an ongoing basis is essential for multinational organizations to
optimize expatriate-related investments.
Step Two: Repackaging

This step involves conducting regular reviews of all costs associated
with expatriation to ensure the cost/value ratio remains in proper
balance. Forward-looking companies are not only making aggressive
moves to limit total compensation and length of assignments, but
also are taking a longer-term focus on building robust pipelines
of local talent and making local-talent development part of the
foreign assignment role requirement.
According to respondents to the Sibson survey, total compensation
seems to be less important than role duration, accountability and
talent transition efforts: 67 percent of respondents reported having no
short-term plans to change expatriate compensation (see Figure 2).
At the same time, 51 percent said they intend to increase their
investments in developing local talent as the economy improves
(see Figure 3).
Note, too, that eroding margins brought on by the global economic
downturn have caused many multinational organizations to increase
their diligence in designing and implementing expatriate packages,
including explicit incentives to control costs, reduce assignment
durations and groom local replacements.
Full expatriate packages are costly and redundant, said Jennifer
Westen, CIGNA Internationals vice president of HR for Asia-Pacific.
FIGURE 2
Recent Actions or Short-Term Plans to Change Expatriate
Compensation
7% 67% 67%
26%
7% 67% 67%
26%

FIGURE 3
Investment in Local Talent as the Economy Improves

51% 47% 3%

51% 47% 3%
Local-plus or local expatriate packages are more widely used in the

Asia-Pacific region. These packages focus on a host-based approach to
compensation design versus the traditional home-based approach. These
types of designs significantly reduce costs and increase flexibility while
maintaining competitive positioning. They also reduce the attraction
for expats to simply stay for the compensation and perquisites.
Sibsons research confirms that multinational organizations are
recalibrating the overall costs and expectations for expatriates by:
Implementing deceleration clauses in expatriate pay packages that

pertain to reimbursements for rent, school, transportation and tax
equalization; in essence, expatriates are becoming localized
Transitioning to country currencies and locally competitive pay

levels
Placing explicit expectations on expatriate replacement with

local nationals
Limiting the duration of assignments
Increasing investment amounts to accelerate the development

of local talent.
12 Global Rewards
Even with a relatively strong emphasis on revalidating and

repackaging, companies still face steep challenges in controlling
expatriate-related costs. In some cases, repatriation may be the
only viable option.
Step Three: Repatriating

This step requires knowing when, and more importantly how,
to bring an expatriate home. As organizations evolve, key roles
inevitably change in terms of their significance to the organizations
strategy, and solid reasons for moving the expatriate may become
apparent. When an expatriate role is no longer considered strategic,
it may be a prime target for a graduated transition to local talent
and/or repatriation. Indeed, Sibsons survey respondents ranked
replacing expatriates with local talent and shortening assignment
time as the top two cost-reduction methods (see Figure 4).
The survey data also calls into question the historical use of
expatriates for roles that no longer require their level of expertise.
As an example, an organization may transfer an expatriate overseas
to launch a new plant. Although the expatriate is supposed to
remain only until the facility is up and running usually for two
to three years in many cases the incumbent is still entrenched
five or six years later, long after the initial objectives have been
met. While such prolonged stays can be very attractive for the
expatriate, they are extremely costly for the organization.
When it is time to repatriate, Sibsons research indicates that
rather than use a one-size-fits-all approach, many companies are
beginning to use strategic workforce planning to decide who should
FIGURE 4
Top Methods of Expatriate Cost Reduction (1 = Most Important)
Average rank Standard deviation
Replacing expatriates with local talent 1.14 0.49

Shortening assignments 1.49 0.51
Developing internal talent 1.57 0.50
Using new salary scale for incumbents 1.70 0.48
Increasing use of variable pay 1.75 0.45

return home and focusing on role differentiation to determine which

roles are most critical for an expatriate to occupy. For example,
the technical expertise of a plant manager in a more developed
location (once a critical role) may be much easier to replace than
the knowledge and experience of a cross-regional marketing analyst
in a strategically imperative new venture.
According to Sibsons study, operations and research and
development are the top two functions in which respondents
are recruiting or deploying expatriates, and business/industry
knowledge and leadership are the top capabilities in considering
expatriate candidates. Furthermore, the order of these rankings did
not change when respondents were asked to rank them compared
to two years ago (see Figure 5).
The implications of effective expatriate talent management are clear:
Organizations are still willing to pay for the business capabilities
and experience that differentiate expatriates from local talent.
For key roles, we will always choose candidates from our
global talent pool rather than limit our focus to only talent in a
particular location, said Karen Beyer, manager of global benefits
for General Electric Co. Our philosophy is to place the best talent
in strategically important roles, and we are willing to compensate
for the difference. However, we are also quick to move our talent
around as needed to ensure that we get the highest and best use
of incumbents regardless of their country origin, and this requires
a talent-management system that facilitates expatriate mobility.
FIGURE 5
Top Functions for Which Expatriates Are Most Often Recruited or

Deployed (1 = Recruited Most Often)
Average rank Standard deviation
Current Two years ago Current Two years ago
Operations 1.53 1.62 0.70 0.73
Research and development 2.19 2.00 0.80 0.77
Legal 2.20 2.25 0.84 0.96
Finance 2.23 2.29 0.78 0.79
Sales 2.27 2.28 0.77 0.82
Marketing 2.30 2.31 0.60 0.64
Human resources 2.54 2.53 0.66 0.52

14 Global Rewards
Going Forward
Whether the actions described in this article are based on strategy
or reactive positioning, the question on many multinational HR
professionals minds is likely to be, What should we do on an
ongoing basis to optimize our expatriate investments? While most
estimates have the U.S. economy recovering at a faster-than-expected
pace in 2010, other economies are expected to lead the global
economic recovery. This will undoubtedly place new pressures on
the expatriate talent market, and organizations will need dynamic
talent-management strategies they can adapt to rapidly changing
business conditions.
Forward-looking multinational organizations can best prepare
for these kinds of competitive pressures by:
Aligning the organizations expatriate role requirements with

business strategy. Clarifying role requirements up front will help
determine the rationale for choosing a local candidate over an
expatriate. It is essential to identify three important elements of
a role requirement:
1. What results, metrics and experiences are critical to strategy

execution?
2. Which capabilities and competencies truly define the ideal

expatriate candidate profile?
3. Why is the expatriate the best talent source?
These requirements reach well beyond traditional job descriptions

in that they clearly define the roles unique value contribution and
how it will be measured. Role-requirement inquiry generally starts
and revolves around the accomplishment of strategic business
objectives that are unique to the position, the degree of direct
influence and control exercised by the role and the expected timing
to deliver value. Furthermore, Sibsons survey findings show that a
number of soft skills including cultural sensitivity, the ability
to speak local languages and the capacity to build relationships
with community leaders are becoming increasingly important

and should be considered in determining role value.
Making local capability development a priority. Because

expatriate talent is increasingly becoming a means to transition
organizations to a more developed local workforce, expatriates
entering assignments abroad should be given clear goals to
develop local talent as part of their performance requirements
and overall compensation. At the end of the day, expatriates
need to see themselves as facilitators in their companys local
talent capability-building strategy.
Getting more creative with compensation. Even as the use of local

plus compensation (essentially an average local compensation
package with a lump sum to cover living and tax expenses) has
become more prevalent, multinational organizations must continue
to explore new ways to deal with rising expatriate costs. This can
include developing new types of metrics and incentive schemes to
drive new levels of value creation. Examples include accelerated
expatriate replacement programs with deferred payouts based on
sustainable performance levels; tangible measures to determine
the right number, type and quality of local talent needed; and
increased employee engagement to mitigate unwanted turnover.
Building stronger links between expatriate deployment and

strategic workforce planning. Formalized links between expatriate
deployment actions and company strategic workforce-planning
efforts are needed to more effectively define realistic career
opportunities, implications and mobility options. By establishing
clear deployment and return strategies linked to business needs,
companies can create segues and increase accountability for
timely repatriation. Sibsons research shows that companies that
are successfully addressing this issue have reduced aggregate
expatriate-related costs by unblocking positions typically
occupied by expatriates for long periods in favor of creating key
openings for career progression moves for local high potentials,
thus helping improve foreign talent retention and investment. Lack
16 Global Rewards
of this type of integration can cost an organization dearly over

time and has been a driving force behind foreign assignments
that last longer than anticipated. Unless expatriate deployment
is linked more formally to strategic workforce planning efforts,
the challenges associated with containing costs and improving
value are not likely to be solved.
Conclusion
As the global economy recovers, the international business playing
field will look very different from two or three years ago. To ensure
optimal positioning, multinational organizations would do well to begin
outlining their expatriate deployment strategies. Clearly, expatriates
are here to stay; their roles are substantiated because they provide
value that is difficult to achieve initially with local national talent.
However, the criteria behind expatriate deployment are shifting
rapidly. To ensure a strong ROI, expatriate talent management must
be driven by clear accountabilities, success metrics and cost-effective
economics. Whether the business objective is to penetrate new
markets, manufacture innovative products or develop state-of-the-art
technologies, multinational organizations need to set the talent bar
high and make every expatriate-related penny count.
Performance-Related Pay in the Context

of the Global Crisis
Pat Gurren, GRP
The concept of performance-related pay has taken a battering lately.

Some blame the practice for driving the excessive risk taking within
the financial services sector, which led to the global economic
crisis. Whatever your view on the causes of the global economic
crisis, it would be wrong to think that performance-related pay is
history. In fact, one of the consequences of the economic down-
turn is that many organizations have become even more focused
on managing their compensation and benefits cost structure as
a whole. Organizations are now discovering how little of their
compensation and benefits cost structure actually depends on
employee or organization performance. The harsh reality is that
even though business performance has fallen, the compensation
and benefits cost structure is, for the most part, fixed and even
increasing in some areas such as pensions and health care. A logical
consequence of a greater focus on managing the compensation and
benefits cost structure is that organizations will strive to deliver
more performance-related pay over the medium to long term.
This article outlines the key approaches to performance-related
pay that organizations are adopting in order to navigate through
the impact of the global economic crisis. The approaches outlined
may not be practical in all geographies and/or employee categories
around the world, given local and national collective agreements
and/or local employment laws. However, they at least merit consid-
eration given the reach of the economic crisis.
Base Pay Adjustment Processes

One of the immediate consequences of the economic crisis is that
organizations have little or no money to make annual adjustments
to employees base salaries. In the short term, this has not been an
18 Global Rewards
issue since the competitive market for labor has significantly fallen.
Employees, generally speaking, have had little to no expectation
of salary increases in the short term.
In the medium to long term, organizations will need to prepare
for the economic recovery and, in particular, the need to retain their
high-performing employees and keep them engaged. Historically,
organizations have come out of salary freeze mode, which normally
lasts for a year or so, to revert back to the practice of delivering
annual pay adjustments, albeit with increases that are below
historical norms.
This time around, the economic crisis is deeper; organizations are
responding in different ways. The following are the key approaches
organizations are adopting or will adopt in relation to the management
of employees base pay.
Institute multiyear (at least two years) pay freezes. An October

2009 Watson Wyatt survey of 700 organizations across Europe, the
Middle East and Africa (EMEA) found that salary increase budgets
will be tighter in 2010. Specifically, it found that 40 percent of
companies who had implemented pay freezes in 2009 had not
decided to lift the freeze for 2010 at the time of the survey. It is
the authors view that it is inevitable that some organizations will
be faced with little choice but to hold base salaries flat for two
years in a row. This experience will be unprecedented for most
organizations, managers and employees. Some will be forced
to do so simply because they dont have the financial resources
to deliver increases. Other companies, with limited financial
resources, will think long and hard about doing so, given the
uncertainties and the realities of a cool market for labor.
In framing the decision on whether to apply increases or not, it

stands to reason that organizations will be forced to look increas-
ingly inward rather than looking externally. Historically, there has
been a heavy reliance around what the market is doing that guides
decisions related to the size of annual salary increase budgets. It
is unlikely, given all the uncertainty in the market, that organiza-
tions will glean sufficient clarity on the right decision, since the
market will present a mixed picture of practices including pay

cuts, continued pay freezes and pay increases. Organizations
should look internally at their own performance, their culture and
values, their HR strategy, and their compensation and benefits
cost structure to guide them to the right course of action.
Apply limited salary increases such as 1 percent or 2 percent of

payroll. If organizations find themselves in a position such that
the budget available for 2010 is 2 percent or less, they should
consider applying the increases in a targeted way versus diluting
the impact of the available budget by spreading the limited
increases across the entire employee population. If budgets
of this size are applied across all employees, the impact is, at
best, neutral and, in some cases, counterproductive; employees
see the increases as meaningless, even insulting. By taking a
targeted approach, organizations can deliver significant and
meaningful increases to key employee populations based on
either performance, criticality to organization needs or market
vulnerability. It is important to note that organizations should
customize, for example, by awarding the top 25 percent of the
employee population an average increase of 8 percent, with a
2-percent budget. Or deliver a 4-percent increase to half of the
employee population with a 2-percent budget. Organizations do,
however, need to give considerable thought to the impact this
approach will have on the entire employee population. In the
authors experience, a robust communication strategy is essential
for success. Furthermore, this practice works more effectively
in organizations that have a strong culture of performance
management and openness in their dealings with employees.
Deliver increases in the form of a lump sum. Organizations

that are hesitant to deliver increases into base pay but wish to
recognize/reward employees can deliver increases (e.g., 3 percent
of payroll) in the form of a lump-sum payment. Organizations
can follow their normal performance management cycle and,
rather than consolidating the increase into employee base pay,
can pay the annual increase in the form of a lump-sum payment.
20 Global Rewards
A retention element can also be factored into the payment, which

requires a prorated amount to be paid back to the company if
the employee leaves the company before the end of the review
period. A further significant advantage of this approach is that
there is cost impact on other programs that are linked to base
pay, such as pensions.
Deliver pay cuts. In some circumstances the economic crisis

is resulting in organizations being forced to reduce base pay
levels. A drastic example of this is the Irish Republic, where
more than 350,000 public-sector employees have seen their base
pay cut by an average of 14 percent (7.5 percent in the form
of a pension levy in 2009 and 6.5 percent in an average base
pay cut in 2010). Within the private sector in Ireland, a recent
survey of large private-sector employers by Watson Wyatt showed
that 26 percent of companies had implemented an average pay
freeze of 6.5 percent in 2009. In addition to all the usual issues
that go with such actions, there can also be a structural impact
(depending on how the cuts are made) for organizations that have
a history of performance-related pay. Pay cuts can have the effect
of undoing or rolling back the history of performance-related
pay increases, simply because pay cuts are normally done on a
percent basis. So, an employee with a history of above-average
pay increases will suffer a greater monetary reduction in pay than
an employee with an average level of performance. This may be
unavoidable in the short term, but organizations need to think
about how to address impact on high-performing employees in
the medium to long term.
Salary Range Structures

It may appear somewhat unusual to be dealing with salary range
structures in an article on performance-related pay. We are living
in unusual times in that we are experiencing a significant level
of pay freezes, cuts to base pay levels in some organizations and
a significant increase in the levels of unemployment. All of these
factors have placed significant downward pressure on market rates.
The situation we are now in is significantly different that what
most organizations experienced during the past 10 years, when

there was significant upward pressure on market rates and salary
range structures.
In the current economic environment, organizations need to take
a cold, hard look at their salary range structure and decide if it is
appropriate in the new economic climate. The salary range midpoint
(or reference points) needs to be reviewed to ensure that it truly
reflects the current market value of job roles. Organizations should
also review the distance between the minimum and maximum of
the pay ranges (the spread) to ensure that these are also appropriate.
It has been the authors experience that some organizations have
midpoints and salary range maximums that are out of sync with
the new economic environment.
Bonus/Incentive Plans
There has been a lot of press during the past year describing the
likely impact of increased governance requirements on bonus/
incentive payments in the worldwide financial services sector. It
is not possible to be definitive on the likely impact of this until
the governance regime is fully detailed and implemented, and it
is clear as to what resources will be driving compliance. However,
it can be said that bonus and incentive payments will continue to
play a significant role in the total rewards package not just within
the financial services sector, but across all industry sectors. The
reason for this is simple: Organizations continue to have a require-
ment to incentivize employees to perform in order to improve
organization performance.
The following are the key approaches organizations are adopting
or should adopt in relation to the management of employees bonus/
incentive plans:
Clearer linkage between the bonus/incentive and the organiza-

tions bottom line. A consequence of the economic jolt many
organizations are experiencing is that they will question more
closely the value they are getting from their bonus plans in
terms of increased organization performance and the employee
behaviors being rewarded. The link between the bonus/incentive
22 Global Rewards
criteria and the bottom-line business results will need to be

clearer going forward.
More rules versus guidelines. The economic crisis is leading

to a review of the design of bonus and incentive plans, with
clearer rules versus guidelines. In addition, clearer performance
criteria are being put in place. Business and organizations will
look to deliver better value from their bonus/incentive plans by
being more prescriptive on performance criteria and the rules
governing plan operation. Within the financial sector, they have
the added challenge of increased governance requirements on
bonus/incentive plans for senior employees.
Fixed versus variable mix within compensation and benefits cost

structure. Many organizations have come to the realization that they
need to shift the mix (fixed versus variable) within their compensation
and benefits cost structure over time. The pain some organizations
have experienced in this economic downturn by virtue of having a
structure that is not leveraged sufficiently on variable pay will drive
them to address this mix to keep it in line with their business or
organization requirements over the longer term.
Conclusion
The global economic downturn is bringing about a sharper focus on
performance-related pay. This sharper focus is leading to companies
adopting practices that they would not have even considered at
the top of the economic cycle. Organizations are expecting a
stronger linkage between the design of bonus/incentive plans
and improved organization performance. In terms of base pay
management, organizations are increasingly focused on ensuring
any increases applied are delivered to those employees who have
the most impact on business results. Some organizations are also
taking the opportunity to ensure that base pay costs are aligned
with what the organization can afford as well as the realities of
the current market for labor.
Better Benchmarks for Global Mobility

Carlos Mestre | Anne Rossier-Renaud | Madeleine Berger
Amid todays global financial crisis and economic downturn, many

companies are faced with severe budget restrictions. Yet international
assignments remain a crucial aspect of global strategy, even though
they represent a high cost. While companies must consider the
advantages and disadvantages of hiring local employees for specific
roles, there will always be a need for expatriate employees.
Indeed, competition for employees willing to accept an international
assignment is strong. It is therefore crucial for companies to have
inside knowledge of the type of packages expatriates receive in the
market and to be able to make informed decisions on expatriate policy
elements. It is equally important for companies to have information at
their fingertips to communicate the value of expatriate compensation
programs to management and employees.
With a very diverse expatriate population (different home countries,
types of contract, etc.), traditional expatriate benchmarking surveys
based on actual market data are very time-consuming and costly. An
innovative alternative benchmarking method based on companies
typical compensation models requires less effort for input and output
and can produce a highly reliable reference regarding expatriate
compensation. This new approach to tailor-made and off-the-shelf
expatriate benchmarking is outlined here.
First, some background. In 2005, Mercer was approached by a major
multinational firm to conduct an expatriate compensation survey. The
firm had identified a group of leading firms against which it wanted
to benchmark a number of the key components of the expatriate
compensation package. Mercer agreed to capture the benchmark
companies expatriate policies and to use this information to calculate
the value of the package of a hypothetical transfer from Frankfurt,
Germany, to Paris.
24 Global Rewards
The results of the compensation comparisons showed that the overall

value of the sponsoring companys expatriate allowances over base
pay was between the 75th and the 90th percentile. Based on these
findings, the company decided to reduce or eliminate some of the
allowances, while maintaining its desired overall market positioning
at the 75th percentile.
When the expatriate populations discontent regarding the
compensation package later grew, the company decided to repeat
the benchmarking exercise (in 2008) to find out if its expatriate
package had become uncompetitive as a result of the changes made
three years earlier. Much to managements surprise, the new results,
which were based largely on the same sample as in 2005, showed
that the companys competitive positioning had not changed. This
was because several other firms in the sample had also reduced or
eliminated elements of the package. The dissatisfaction among the
expatriate population was attributed to inadequate communication
rather than to the actual shortcomings of the package. The company
therefore resorted to a communication campaign rather than increasing
or reintroducing allowances.
A chart from the study (see Figure 1) shows the value of the over-base
allowances in each of the selected benchmark firms. The difference
between the lowest and the highest cost of the basic allowances
FIGURE 1
Comparison of Over-Base Allowances in 17 Leading

Multi-National Companies
Note: In order to isolate the impact of the home base salary differentials, Mercer applied the
policies to the same base salary for all companies: 100,000 (approximately U.S. $135,000.)
was 10 times. In money terms, it amounted to a difference of nearly

40,000 net of taxes and social security per expatriate and per year
of assignment.
The wide gap among leading firms all using the same home
country balance-sheet approach exists because each one treats the
individual components differently. Thus, out of the 17 firms only 10
provided a mobility premium. When some of the firms that do not
grant a mobility premium were asked why, their reply was simply:
personal and career development. In other words, in these firms an
international assignment is associated with a promotion and salary
increase, and a mobility premium is therefore not necessary as an
incentive to move.
During the past three years, Mercer has produced similar studies
for other companies using the same approach calculating the
compensation values based on the policy information of the participant
companies as well as an off-the-shelf benchmarking study, which
is currently available for expatriate compensation in Singapore. The
same study will be produced for other major expatriate destinations
like Brazil, China, Hong Kong, India and Russia.
The Singapore study provides an overview of budget, standard
and premium expatriate packages of professional-, management- and
executive-level positions on assignment in Singapore. The compensation
values are calculated according to predefined valuation principles
for married-plus-one transfers to Singapore from Australia, France,
Germany, India, Japan, Sweden, Switzerland, the United Kingdom
and the United States.
The predefined valuation principles for budget, standard and
premium expatriate packages are based on best practices of leading
multinational companies and have been applied in a consistent manner,
regardless of the expatriates or the companys home country/domicile.
To be sure, some differences may exist; for example, between budget
policies of North America as compared to those of European or Asian
companies. However, these differences are too small to warrant
separate breakdowns.
Below are some of the reports main findings:
Expatriate versus local and local-plus packages: Packages for
expatriate employees from high-income countries are up to four times
26 Global Rewards
higher than those of local employees. However, these big differences

are applicable mainly to professional-level packages. With higher
position levels, the package differences diminish. Thus, at the executive
level, the package of expatriates from high-income countries is less
than double the local package. At the professional level, local-plus
packages are slightly more than one-half of packages of expatriates
from high-income countries. At the executive level, local-plus packages
are in line with packages for expatriates from high-income countries
and do not therefore represent a cost-savings alternative.
As differences in pay levels are greater for lower-level employees
than for executives, localization (i.e., the process of transferring an
employee formerly under expatriate terms and conditions to local
terms and conditions) for lower-level employees is therefore much more
difficult to administer than for executive-level employees, as localization
would mean a severe cut in a familys household budget.
Package comparison by home country: Overall, expatriates whose
home country is Switzerland, Germany, Australia or the United States
receive high packages. India is representative of low-income countries
and reports the lowest packages overall. Sweden and Japan report
the lowest expatriate packages of the high-income countries.
At the professional level (IPE 52) the highest packages are paid to
expatriates whose home country is Switzerland, followed by the United
States and Australia. Expatriates whose home country is Switzerland
receive a package that is more than four times higher than local
salary levels. The local-plus package is lower than the packages of
expatriates from high-income countries but higher than the package
of expatriates whose home country is India (as representative of
low-income countries).
Figure 2 (on pages 27-28) presents the overall annual standard
package for management-level expatriates by home country.
Figure 3 on page 29 shows net expatriate pay (defined as home base
salary, cost-of-living allowance, mobility premium, quality-of-living
allowance, housing allowance, car and education) for employees from
the United States expatriated to Singapore, as well as the compensation
level for employees on a local-plus compensation structure.
What this picture tells us is that even among expatriates from the
same home country the United States the differences in how each
FIGURE 2
Net Compensation Package in Singapore, By Home Country of Expatriate
Management level (IPE 58): Standard
Net amounts in SGD Australia France Germany India Japan Sweden Switzerland Great Britain USA Local +
Home net base salary 131,779 128,384 146,512 48,859 117,142 99,223 190,564 132,182 115,500 134,565
COLA 6,168 0 2,655 15,506 2,615 2,352 0 5,202 16,570 0
Mobility premium 19,111 17,671 22,270 6,916 15,628 15,789 26,743 19,276 16,570 0
Accommodation 115,500 115,500 115,500 115,500 115,500 115,500 115,500 115,500 115,500 92,400
Car benefit 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400 0
Education 33,177 21,075 24,120 7,410 8,025 20,100 17,010 28,888 33,600 20,100
Total 320,135 297,030 325,457 208,591 273,310 267,364 364,217 315,448 312,140 247,065
Home net base salary 41.2 43.2 45.0 23.4 42.9 37.1 52.3 41.9 37.0 54.5

COLA 1.9 0.0 0.8 7.4 1.0 0.9 0.0 1.6 5.3 0.0
Mobility premium 6.0 5.9 6.8 3.3 5.7 5.9 7.3 6.1 5.3 0.0
Accommodation 36.1 38.9 35.5 55.4 42.3 43.2 31.7 36.6 37.0 37.4
Car benefit 4.5 4.8 4.4 6.9 5.3 5.4 4.0 4.6 4.6 0.0
Education 10.4 7.1 7.4 3.6 2.9 7.5 4.7 9.2 10.8 8.1
Total 100 100 100 100 100 100 100 100 100 100
27
28
Global Rewards
FIGURE 2
Net Compensation Package in Singapore, By Home Country of Expatriate (Continued)
395,000
345,000
295,000
Net total amount in $
245,000
195,000
145,000
Local
employees
95,000
45,000
-5,000
Australia France Germany India Japan Sweden Switzerland United United Local+
Kingdom States
Base salary COLA Mobility premium Accommodation Car benefit Education

FIGURE 3
Net Pay of Expatriates Whose Home Base is the United States

700,000
Premium
600,000
Net total amount in $
500,000 Standard
Local+
400,000 Premium
Budget
300,000 Premium Standard

Standard
Budget Local+
200,000 Budget
Local+
100,000
Professional IPE 52 Management IPE 58 Executive IPE 64
Net total amount in SGD

Employee Level Budget Standard Deviation from local + Premium Local + standard
package package standard package package package
Professional 217,007 259,109 56.0% 301,014 166,124

(IPE 52)
Management 260,227 312,140 26.3% 393,845 247,065
(IPE 58)
Executive 387,937 503,267 18.8% 649,245 423,801
(IPE 64)
29
30 Global Rewards
company applies the over-base allowances can generate differences

of U.S. $90,000 to $220,000 on an annual basis (net of tax).
Differences in compensation models are due to deliberate policy
decisions made by each company. In the process of defining the
appropriate compensation model, external benchmarking is important,
but of limited value if other key factors such as the purpose of the
international assignment program in the company business strategy,
or the perspective of the workforce are not assessed. Using the
benchmarking approach outlined here can be an expedient and
reliable method of managing expatriate compensation in todays
cost-challenged business environment.
Business as Unusual:
Making Global Compensation Work for You
John M. Bremen | Marcus Minten | Jon Randall
In the current global economic environment, the key salesforce

imperative is to keep reps focused on and engaged in effectively
executing sales strategy and process. Regardless of geography or
industry sector, sales professionals must continue to identify leads,
develop relationships, make pitches, advance sales, sign contracts and
deliver service to maintain momentum as the economy improves.
Yet, clearly, it is not business as usual for salesforce compensation.
Rather, the global economic downturn and subsequent company
reorganizations and acquisitions are making sales compensation
program reviews more prominent, as well as testing the philosophies
and beliefs that have shaped these programs around the world.
Further prompting this re-evaluation are various regulatory authorities
alarmed by the notion that compensation plans may have played a
pivotal role in driving the imprudent behavior and risk taking that
helped create the economic turmoil during the past 18 months.
Whatever the motivation or external impetus, regularly reviewing
sales programs is healthy. In fact, the sense of urgency created by the
current economic correction may represent a silver lining. It provides
a timely opportunity to re-evaluate decisions made during frothier
economic circumstances and rapidly build consensus to realign
practices and processes for greater effectiveness and sustainability.
To that end, this article takes a closer look at realignment
opportunities and initiatives. It first addresses two key sales
compensation design issues facing companies across the globe:
Do we really need this many plans?
Do we have the right plan designs?

32 Global Rewards
It then recommends:
Dont guess, assess: Get the information needed to guide informed

decision-making.
Do We Really Need This Many Plans?

During times of robust economic growth and aggressive entry
into new markets, companies often employ a more decentralized
management approach in order to provide f lexibilit y and
nimbleness to respond to local market and/or business-unit
opportunities. Over time, however, a decentralized approach can
lead to the proliferation of numerous, distinct sales plans. This
phenomenon can be observed among single-country organizations,
who have a proliferation of plans for discrete roles within and
across business units, and among regional/global companies,
who have a proliferation of plans for similar roles across different
geographies.
Too often, an examination of these plans reveals arbitrary or
inconsistent differences in design architecture, reflecting more the
beliefs of individual managers rather than a core set of guiding principles
based on design best practices and a valid fact base. In these cases,
companies face not only the cost burden of managing numerous plans,
Case Example
Global Bank with More Than 50 Plans in Retail Business Unit
To support profitable growth objectives, a global bank sought to simplify and

streamline sales plans within its retail banking unit operating in one of the
banks largest markets within Asia. Working with a consulting partner, the
bank completed a rapid assessment of more than 50 sales incentive plans to
identify gaps and inconsistencies across plans, as well as opportunities for
streamlining, consolidating and realigning plans. The solution that followed
included a new sales incentive framework and platform with prescribed plan
design features and decision principles linked to six role categories (e.g.,
sales and service employees, new business developers, account managers,
etc.). Decision principles (along with design manuals and modeling tools)
ensure that core design elements (e.g., pay mix, thresholds, upside,
performance measures and weights, gates and modifiers) are consistently
thought through and communicated across roles and businesses. In addition
to achieving tighter alignment to sales strategy, the new designs significantly
reduce complexity and ease communication.
but the very real prospect of suboptimal return on investment (ROI)

from poorly designed and inadequately modeled plans.
The current opportunity. Todays business environment provides
the ideal opportunity to take inventory of current plans, assess
them against best principles and identify legitimate opportunities
for streamlining, realigning and common sizing. Done properly,
the benefits go well beyond simply reducing administrative costs
because new plans tend to be easier to communicate, better aligned
with sales strategy, and much easier to monitor, refine and adapt
over time.
Caution: If a high number of plans is an issue for your organization,
a one-size-fits-all approach is rarely the solution. New plan
frameworks need to provide flexibility to accommodate legitimate
differences in market maturity, cultural preferences and regulatory
considerations.
Market maturity. Different market maturity levels can result in
different selling roles. For example, less mature markets tend to
have more broadly defined selling roles operating across the sales
value chain, from lead generation through account management
and post-sales support. More mature markets often lend themselves
to more specialized roles focused on either account retention
(e.g., account managers) or new account acquisition (e.g., business
developers). In these situations, it is important that the overall
framework has the flexibility to accommodate differences in selling
roles and the associated implications for elements like pay mix
and performance metrics.
Market maturity may also influence the degree to which goals
can reasonably be established, with implications for the best type
of sales compensation plan that should be employed (e.g., bonus
versus commission).
The maturity of the market may also drive differences in product/
solution offerings, in which case the framework might need to
accommodate flexibility in setting plan metrics and/or weights,
even for similar roles.
A typical solution approach is to identify categories of markets with
legitimate differences in needs, then define the design principles
and parameters that will apply to each category. This approach
34 Global Rewards
accommodates the need for flexibility while providing a framework

to guide soundness and consistency.
Cultural preferences. Cultural norms influence local talents
appetite for the risk level that is inherent in sales incentive
plans. Some countries tend to prefer less aggressive pay mixes
and expected upside, while others tend toward more aggressive
plan mechanics and more individual differentiation. For example,
in locations like the Netherlands, Scandinavia, India and Japan,
there is a cultural preference for team-based pay and less
differentiation among individual payouts. In Hong Kong and
the United States, more aggressive pay mixes and an emphasis
on individual performance is common. Understanding these
differences helps organizations determine the right range of
flexibility that should be incorporated into global frameworks.
This is not to suggest that organizations will or should always
decide to accommodate local practices. In some cases, the
company will decide to implement new thinking (e.g., a more
aggressive pay mix, a greater focus on individual versus team
performance metrics) that is counter to local legacy practices
because its leaders feel it is best aligned with their company
culture and selling strategy. In these cases, a discovery process
Case Example
Tailoring Plan Design to Attract the Right Talent

in a Global Market
A U.S. company preparing to enter a key European market sought local

expertise to assess if the companys aggressive variable pay approach
would support acquiring the right talent in the new market. Executive
management held strong beliefs that its variable pay program was a key
element of the business model and had been a major driver of sales success
for decades. However, a program review showed that the type of talent
required for a successful market entry would perceive the arrangement as
too risky and too complex. A restructured sales plan enabled the company
to provide a compensation arrangement with a pay-at-risk level that was
moderated compared to company practices, among the highest in the
industry locally, and still successful at acquiring sales talent with the
right blend of product knowledge and sales-culture orientation. While the
program was less aggressive than elsewhere in the company, it still led the
local market and maintained consistency with company philosophy.
must highlight the likely management challenges that will need to

be addressed so that leadership can make informed decisions.
Regulatory Considerations
Local regulatory requirements can impact or constrain plan design
options in unanticipated ways. For example:
In Italy, the number of visits a pharmaceutical representative

can make per physician per year is restricted.
In Vietnam, companies cannot directly provide incentives to sales

professionals unless they are selling products manufactured in
Vietnam.
In China, the tax code treats quarterly incentive payouts less

favorably than monthly or annual payouts.
In a number of heavily regulated countries (such as the United

Kingdom and Japan), sales commissions are not permitted in certain
industry sectors to avoid encouraging unethical behavior.
These examples underscore the importance of staying abreast

of local regulations and guidance, as well as the importance of
monitoring their implications for design and implementation of
broader plan frameworks.
Do We Have The Right Plan Designs?

One of the most challenging aspects of sales compensation design is
ensuring that designs keep pace with changes in the sales organization
(e.g., changes to target segments, new solution offerings, added or
changed selling roles or revisions of selling strategies). Particularly
in times of high growth and tight labor markets, many companies
observe that design changes are implemented reactively and typically
in piecemeal fashion. Sometimes, what were intended to be temporary
amendments or add-ons to a plan are not revisited, even when they
are no longer necessary or appropriate. Or, planned transitions to
a different pay mix have yet to be completed years later. Similarly,
36 Global Rewards
Case Example
Aligning Sales Compensation Design with a New Selling

Organization and Growth Strategy
A global automation company had recently reorganized its China-based

customer-facing organization. Key elements of the new strategy included
the introduction of more focused selling roles with assigned customer-
segment accountability, along with specialist roles focused on key solution
offerings. The new model called for account-focused roles and specialist
roles to partner effectively to optimize account/market penetration.
Successful implementation was going to require a significant mind-set shift
and change in behaviors among the salesforce.
A consulting firm was engaged to assess the companys sales incentive
plans to determine if they would help drive adoption of the new strategy.
The conclusion: Legacy plans were not only poorly aligned with the new
growth strategy, they would likely be a barrier to successful strategy
implementation. However, the magnitude of change implied by assessment
findings presented a challenge.
Working with the consulting partner, the company was able to evaluate
close the gap options and develop a well-aligned sales incentive plan for
customer-facing roles. Resistance to change was overcome by educating
and engaging key stakeholders in every step of the design process. During
roll out communication, key stakeholders who had initially resisted new plan
adoption proved the most capable champions for the new approach.
To date, since implementation of the new plan, the company has achieved
above-plan sales growth along with an improved focus on strategic priorities,
which were linked to plan payouts.
some companies fail to recognize when factors like increased market

maturity, significant investments in brand, diminishing sales role
prominence and increased focus on team selling and solutions selling
call for a transition from a commission platform to a goal-based
target-incentive approach. Also, as companies enter new markets
or shift their sales focus in a particular country, they find that their
existing sales incentive plans are no longer well-aligned.
The current opportunity. To reiterate the opening point, todays
business environment creates some (helpful) urgency around revisiting
key elements of plan design to ensure they properly support the
business. Key areas for rigorous review include the following:
Performance scorecards. Increasingly, companies across most

sectors are seeking to shift from a product push orientation
to a greater focus on needs/solutions-based selling. Moreover,

regulators want to ensure that performance scorecards are balanced
to drive attention to customer service and prudent risk taking
rather than to an exclusive focus on sales. Companies, too, are
increasingly focused on the quality and sustainability of sales
rather than just short-term revenue results.
Plan participation. It may be an obvious point: No matter how

elegant the plan design, if too few reps actually participate in
a payout, the plan is not going to effectively focus and engage
behavior. And yet, assessments conducted across the globe
routinely surface plans with low and/or skewed participation.
Sometimes this is explained by over-engineered plan designs
with too many measures and/or bells and whistles, such as gates,
hurdles and plan modifiers that undermine plan understanding and
participation. Other times, the culprit involves issues regarding
how goals are being set and allocated to sales roles.
Pay mix. Many organizations use a company centric, philosophical

bias toward a particular pay mix (e.g., conservative, moderate or
aggressive) that is applied universally across all selling roles. However,
experience suggests the application of a more strategic approach
that aligns pay mix (and other design elements) with the nature of
the selling role, selling strategy and selling cycle. This approach
helps align risk/reward propositions and attract the right talent
profiles. As needed, organizations can establish acceptable ranges
of pay mix to accommodate differences across different markets.
Note: In the current risk-averse environment, many designers are
witnessing scrutiny of plans that place too much pay at risk. At the
same time, it is essential to preserve appropriate levels of upside
opportunity for top performers in order to ensure a strong pay-for-
performance linkage.
Dont Guess, Assess: Get the Information Needed

to Guide Informed Decision-Making
Based on experience, the best outcomes result when there is a
solid fact base to guide understanding of critical gaps, as well
38 Global Rewards
as to guide informed decision-making regarding close-the-gap

alternatives. Plan assessment should be comprised of quantitative
and qualitative analysis and should be based on input from a
variety of stakeholders (e.g., senior management, sales manage-
ment, direct sales employees and experts from finance, HR and
IT functions).
Quantitative analysis techniques provide clarity about how plans
are operating:
What portion of the salesforce is actually participating in the plan?
What is the distribution of performance around goals?
What is the actual versus target pay mix for different roles?
How strong is the relationship between pay and performance?
What is the cost of sales?

How do target, upside and downside payouts compare to market?
Does the plan deliver a compelling total cash opportunity?
Case Example
Addressing Pay Mix at a Financial Services

Organization in India
A financial services company in India was striving to include a more

consultative approach to its selling strategy. To ensure its salesforce was
aligned with this strategy, it wanted to include a share-of-wallet-type
metric in its sales incentive plans. Following a deep-dive analysis conducted
by third-party experts, the company discovered that its intended pay mix of
70/30 (70 percent base and 30 percent variable pay as a percentage of total
target cash compensation) for certain roles was actually closer to 90/10,
given the way it had structured its incentive plans and the various payouts
associated with the goals it had set. With only 10percent of target total cash
compensation truly at risk, the organization realized that adding another
metric would only further dilute the impact of the incentive opportunity. To
solve this problem, the company decided to transition certain sales roles to
new plan designs, which delivered a more aggressive pay mix. This allowed
it to incorporate a strategic cross-selling measure into the incentive plan for
these roles, while also delivering meaningful pay for performance.
Qualitative assessment techniques (management interviews and

focus groups, employee opinion surveys, review of plan design
documents, etc.) are used to:
Clarify sales strategy (segments, growth strategy, selling roles,

selling process, etc.)
Evaluate the alignment of plan design features (e.g., plan type,

pay mix, performance measures, thresholds, modifiers, accelera-
tors, performance and payout periods, crediting rules, etc.) with
selling roles and selling strategy
Evaluate the degree to which the plan is understood by employees

and is engaging them and driving their performance (pinpointing any
employee concerns regarding specific plan design features).
The two sets of analyses combine to reveal obvious gaps/

opportunities for improvement and usually suggest a clear path
forward for plan realignment.
Conclusion
In these turbulent times, the need to do more with less is ever more
critical in maintaining market share and driving revenue growth.
Even small revisions and minor realignment of an organizations
sales compensation and effectiveness programs can lead to the
type of incremental growth that will keep a company ahead of its
competitors. The key to impacting change will be to make informed
decisions and ensure that key stakeholders are involved throughout
the entire process. By doing so, and by retaining and motivating
their high-performing and high-potential sales talent, companies will
be better poised to emerge successful as the economy improves.
40 Global Rewards
10 Ways to Shore Up Your Global Equity Plan in Troubled Economic Times 41
10 Ways to Shore Up Your Global Equity Plan

in Troubled Economic Times
June Anne Burke
The severity of the current global economic crisis has created

a dilemma for companies that use equity to attract, retain and
motivate employees. With widespread layoffs, wage freezes and
erosion of the value of retirement savings accounts, the role of
equity compensation is more critical than ever, while at the same
time, the perceived value of equity awards has been severely
eroded by depressed stock prices, causing equity awards to lose
their retentive and motivational effect.
Fortunately, there are steps that companies can take now to shore
up the value of their equity programs and prepare for a return
to a stronger economy. No single approach or combination of
approaches is right for all companies. The most effective strategy for
any particular company will depend on a number of factors, such
as the type of equity currently being granted, the degree of stock
price volatility relative to industry peers, the eligible population,
and the financial challenges that the company currently faces. The
following discussion identifies a number of approaches that are
applicable for nearly any company in any part of the world. These
approaches may work alone or in combination with each other.
No. 1. Offer Option Exchange Programs for Underwater Options.
During the past several months, many companies have decided to
implement an option exchange program, under which options are
exchanged for options with a lower exercise price, or exchanged
for another form of equity award, such as restricted stock units
(RSUs). Occasionally, options are exchanged for cash, particularly
in jurisdictions in which offering equity in exchange for options
would be impractical due to onerous legal requirements. To maxi-
mize the chances of shareholder approval, most option exchanges
are for equal value rather than a true repricing (i.e., optionees
42 Global Rewards
receive fewer options in exchange for the options surrendered).

Where options are exchanged for another form of equity, such as
RSUs, the number of RSUs received typically reflects the fact that
the surrendered options are underwater.
In addition to U.S. tax and legal considerations, exchange programs
give rise to tax and legal considerations in countries outside the
United States where the exchange program is offered. For example,
the exchange offer could trigger issuer bid requirements in the
foreign jurisdiction in which it is offered (e.g., Canada). Furthermore,
the grant of new awards in exchange for the surrendered options
could itself give rise to a securities filing requirement in that
country, depending on a number of factors, including the number
of award recipients, the size of the offering and the type of equity
being granted.
Tax considerations include whether the surrender of exchanged
options and/or the grant of new awards is a taxable event for the
employee (e.g., in Canada and the Netherlands). Where the transaction
gives rise to a taxable event, it is necessary to determine whether the
local entity is required to withhold income and/or social taxes on the
taxable income to avoid withholding and reporting violations on the
part of the local employer. Employee consent to the exchange must
be clearly documented to mitigate the risk of successful challenges
to the validity of the consent down the road.
No. 2. Move From the Current Form of Award to a Different Form.
Many companies are rethinking the types of award to be granted
going forward. For example, some companies with underwater
stock options are considering moving to RSUs. Companies focused
on driving certain results may wish to consider performance-based
awards. However, some companies with outstanding performance-
based awards are rethinking the performance metrics to be used
or are in the process of deciding whether to move away from
performance-based awards until the economy improves.
No. 3. Accelerate Grants. Where outstanding awards have lost their
retentive and motivational value, such as in the case of underwater
stock options, restricted shares or RSUs granted over shares that have
declined in value, or where awards are subject to performance-based
vesting targets that will not be achieved, accelerating the timing of
the next grant date may be an effective solution. This approach can
be used alone or in conjunction with No. 2.
No. 4. Award Larger Grants and/or Grant Equity More Broadly.
Another way to offset significant decline in share price is to increase
grant sizes. The ability to do this will depend, in part, on the
adequacy of the remaining share pool under the plan. If additional
shares are needed and shareholder approval is required, which will
most likely be the case, the likelihood of obtaining shareholder
approval should be considered. Increasing award size may require
companies to revisit the eligible grant population and reduce the
number of eligible employees and/or award sizes to allow for larger
awards where needed. The cost to the company of larger award
sizes could be offset (albeit indirectly) by implementing a global
recharge program, as this will allow for tax-free repatriation of cash
to the United States and enable local subsidiaries to take corporate
income-tax deductions where available under local tax law. Where
there is an adequate share pool, increasing award sizes can be
implemented alone or in combination with broader grants.
Some companies concerned with employee retention and motivation
have decided to grant to a broader population than in the past, at least
where there is a sufficient number of authorized shares remaining.
Where share reserves are inadequate, it may be possible to supple-
ment this approach with the approach suggested in No. 5.
No. 5. Add a Cash Component to the Equity Plan for New Grants.
Supplementing equity programs with cash awards can be an effec-
tive means of buoying the perceived value of awards where stock
prices are depressed. Companies with sufficient cash flow may
wish to consider granting cash awards to supplement a dwindling
pool of shares where obtaining shareholder approval for additional
shares is not feasible. In addition, cash awards can be a way of
avoiding costly and onerous regulatory filings in some countries.
One caveat to this approach, however, is that the plan document
and award agreements should be carefully drafted to avoid creating
employee entitlements for cash awards to grant recipients working
outside the United States. In many countries, failure to do so could
result in constructive terminations of employment if the company
later stops granting cash awards. Likewise, cash awards are more
44 Global Rewards
likely than equity to be included when calculating termination

indemnities and/or severance payments for non-U.S. employees.
No. 6. Get Employees to Focus on the Future Through Plan
Design and Communications. Getting employees to think beyond
the current economic crisis and to focus on the future success of
the company through plan design and/or communications by tying
awards to performance can be an effective way of retaining and
motivating employees if the performance targets are within the
employees sphere of influence and control (e.g., targets relative
to the companys industry or peer group).
Lengthening the option term may be an effective way to address
underwater options. A number of factors must be considered, such as
the number of years the options in question have been outstanding
and the amounts by which they are underwater. Companies thinking
of extending option terms should consider whether extension applies
to all outstanding options or only to employees who have not yet
terminated employment with the company. In some countries (e.g.,
Belgium, France), lengthening the option term can have tax and/or
legal consequences. Therefore, it is advisable to consider the laws of
each jurisdiction in which affected options are outstanding. In addition,
the plan should be reviewed to see whether lengthening the term
is permissible without shareholder approval. Finally, the accounting
consequences of lengthening option terms should be analyzed.
No. 7. Implement an Employee Choice Program. Employee
choice programs permit employees to choose between two or
more forms of equity awards, such as stock options and RSUs.
Typically, employees are given the opportunity to indicate their
choice of award in the event that they become eligible to receive
an award under an upcoming grant. Providing employees with a
choice of award forms could increase their perceived value of the
equity program. These programs must be carefully structured and
documented to avoid triggering securities filings in the United States
and abroad. In addition, the documentation should clearly state
that the employee understands the nature of the award elected
(including differences in tax treatment) and that the opportunity
to express a choice is not a promise on the part of the company
or the local entity that an award will be granted.
No. 8. Implement Tax-Qualified Vehicles Where Available. Get

more mileage out of your existing plan by increasing the after-tax
value delivered to employees by taking advantage of tax-qualified
plans where they exist (e.g., in Canada, France, Israel, Singapore,
the United Kingdom). In some countries, tax-qualified plans also
save the local subsidiary from having to pay its portion of social
insurance charges (which can be significant).
No. 9. Implement a Global Employee Stock Purchase Plan
(Espp). Although it might seem counterintuitive given the downward
trend in stock prices, a number of companies are implementing
global ESPPs. Depending on a companys financial situation and
the industry, the fact that shares are more affordable and provide
employees with greater upside on return may be an effective way
of extending equity to a broad group of employees and enabling
them to share in the future financial success of the company when
recovery occurs.
No. 10. Properly Handle Equity in Workforce Reduction Situations.
If your company intends to lay off workers in the forseeable future,
it is a good idea to consider timing, design and documentation of
upcoming equity awards. Planning ahead when workforce reductions
are expected can avoid costly mistakes when reductions in force
occur, especially when granting equity abroad. In many countries,
employees may be considered as being entitled to certain benefits
under the plan upon termination of employment even though their
employment was terminated before the vesting date. For example,
local courts may award employees a pro rata portion of an award,
contrary to the terms of the plan and award agreement.
Termination of employment provisions found in equity plans of U.S.
companies typically assume that termination of employment occurs
on the last day the employee actively performs services. However,
in many other countries, termination of employment occurs on the
last day of the statutory period for notifying an employee that his
or her employment is being terminated. During the statutory notice
period, the employee has the right to continue to vest in his/her
award and to receive additional grants made to employees.
To mitigate the risk of being required to permit vesting of awards
or additional grants during statutory notice periods, companies
46 Global Rewards
should document the employees and the companys respective

rights upon termination of employment and should require award
recipients to sign an award agreement that clearly states these rights.
Translation of the agreement into the local language is strongly
recommended wherever possible.
Trends in Global Employee Equity

Jennifer George
Long gone are the days of broad-based grants and employees of every
level getting rich off stock options, and fading fast are the days of
plain vanilla time-based awards where employees just have to avoid
getting fired long enough to vest in the awards. Instead, as a result
of the economic downturn, legislative changes in the United States
requiring increased disclosure regarding compensation and increased
investor scrutiny of equity programs, U.S. multinational companies are
customizing their employee equity incentive programs and the terms
of their grants more than ever before.
As companies make important choices about what types of equity
programs make the most sense for them, clear trends are emerging:
changes to the award types companies are granting; reduction of
the number of employees actually eligible for grants; reconsidera-
tion of grant sizes for executives; resurgence of employee stock
purchase plans; and adoption of new terms for awards.
Drivers of Change in Equity Plans

Before exploring the five trends, it is helpful to consider what
has spurred companies toward equit y incentive program
customization.
Changes in granting practices for U.S. multinationals have
primarily been driven by the recession, legislative developments
in the United States requiring increased disclosure and restrictions
on executive compensation and shareholder voting requirements
(namely Dodd-Frank and Sarbanes-Oxley), and an increasing
skepticism of the appropriateness of levels of compensation paid
to corporate executives.
Not only must U.S. multinationals navigate the waters of change
in the United States, but if they are making grants to employees
outside the United States, they also may be subject to regulations
48 Global Rewards
in the countries in which they make grants. Outside the United

States, the landscape is no less difficult. Specifically, there are
similar changes with respect to increased corporate disclosure
requirements and constraints on the amount and terms of overall
compensation (including equity incentives) to certain employees.
In fact, European Union (EU) countries, already far ahead of U.S.
corporate disclosure requirements, are considering implementing
even more extensive shareholder disclosure requirements, which
will include disclosure on equity incentive grants. There have
also been recent changes outside the United States with respect
to limiting overall compensation, which, to date, have primarily
been focused on banks and financial institutions, but the reach
of these rules seems to be expanding.
As an example of such measures, last year, the United Kingdom
(UK) introduced a one-time bank tax if employees in the financial
sector receive nonregular annual compensation, such as bonuses
(including equity awards) in excess of 25,000 (approximately
$39,000) per year. Reports are that J.P. Morgan recently paid
more than 328 million (approximately $518 million) to the UK
tax authorities under this tax.
Discussion of Five Current Trends
Award Types
Most U.S. multinationals are reconsidering what types of equity awards
to offer employees. Key trends in this area are a reconfiguration
of full-value awards vs. awards employees pay for, a move toward
performance awards and a move away from offering the same
types of awards in every country.
Full-value awards vs. awards for which employees pay. As of

2005, very few companies were granting full-value awards (i.e.,
awards that employees dont pay anything for upon issuance
of the shares, like restricted stock units and restricted shares);
instead they were offering stock options with time-based vesting.
However, during the recent recession, employees were left holding
stock options that were very deep under water, with little hope
of resurfacing. These options were no longer a retention tool

but instead a source of employee angst. In the past five years,
many U.S. multinationals have started to grant a mix of stock
options and full-value awards to diversify employee holdings
and strike the right balance between shareholders and employee
retention considerations. Currently, very few U.S. multinationals
grant only one type of award. Instead, they have many types of
grants in their arsenals and seem to be re-evaluating the right
mix in award types and terms each year.
Performance-based awards. Performance awards are the chic

award of the day that every adviser is talking about, but many
in-house stock plan administrators dont seem to know that they
have these. Really, a performance award is a generic term for
any award pursuant to which performance is required to get the
grant, vest in the grant and/or retain the award. Performance
could be individual, companywide, group-specific and so on.
These types of awards have become very common, as most
U.S. multinationals have moved away from broad-based grants
toward more of a merit-based granting program, pursuant to
which managers nominate employees to receive grants based on
their performance. In fact, according to the preliminary report
from the 2010 Domestic Stock Plan Design Survey (co-sponsored
by the National Association of Stock Plan Professionals and
Deloitte Consulting LLP), which surveyed 597 companies, 71
percent of companies have some type of performance-based
equity award program.
Most U.S. multinationals that offer performance awards to employees

outside the United States seem to offer the same terms to U.S. and
international employees. However, there is heightened labor law risk
with performance awards granted to employees outside the United
States. Employee-friendly courts outside the United States are more
likely to determine that the employee earned the award if the grant
was made due to the employees performance regardless of any
vesting terms set forth in the award agreement that requires continued
employment after the performance goals have been met.
50 Global Rewards
Less Uniformity of Award Types Outside of the United States

For grants made to employees outside the United States, the trend is
for companies to consider different types of awards for each country
depending on the local tax and regulatory issues and the risk level
with the grants. More companies are moving toward some type of cash
award (usually, cash that vests over a period of time) in some countries
to avoid expensive regulatory filing requirements that exist in some
countries for equity awards. There no longer seems to be a drive at
most companies to get stock in the hands of employees everywhere
regardless of the cost. For example, due to the tedious exchange
control registration requirement in China, many U.S. multinationals
have stopped offering equity plans there and switched to local cash
bonus programs funded and paid locally.
Reduction of the Number of Employees Eligible for Awards

Although the vast majority of U.S. multinational company employee
equity plans specifically provide that all employees are eligible to
receive grants under the plan, many U.S. multinationals develop
internal grant practices pursuant to which only employees at
certain levels receive grants. The domestic stock plan survey found
that 50 percent of companies set minimum criteria for participa-
tion in employee equity plans based on salary grade or level. Of
those, 50 percent said the minimum base salary threshold to be
considered for grants is $75,000. This is certainly a change from
the dot-com days during which everyone at the company received
stock options.
Consideration of Reduction of Grant Sizes

Dodd-Frank also known as the Wall Street Reform and Consumer
Protection Act of 2010 was signed into law in July 2010. Among
many other reforms under this legislation is a requirement for increased
disclosure to shareholders about executive compensation, including
equity awards. The legislation calls for various new disclosures including
the ratio of the average employee compensation compared to that of
the CEO. The goal seems to be to shame companies into reducing
overall executive compensation. Only time will tell if this happens, but
companies are definitely considering reducing equity grant sizes (at
least temporarily to see what other companies do) for executives whose
compensation has to be disclosed to shareholders. On the good news
side, most companies do not seem to be reducing grant sizes for the
average employee. The survey found that only 18 percent of companies
surveyed reduced grant values for grants made in 2009.
Please note that reducing grant sizes for employees outside the
United States may be problematic, as in certain countries, employees
(and executives) may have an acquired right to keep receiving
grants and the same size grants after grants have been made
consistently over a period of years. This acquired rights risk is of
particular concern in Latin America and some European countries,
such as Spain.
Employee Stock Purchase Plans

There seems to be a resurgence of employee stock purchase plans
(ESPPs) plans pursuant to which employees elect to have a percentage
of their salary held back for purchase of their companys shares at the
end of the purchase period. When the U.S. accounting rules for equity
awards changed about five years ago, some companies pulled their
ESPPs, and some are reconsidering that decision as ESPPs are a relatively
easy way to get shares in the hands of a broad-based employee group
and are rarely scrutinized by institutional shareholder groups. Also,
the accounting impact could be minimal compared to other types of
equity awards.
Outside the United States, there are some countries where offering
an ESPP is expensive due to local laws requiring legal filings
(e.g., China and also the EU if an EU prospectus is required), but
depending on the number of employees, ESPPs can usually be
offered fairly inexpensively in most countries.
New Terms for Awards

U.S. multinationals are considering a variety of new award terms including
claw-backs (which allow the company to get the award or value delivered
pursuant to the award back from the employee in certain situations),
which are required under Dodd-Frank for executives actions related
to financial statement restatement issues; double triggers (opposed to
single triggers) in the event of a change in control so that employees
52 Global Rewards
dont get accelerated vesting merely because their company was acquired
and instead have to be terminated from employment within a specific
period of time after the change in control; minimum shareholding
requirements for executives longer option terms (to be more resilient
in times of market instability); and longer vesting periods to increase
retention value of the awards.
Conclusion
As companies emerge from the recession and move into the new era of
increased corporate disclosure and scrutiny regarding compensation and
equity programs, companies are rethinking, redesigning and reinventing.
Employee equity incentive programs as we move into the future are
based more on unique company goals, values and strategies and are
moving away from cookie cutter programs.
Signs on the Road to Global Sales

Compensation are in Local Language
Warren Mueller, CCP, CSCP, GRP
Mixing the priority of sales compensation with the pressure to

globalize presents a fantastic opportunity for organizations of all sizes.
However, as with most fantastic opportunities, some organizations
rise to the challenge, while others miss the boat.
On the road to globalization, some firms may confuse globalization
with global consistency, or global design with a global plan. It
should be said clearly in the beginning: Most organizations cannot
have a single sales compensation plan that works everywhere in the
world. Sales compensation plans work best when they are joined
at the hip to the daily lives of the plans participants. However, as
most organizations are in the process of becoming global, they are
often far away from having consistent day in the life experiences
for their sales teams, especially when those teams are split across
multiple geographies, business units and roles. These differences
should not be seen as a hindrance, though the specialty and
diversity they offer are the raw materials used in building truly
motivating and behavior-driving sales compensation plans.
To illustrate how companies can successfully mix sales compensation
and globalization, this article explores how the authors company
implemented and maintained a global sales compensation framework.
Diversey Inc., a chemicals manufacturer, found the advantages of
global design very appealing despite the complexities that can
arise considering the medium-sized company employs more than
10,000 people and operates in more than 170 countries.
Implementing the Framework

Diversey acknowledged that the unique qualities that made its
salesforce different from one another (different country, business
unit and job role) were the exact items that created the opportunities
54 Global Rewards
to incentivize behavior and drive local focus and results. These

characteristic differences were easily spotted by the design
teams, realizing quickly that the cultures of Latin America and
North America were not alike regarding variable pay practices,
nor in the daily job duties of a sales representative in one
business unit versus another. An overglobalized, oversimplified
approach would have been to spread over these key details with
a thick global paintbrush in the name of simplification, consis-
tency and globalization. Instead, Diversey relied on a global
sales compensation framework, contracting with a consulting
company to deliver a best practice methodology that developed
and supported global guidelines and a global framework, but
also delivered detailed project planning tools that can be used
by local teams during actual plan development.
The global framework was simple to understand and communicate.
Fortunately, a solid global approach is similar to a solid local
approach that has already been practiced in some places around
the world in previous years.
In Diverseys case, five phases laid the groundwork for the
implementation teams. These phases can be used at most firms
with successful results.
1. F act finding/assessment. Conduct interviews of leaders and

participants, along with data analysis of results, which will
assist in gaining an understanding of current plan effectiveness.
These interview questions usually fall into similar buckets
across industries: corporate values and culture, job definition,
sales objectives, sales process, buyer profiles, incentive plan
design feedback, sales crediting policies, quota setting and
allocation, communication and administration. Once your plan
participants provide feedback on all of these areas, the design
teams will have what they need to understand the current state
and its opportunities.
2. Plan design and development. Identify plan eligibility, targeted

market pay levels, and measures and weights that align with
business-unit strategy; determine upside, mix and frequencies
for performance management and payment. The selection of

these metrics, be they gross/net sales, profitability, working
capital, cash flow, etc., are the key driver of behavior in these
plans. It is important to understand the messages your team is
sending here because you truly get what you pay for.
3. Costing and modeling. Project and model costs for a variety

of scenarios to ensure accurate accrual and funding rates.
This involves projections of plan costs at, below- and above-
target performance levels based on reasonable expectations of
performance distributions.
4. Approvals. Gain needed approvals from key leadership

stakeholders across country, business-unit, subregional, regional
and global approval levels from the finance, sales and business
leaders.
5. Communication and education. Communicate via sales leaders,

with finance, HR and total rewards playing supporting roles.
Use visuals, examples, simple mathematics and local languages
as much as possible.
With these phases intact and with leadership agreement, the

global governance teams were satisfied that this was another
process on its way to supporting globalization. No longer could
country- or subcountry-level managers make decisions in silos
that were not aligned to business strategy or the direction of the
overall firm.
Once this framework was established, several local project teams
were formed based on the companys organizing rationale at the
time. Some were business unit-based and others were based in
geography. Representatives from sales leadership, the salesforce,
sales operations, marketing, finance, human resources and total
rewards came together across the world and started progressing
through the methodology delivered by the global team. Alignment
meetings were held to report initial results and ensure consistency
at all levels of leadership.
56 Global Rewards
Maintaining the Framework

After launching this design framework in the late 2000s, the same
best practice methodology was used to govern the annual review
process. This process might take around four months each year,
depending on the speed of your organization and availability of
the team members. Diversey had several guiding principles for the
annual review process:
Integrate global guidelines as possible into local design.
Investigate plan changes and improvements.
Review plans for alignment with business strategy.
Build new plans for new roles.
Involve local project teams with cross-functional representation.
Each of these guidelines can be applied at other companies,

as follows:
Integrate global guidelines as possible into local design. Although
sales compensation plans are generally run and refreshed annu-
ally, accepting there are limits to what can be changed year over
year was a key learning at Diversey. For all companies, the global
sales compensation governance team is well-advised to interview
senior global leaders every one to two years on the future of the
organization. Even if the team at headquarters does not design
the plan, it can issue updated global design principles for local
teams to consider during the annual review. These data will chart
where the organization is headed during the next three to five
years. Keeping a long-term view in mind is important because
most barriers and obstacles to immediate implementation of best
practice ideas will need investment and time to change.
Investigate plan changes and improvements. Local team plan
reviews have a mixture of sources for feedback data, such as
the quantitative data produced by the performance management
process, the design teams feedback and global guidelines. All of
these data points should help facilitate not dictate project

team decisions. These sources of information are best used by
compiling the feedback into a summary form and reviewing it in
one of the teams first meetings. The team will take this feedback,
which is mainly backward-looking, and merge it with the current
design needs plus the forward-looking business strategy and
create a new design. Avoid only fixing the squeaky wheel just
because it is squeaky without looking at the larger picture.
Review plans for alignment with business strategy. In addition
to the global governance, the input of local sales leaders who
are responsible for driving the local areas business-unit strategy
and performance is mission-critical. Often, global guidelines will
allow for a variety of measures and weights based on the current
years business objectives. The local teams are well-positioned to
determine, based on business strategy, which measures the team
should pay for in the coming year.
Build plans for new roles. Even a perfect sales compensation
plan (if there is one) will not be able to keep up with a dynamic
organizations ability to reorganize and reinvent itself. Validate
with the teams if all of the roles are listed, and if any new roles
have emerged or are expected to emerge in the future. A proactive
team will be able to anticipate the question How am I going to
be paid in my new role? before the question is asked.
Involve local project teams with cross-functional representation.
The importance of assembling the original design team, with some
key rotations, cannot be underestimated. Sales compensation often
impacts each of these groups, and their buy-in is critical for the
success of the plans, the teams and the organization.
Key representatives are as follows:
Sales leaders will have the opportunity to refresh based on current

and forward-looking business strategy, which may not have been
created or available for public use during original design.
Sales team members are critical for the ability to give summary
feedback from the street. It is also strongly advised that some
be rotated each year so they can have increased visibility and
58 Global Rewards
buy-in into the design process. Rotating team members on and

off the team yearly allows a fresh approach to the design each
year, and it allows the sales team members who were included
last year to have more time to sell this year.
Marketing team members will give forward-looking advice into

new product development ideas in the pipeline, innovation
launches and the channels requiring focus during the next 18-24
months.
Finance/sales operations functions can give input into which

metrics and systems are working and which are not. Real-time
advice on what can be measured at what level requires the
involvement of strategic and tactical resources from this area.
(Example: Does your vice president of finance for the business
unit know the reporting capabilities of the financial and customer
systems used in Panama, and will Panama be able to guarantee
it can measure standard gross margin by person in the beta
business unit?)
Human resources and total rewards functions will advise on

formal and informal feedback from interview sessions, updated
industry best practices and market data.
Lessons Learned
Diversey learned to value the importance of the annual sales
compensation review process. The organization also has grown
to understand that any plan is only as impactful and effective as
the plans participants. This usually is a small subset of the whole,
such as senior sales representatives whose territory covers the
Southern Cone of Latin America (Argentina, Chile, Bolivia, Paraguay,
Uruguay and Peru). The role characteristics, legal conditions, business
strategy and business-unit alignment often are very different for
those employees compared to the junior sales representatives who
operate in and around Central America. The reasons for this can
be many, often due to the maturity of market conditions or the
business unit within those particular geographies. It is unrealistic
in todays business climate to expect something as broad as one

global plan will effectively cover and properly motivate both of
the above and all sales representatives. Additionally, as shown in
Figure 1, managers and employees often have different ideas about
time management and what really happens on the street; hence,
the incentive compensation may be driving different behaviors
than expected.
Key Benefits
The advantages of creating, implementing and maintaining a global
framework for sales compensation are evident in the consistency
the framework brings to the table by definition, in consistency of
approach and consistency of application to multiple countries and
business units. The amount of time being spent by all of these key
departments on the creation and re-creation of sales compensation
plans without a consistent approach is in the hundreds of man hours.
The framework ensures alignment to business strategy, creates
a space for plan participant feedback, allows for the purposeful
selection of metrics, and allows for adequate time for approvals
and implementation. These key features were inconsistent and
bleeding before Diversey adopted a global framework, and now
the leaders and key players all have bought into a process that
delivers results.
FIGURE 1
Results From a Time-Management Survey of a Sales/Service

Hybrid Role (Diversey Time Management Survey, Q3 2010)
Technical Service
Existing Account
Maintenance
New Selling to
Existing Accounts
Hunting
0% 20% 40% 60%
Manager Expectations Employee Survey

60 Global Rewards
Looking to the future for Diversey and at the continuing path to

globalization, it is realistic to expect that territories or differences
will get smaller over time. However, with growth, organizations
must keep in mind that every time an organization jumps over a
level of uniqueness in the name of consistency, another oppor-
tunity of personally tailored motivation is lost. Our role as total
rewards professionals is to remember and remind the business that
although consistency is often seen as administratively easier, there
is always a balance and a trade-off. People are local, behavior is
local our messages to our employees should be as well.
Conclusion
Diversey actively chose to make the investment in this methodology,
framework and process and was able to reap the benefits from that
choice. Your organization can also increase its effectiveness in sales
compensation, but there are few quick fix solutions. The reality is
that your organization is probably doing most of these steps right now,
but in a less structured and informal process, which may let some key
opportunities fall through the cracks. As our organizations continue
to grow in complexity so will our challenges. Simple frameworks
that bring clarity through the complexity without glossing over
the real challenges of implementation, are where you and your total
rewards team can continue to add value to your organizations in
2011 and beyond.
Going Global? Get Local! Tips for Increasing Success in the Transformation to a Global Sales Comp Program 61
Going Global? Get Local!

Tips for Increasing Success in the Transformation
to a Global Sales Comp Program
Scott Barton
Have you heard the one about the newly hired sales compensation
manager whose boss instructs him to house the companys far-flung,
decentralized sales compensation program under one global umbrella?
There are multiple versions of this one, some mildly humorous, some
tragic. For a recently onboarded incentive manager coming into a
worldwide, decentralized sales compensation structure, attempting to
transition to a truly global structure can be a career-defining event.
If you find yourself in a similar predicament, three tips can help.
Before discussing those tips, however, it is important to agree
on what is meant by global, as the various approaches span
a continuum. In one extreme, the organization has centralized
its sales compensation governance, oversight and administration
functions, with local (i.e., regional) management responsible for
representing regional requirements during the design process. In
the other extreme, regional management has significant autonomy
over the design and management of its plans, with corporate
playing a support or audit role.
As youd expect, the trend is toward greater centralization; about
one-third of the global organizations the authors company surveyed
use a largely centralized approach. But while many regional leaders
support the trend on the basis it leads to greater efficiency and,
ideally, profitability, sales compensation can be a touchy subject.
Usually, sales managers have a lot vested in the sales compensation
plan, as its a key lever for motivating their sales teams. Assume,
then, that your regional leadership isnt quite ready to hand over
the keys to its sales compensation program. How do you proceed?
By making the most of the following three tips.
62 Global Rewards
1. Build the Case for Change

While it can be frustrating to produce an inventory of the various
sales compensation plans used throughout the company, this is a
key step in making a business case for change from a decentralized
to a centralized plan. During this process, it is important to
consider a few questions: What does the company hope to achieve
by having a more centralized approach? How will it measure
progress toward that goal? What are the benefits realized by
regional management?
There are a number of factors used to build the case for change.
These include:
Greater consistency in sales execution on global accounts. Sales

organizations often cover their multinational customers with sales
teams from different regions. Using a common plan structure for
like jobs within the team can simplify quota setting, credit splits
and the communication of reward opportunity.
Apples-to-apples comparisons of campaign success across

regions. Lets say your company wants to compare the success
of a new product launch across multiple regions. Removing
variables like use of different incentive plans can help pinpoint
market-based (e.g., buying preferences) factors.
Rapid modeling and deployment of incentive plan changes or

new product introductions. One companys corporate finance
group modeled changes to all incentive plans worldwide. This
included five versions of an account manager plan, which required
the building and tweaking of five models. This year the company
put all account managers on a common plan structure and saved
about a week in the deployment of its new plans.
Greater automation and sophistication of sales performance

and incentive-calculation reporting. The authors company
is currently working with an organization that is building
requirements for an automated incentive management system
to cover about 6,000 plan participants worldwide. The company
had to consolidate its disparate incentive plans for this task

and the software investment to be palatable.
Audit facilitation and fraud reduction. Many organizations

are taking a closer look at their global incentive compensation
spend. Some in regulated industries are required to do so. During
audits, regulators typically require an explanation of the logic
and calculation methodology embedded in each plan, and look
for ways in which participants could game the system. Reducing
the number of unique plan rule sets simplifies the audit function,
which mitigates the risk of fraud.
To the extent the business case appears to regional management

as a ploy to lessen its autonomy, expect resistance. Youre in for
a much smoother ride if the organization has decided to undergo
some big-bang event, like a major business acquisition or technology
implementation. Sales performance management (SPM) system
implementations like Varicent or Callidus can address widespread
issues around manual processing, black-box reporting and unreliable
calculations, and get the regional management who experience
these issues on board with a global compensation initiative. Watch
eyes grow wide during the demonstrations of fancy dashboards
and reports. It may seem trivial, but providing regional leaders
with tangible evidence, such as time savings and stress reduction,
of the future state helps promote the case.
The bottom line: While the global head of sales or CEO can
pick up the phone and say to regional leadership, Heres what
were going to do, part of your job is figuring out how to move
such mountains without having to rely on the executives. Not that
youre going to drive this global mandate solo. No, youre going
to get the regions to do the heavy lifting.
2. Form a Global Sales Compensation Task Force

Just dont say what the real task is. Position it instead as a sharing of
best practices. Most sales leaders love to talk about sales compensation.
Funny thing is, two minutes into the discussion, theyre picking
apart their own programs. And for the one or two who think their
64 Global Rewards
regions program is without fault? Let them think they represent best
practice. The point is to have your regional leadership perceive that
it owns some of the solution. And this is as it should be. These are
smart men and women, with years of experience managing and
motivating salespeople. Tap their expertise.
Your role in all of this is to:
Convene the group. Though seemingly administrative, its no

easy task to gather a far-flung group of leaders from different
time zones together in one place. Doing so successfully, however,
demonstrates your perseverance, patience and, to some extent,
value (assuming the meeting is a success). You might consider
a virtual meeting if schedules prohibit an in-person venue. Just
realize your virtual-meeting attendees may not focus and endorse
the meeting outcomes to the degree thats possible from a face-
to-face encounter.
Help set the agenda. Your global leadership will likely have
different expectations for this type of meeting. Understand these
preferences before solidifying a meeting agenda that will cover
the issues and decision points needed to move forward. Decision
points typically include consensus on the issues, prioritization of
those issues, best practices and trade-offs, a solution framework
and a detailed work plan.
Move the discussion from strategy to tactics by using a proven

framework to facilitate the discussion. If youve not slogged
through such meetings, beware of the frequent rat holes the
discussion can fall into. Language barriers and dialects add to
the fun. After three hours, the regional leadership may feel
cleansed and rejuvenated, but you have nothing but pages of
seemingly disconnected minutia. Your role is to categorize and
make sense of seemingly disparate trivia essentially bring
all the information together in a way that clarifies the issues
and practices. Consider getting help from a professional sales
compensation meeting facilitator. Such experts rely on tools
and frameworks for keeping the discussion on track, which
may be worth the $2,500 to $5,000 investment required for

their participation.
Demonstrate your expertise by providing pertinent data on

sales compensation trends. This can include changes to pay mix
levels, use of new incentive measures like customer profitability,
or the number of industry players having centralized their sales
operations or adopted a SPM solution. Keep track of the types
of surveys offered by consulting firms, or use your network to
conduct your own survey on incentive compensation trends and
operational practices.
3. Become One of Them

I keenly remember the conversation with a regional business
leader who picked me up at the Frankfort airport early into one
of my first global compensation assignments. Wow, weve never
had someone from corporate compensation come visit us, the
leader said. I didnt know whether to be flattered or threatened.
In some strange way, however, I knew I had landed.
One of the most satisfying aspects of working with the sales
organization is, well, actually working with the sales organization.
Sales leadership, their managers and salespeople are inherently
positive, confident and curious. Thats their job. Have you ever
attended a national sales meeting? Its an atmosphere of excitement
and optimism.
Yet, spend some time one-on-one with a salesperson and youll
discover that all is not thumbs up and high fives. Pay is usually an
issue because a meaningful chunk of it is not guaranteed. Sales
leaders hear about the exceptional cases, such as the woman
who expected to earn a large sum on a deal for which she didnt
receive credit. But sales organizations have a way of filtering the
daily line frustrations through layers of sales management and
cultural bravado.
In the previously referenced conversation with the regional
business leader, I understood later, over bratwurst and a liter-sized
pilsner, that he was appreciative of my initiative to understand his
operating environment. And this is what it takes to appreciate the
66 Global Rewards
differences across your companys global business. Many factors,

like job role execution, legal and labor practices, management
philosophy, administrative requirements, and cultural and competitive
practices, can vary significantly across regions and influence the
effectiveness of a particular sales compensation approach.
While you may choose to gather this information through surveys
and a few phone calls, its more cost effective to spend time in the
local market. Work with the regional leadership beforehand to clarify
how best to spend your time. Offer to conduct one-on-one interviews
with the sales staff (e.g., ride along with them if the sales job includes
lots of frequent and different customer visits), attend weekly sales
meetings and learn the particulars of the local operations.
Be especially coordinated with local management during the
communication and change-management phase of any new program
implementation. Consistent messaging only works at a high level.
You need to customize and localize the message to clearly explain
to salespeople the reasons for and details of change, what the
company expects of them and how they can be successful under
the new plan. Consider that each locale will have its own system for
communicating to its salespeople. Ultimately regional supervisors
must buy into the case for change and deliver the message in their
own words. Otherwise, in six months expect your salespeople to
say they didnt get or understand the message.
Conclusion
Companies transitioning to a centralized or global sales compensa-
tion structure rely on talented professionals to facilitate this change.
You can deliver by clarifying and socializing the business case,
identifying best practices and trade-offs, and working through
regional differences. Follow these tips and seek the advice of others
having worked through the process. Youll find the experience
rewarding and beneficial to your career.
Using Consistency and Flexibility to Localize Global Sales Compensation Plans 67
Using Consistency and Flexibility to Localize

Global Sales Compensation Plans
Kevin OConnell
Conventional wisdom dictates that within the realm of compensation,

one size cannot fit all. Add in the complexity of sales incentives and
overlay a global perspective, and there is no way the centralized
administration of a common design framework will work for multiple
countries with divergent cultures and differing perspectives on pay
and performance. Or so the theory goes.
Yet a multinational, scientific publisher has bucked the odds and
achieved great results with a global sales compensation structure that
combines consistency with enough flexibility to span customs and
borders. The publisher provides scientific information (e.g., textbooks,
journals, reference materials/databases, etc.) to industry and corporations
in print and electronic formats. The programs success proves that
thinking beyond the strictures of conventional wisdom can result in
a creative and practical approach with broad application.
The Challenge: Growing Pains

The global sales compensation structure came about because the
publisher needed a fresh approach to sales incentive design. Consider
the following challenges that once faced the company:
Technological advances such as digitized information and

multimedia delivery had expanded customers options and
preferences for how and when they received content, challenging
the company to better meet customer needs.
The global sales team had more than tripled in just four years.
At the time, sales compensation comprised differing sales incentive

plans in the global regions, all of which showed unimpressive
68 Global Rewards
pay/performance correlation. The plans offered inconsistent

incentives for positions at similar levels, and some plans lacked
sufficient upside opportunities.
A common design feature in all existing sales incentive plans

was the allocation of the target incentive to multiple incentive
components (new business, subscription contract renewals,
under-contract sales, etc.), some of which were more or less
important to making the business plan. Thus the plan did not
direct behavior toward the most critical sales activities.
To build a strong, sales-oriented culture, the company favored

more pay at risk and uncapped incentives. In the United States
and Europe, pay mix (salary versus variable pay) was aggressive
(i.e., there was more variable pay than typical), and target total
cash compensation was positioned approximately at the 75th
percentile of the market. Salaries remained closer to market median.
In Japan and Asia, pay was competitive, but the pay mix tilted
substantially more toward fixed than in the United States/Europe
and offered less upside leverage. Within each geographic location,
compensation levels and plan mechanics were varied to address
territory issues or the needs of individual sales reps. This resulted
in extremely complex plans that were difficult to rationalize.
Existing customers were the major source of sales revenue, yet the
incentive plan paid significantly more for new customers. Consequently,
representatives were focused primarily on new conquests rather
than on renewals and increasing sales to existing customers.
As the global salesforce expanded, plan administration and sales

tracking and reporting became more complex and difficult to
manage. The timing of incentive payouts varied from plan to
plan, and exchange rates, local work rules and customs resulted
in divergent approaches.
The company wanted to achieve similar sales incentive objectives

in different countries, hopefully balancing consistency and
flexibility while addressing the competitive needs of the local

markets in its regions. The goal was to measurably boost sales
while maintaining a competitive cost structure. Equally important,
the company did not want to manage multiple plans. Yet it
recognized that paying competitively in the different regions
was essential to attracting and retaining top sales talent and
managing overall sales costs.
The Solution: Balance Consistency and Flexibility

The company arrived at a simple approach that balanced competing
design needs. Consistency took the form of common design
principles and incentive objectives that spanned all regions.
Administration would be centralized, with commissions paid across
the board (rather than commissions in some countries and bonus
plans in others). All plans would have increasing commission
rates to motivate achieving and exceeding quota, with different
territory rates to reflect varying territory sizes.
Flexibility came into play by establishing boundaries for plan
mechanics (e.g., pay mix, leverage curve, thresholds). Within the
boundaries, aspects of the design could expand or contract to
address the constraints of local markets.
Common Design Principles

The publisher established four principles to guide sales
incentive design:
1. Pay for growth within all locations, putting a meaningful amount

of pay at risk to drive sales and exceed quotas.
2. Recognize local priorities with market-driven pay, tying pay

levels to competitive market rates and considering local work
rules as necessary.
3. Take a total rewards approach to global sales compensation,

factoring in elements like vacation, which can be quite significant
given the prescribed length of holidays in Europe.
70 Global Rewards
4. Design for the majority, not the exceptions, recognizing that anomalies
will exist and can be addressed within the design parameters.
Pay for performance translated into three incentive goals

applied across borders: Reward sales professionals for meeting
and exceeding the total sales quota (for existing business and
expected growth); increase motivation to continue selling beyond
quota; and focus attention on territor y growth and account
management. The company believed its sales professionals should
decide how to grow their business based on territory dynamics.
The incentive plan would support them by directing but not
dictating how they should spend sales time.
Focusing on total sales as the key metric for incentives increased
flexibility and simplified the approach to addressing territory
differences within regions and across the globe. In the past, territory
differences were addressed on a case-by-case basis, resulting in
unstructured and inconsistent plan-design changes.
Goals for sales components (e.g., new sales, subscription
contract renewals from existing customers, specific products,
etc.) that made up the total quota continued to be provided
to the salesforce as performance guidelines and markers for
sales management to monitor progress toward the overall goal.
Territory representatives and sales managers were now enabled
to leverage the knowledge of their account portfolio, target
prospects and market conditions to determine the best way to
grow the business.
Segmentation of Local Territories and Plans

Taking into account geography, market maturity and local pay
practices, territories and plans were segmented and organized
into three zones: North America, Europe and Asia. The zones
served as a foundation for all regions, providing stable ground
to develop and refine the design principles and mechanics.
North America became the petri dish for determining which
design aspects could best deliver results. The winning formula
would then be adapted to the other zones, taking into account
cultural differences.
Key factors about each of the three zones were as follows:
In North America, sales professionals sold within vertical

markets. Territories differed in size and could yield significantly
different opportunities. The focus here was on growth and
account management.
Europe was the largest market; its territories were determined

by geography and language. Work rules came into play, but for
the most part were manageable.
Asia provided the greatest complexity, with significant variation

in the maturity of the markets, wide diversity in market pay
levels and practices, and five currencies.
All plans in all zones had uncapped payouts to heighten motivation.

Pay mix, payout leverage and thresholds were flexible within the
defined boundaries, as shown in Table 1.
The North America sales culture dictated a competitive base
salary with a highly variable, 60/40 pay mix and a rich upside for
exceeding quota. Sales representatives earned a kicker incentive
for sales of emphasis products that were not a part of the core
group. The threshold was moderate to encourage renewals.
In Europe, pay mix moderated to 70/30 and salaries were
competitively set, but recognizing the generosity of European benefits,
pay was adjusted to ensure total rewards were not excessive. The
North America upside features carried over, providing a significant
kick for stellar results.
TABLE 1
Incentive Components Set Within Boundaries to Reflect Local

Market Conditions
Incentive components Minimum Maximum
Pay mix 80/20 60/40
Leverage/payout curve 2x 4x
Thresholds 50% 80%
Caps Uncapped Uncapped

72 Global Rewards
The diversity of Asia was reflected in the plan mechanics. Pay mix
depended on culture and country rules, making it relatively low
(80/20) in India and Japan, where an emphasis on salary was the
preferred practice. Actual salary levels varied significantly by country.
The reward for exceeding quota was increased from prior years.
At the end of the design process, plans showed even greater
consistency than had been anticipated at the start of the project,
as shown in Figure 1.
Rollout communication included management discussions, a plan
document and an interactive model that allowed sales profes-
sionals to examine what ifs in real time and see the pay impact
of changing their selling behavior. Management discussions proved
to be most important, as they provided context about business
challenges and sales strategy. The meetings also set expectations
for territory, accounts and product goals, and connected how the
new plan would support individual and company success.
The Results: Accomplishments, Changes, Learnings

Program results included the following:
One year after the new program rolled out, the company found
that aligning sales compensation across regions created a common
FIGURE 1
Incentive Leverage Curves
U.S.
Sales Incentive
Europe
Japan
India
< Threshold Threshold + Target > Target

Quota Attainment
(Total Territory)
language for discussing sales and strategic goals and a means

of directing behavior and communicating sales results and
their implications.
After plan implementation, year-over-year sales growth was

approximately 11 percent, with a better balance between new
business sales and renewals from existing customers. Sales growth
was approximately two times the annual 6 percent sales growth
in the year prior to the new plan introduction. (Note: The growth
rates have been normalized to reflect exchange-rate differences
and exclude the impact of any new-products sale introduced after
the new plan was implemented [actual sales growth including
new products was more than 55 percent.])
Sales representatives easily deciphered the best way to excel,

whether by adding clients, expanding existing clients or renewing
clients.
Retaining customers and strong new business sales resulted in

significant over-quota payouts, reinforcing the growth-oriented
sales culture being built and leveraged for success.
Additional dollars for over-quota performance clearly paid off. As

shown in Figure 2 on page 76, the company realized a substantial
return on investment from incentives paid for exceeding goal.
Even with an increase in sales headcount and aggressive plan

design (i.e., pay positioning, pay mix, leveraged upside oppor-
tunity), the overall compensation spend per sales dollar was
reduced.
Comparing actual compensation cost of sales (CCOS) for the

year prior to the new design implementation to first-year results
shows the cost-structure improvement. Figure 3 on page 76
illustrates that the actual spend on total sales compens ation
per sales dollar was lower for each of the key sales roles after
implementing the new plan design.
74 Global Rewards
FIGURE 2
Return on Investment (ROI) from Overquota Incentives
Sales ROI = 2,831%

leaders
Regional ROI = 3,760%

managers
Account ROI = 2,230%

managers
Product sales ROI = 840%

managers
Net Sales Over Quota Total Overquota Incentive Expense

FIGURE 3
Actual Compensation Cost of Sales Comparison by Sales Role
Old Plan
New Plan
Compensation cost of sales is total cash

compensation (salary plus sales incentive)
divided by total sales.
Account Region Sales

managers managers directors
The CCOS improvement trends were also consistent by region.

Figure 4 shows account managers actual CCOS by region before
and after the new design was implemented.
All but one location exceeded sales quota. Approximately 65 percent

of the salesforce topped its quota, resulting in overall total cash
compensation of 109 percent over target total pay and 124 percent
above target commissions. Those in sales positions for the year prior
to rollout enjoyed 116 percent more pay on average. As designed,
top performers were paid very competitively. The increased cost in
pay was more than offset by the increase in sales, as demonstrated
in the lower actual CCOS shown in Figures 3 and 4.
FIGURE 4
Actual Compensation Cost of Sales Comparison by Region
Old Plan
New Plan
Compensation cost of sales is total cash

compensation (salary plus sales incentive)
divided by total sales.
North Europe Asia
America
Most of the sales team views the plan design as very effective to
effective. The salesforce was surveyed about the plan design after
the first year was completed. Eighty-two percent feel it reinforces
the companys sales direction and priorities. Three-quarters say
the program motivates and rewards quota attainment, and 60
percent believe the new design minimizes potential conflicts
between new business development and existing customer renewals
(consistent across regions).
Going forward, the publisher plans some fine-tuning, including

examining ways to ensure appropriate stretch in the sales goals and
considering the use of periodic contests to boost specific product
sales and keep the salesforce engaged and motivated.
Its also important to note that eventually, as the business matures,
sales incentives will likely include multiple role-based plans (e.g.,
key/global account executive, account manager/farmer, new busi-
ness developer/hunter). In addition, some territories will have
more existing customers and limited sales-growth opportunities,
requiring the majority of sales time to be dedicated to managing
the existing portfolio. This is of interest because the new growth-
oriented sales incentive approach may make it difficult to retain
top performers unable to maximize their earnings.
Conclusion
The programs success demonstrates that consistency and flexibility
can be partners and that a common design, with sufficient bend
to absorb cultural differences, can fit a multicultural organization.
76 Global Rewards
The key is to agree up front on the design principles and the

critical results the plan must accomplish, and then identify the plan
mechanics that can be adjusted based on need. Thus balanced, this
foundation can support all locations and incent a global salesforce
to grow the business.
Creating a Sales Incentive Plan That Works Locally and Globally 77
Creating a Sales Incentive Plan That Works

Locally and Globally
John Bremen | Ted Briggs
During the previous several years, we have witnessed some variation

on the following mandate at countless global companies, typically
from both the C-suite and boardroom: Reduce the number of sales
incentive plans to one, if possible.
The reality is, however, that it simply is not practical or appropriate
to use a single, or even a few, sales incentive plans across multiple
divisions, geographies and sales roles. On the other hand, it also
makes little sense to operate with hundreds of plans that have been
developed as a patchwork of programs during the companys life
cycle without the benefit of a focused corporate design process
or framework.
Where does the balance lie? We have found that what makes
sense for most businesses is to treat a companys global sales-
incentive program as a portfolio of plans with a common philosophy,
common design principles and common core attributes that local
management can tailor to specific situations.
Why One Size Cant Fit All

The following three primary factors limit any complex global
organization from operating with a single or limited number of
plans: differences in sales roles and coverage models; differences in
business economics and selling cycles; and differences in cultural
and labor-market norms.
1. Differences in sales roles and coverage models. Generally

speaking, each distinct sales role in a company requires its own
type of sales incentive plan. For example, a traditional hunter
(new account developer) role might need a highly variable sales
incentive plan with a low monthly draw, a significant upside
78 Global Rewards
and downside, and a formulaic commission based on revenue.

Conversely, a traditional farmer (account manager) role at the
same organization might require a less variable sales incentive
plan with a significant base salary, less upside and downside, and
a bonus-style plan based on both quantitative (such as revenue)
and qualitative (such as margin or product mix) performance
measures. Add to that possible variations in coverage models
(e.g., direct sales, indirect sales, channel sales), and the number
of plans required for a single company multiply.
2. Differences in business economics and selling cycles. Often

within a given company, significant differences exist in busi-
ness economics and selling cycles across business units and
geographies. For example, one medical-device client faced a
situation where it had a range of products and selling models
across geographies where a single incentive plan would not
have been effective. In Germany, for example, most of its
core products, which were sold directly to physicians, enjoyed
healthy margins of 30 percent to 40 percent and had a two-
to four-month sales cycle, much of which involved product
demonstrations, review of technical specifications and trial data,
and relationship/trust building. In the United States, on the
other hand, where the same products were sold primarily to
health-care institutions with the approval of physicians and large
buying centers such as centralized purchasing and/or insurance
companies, margins were 15 percent to 20 percent and had a
six- to nine-month sales cycle. This process involved signifi-
cant product demonstrations, including many in the operating
room; deeper review of technical specifications and trial data;
significant relationship building within the various purchasing
centers of the health-care institution; and long-term contract
negotiation. Finally, in China, where the products were sold
primarily to government-run medical institutions, the margins
were in the single digits, the sales cycle could take up to two
years and the contracting process itself took months and could
be broken at will by the purchaser, an entirely different type
of selling process and roles were required. The bottom line: In
How Legal & Cultural Environment Impacts Reward Practices in Switzerland 79
Germany, a traditional incentive plan structure was effective, but

in the United States and in China, the multiperson sales teams
and diverse economics required very different approaches to
incentive compensation.
3. Differences in cultural and labor-market norms. Perhaps the least

appreciated driver of program complexity is the simple reality that
what works well on a cultural or regulatory basis in one market
may not work in another. For example, in countries such as the
United Kingdom, Canada, the United States, Australia, Germany
and Singapore, sophisticated, individual performance-based sales
incentives work quite effectively. However, in other countries,
such as France, Japan, mainland China, the Netherlands and the
Philippines, salespeople often prefer more long term-oriented or
team-oriented programs. While this is changing in countries such
as China, companies have a difficult time exporting U.S.-style
programs to these markets. Another area of difference can be seen
in the nonmainland part of China as well as in countries such
as India and Mexico, where salespeople view non-cash benefits
such as health care, transportation, meals and living expenses
as much more important than do salespeople in other markets.
Avoiding Too Many Plans

While it is impractical for a senior executive to expect to have a
single sales-incentive plan across a global enterprise, it is equally
impractical for many companies to operate with hundreds or thou-
sands of sales incentive plans. We are frequently asked, How many
plans is the right number? While it is impossible to answer this
question generically, in general we have found that it is rational to
have one plan per sales role. For some organizations, this means
one plan per role per country per business. For others, it means
one plan per role across all countries and businesses. Some of the
worlds largest organizations may need hundreds of plans, while
others may be effective with five to 10 plan frameworks that can be
tailored to individual unit needs. For example, we recently worked
with one of the worlds largest corporations, with approximately
50,000 salespeople in hundreds of businesses in more than 100
80 Global Rewards
countries, to develop a global sales-compe nsation structure that

enabled the company to reduce its thousand-plus plans to between
100 and 150.
1. Conduct a realistic inventory. Before designing a framework,

learn what you have out there. Carefully define what is considered
a discrete plan. For example, if two plans differ only in calcula-
tion formulas or performance measure weightings, determine
whether they will be considered one plan or two. Also, if a plan
document exists, but no incumbents are paid on it, consider the
plan dormant. Alternatively, if sales representatives are paid in
a given country out of a plan that has no documentation, still
consider it a plan.
2. Collect internal best practices. Frequently, the best ideas for

plan design already exist within a company but are unknown or
unadvertised internally. If effective plans already exist, theres
no need to start from scratch.

3. Understand business economics and selling process. In general, if
discrete sales-incentive plans exist within business units, they were
designed that way for a reason. Before threatening to dismantle
them, learn why the plans were created the way they were. A
monthly commission with a high threshold might indicate a unit
with high, fixed sales costs to cover. An annual sales bonus with
high levels of discretion might indicate a long sales cycle or a team-
selling process. A quarterly plan with a multiplier might indicate
significant variances in margin from one sale to another.
4. Understand local customs, regulations and labor markets. We

once had a pharmaceutical client with significant operations in
Japan where the CEO, who came out of sales and marketing, was
adamant about putting every sales representative on an individual
sales-incentive plan. The companys general manager in Japan was
equally adamant about maintaining the salesforces team culture
but eventually yielded to the CEOs wishes. At the end of the year,
while walking through a field office in Japan, a member of our team
spotted a handwritten notation on a bulletin board indicating the

size of a team-based sales-incentive pool for the office. When our
consultant queried the office manager on what the notation meant,
the office manager responded by explaining that each month, each
sales representative cashed the check and gave it to him to hold
for addition to the team incentive pool, which would be distributed
equally to all team members at year-end. When the CEO heard
this story, he realized that local culture would always trump global
consistency when it came to deeply embedded cultural values.
5. Create a list of design principles that will be globally consistent.

The trick to designing an effective global sales-compensation
framework is to select a handful of principles that will apply to
all plans in all regions. While we call these design principles,
one of our clients, the head of compensation for a multibillion-
dollar global software company, calls them guard rails, as they
often serve to protect the organization from bad practice rather
than impose a single practice. For example:
Plans will use a consistent menu of performance metrics for

each role type.
P lans will include no more than four metrics each.
No measure will be weighted less than 20 percent.
Discretionary components will never be weighted more than

35 percent.
All plans will be funded by clearly articulated financial

measures.
H unters will be offered monthly commissions wherever

practical.
F armers will be offered quarterly bonuses wherever

practical.
82 Global Rewards
6. Create a list of design components that will be tailored locally.

In conjunction with the list of globally consistent items, determine
which design components will be local. For example:
Pay levels and mix will be based on the competitive market

by position, industry and geography, and within an expected
range.
Actual performance measures and definitions will be created

by individual business units.
Performance measure weighting (within the global guidelines)

will be locally determined.
Payout frequency will be based on business and selling cycles

as well as local payout customs.
Accelerators will be developed based on local, expected performance

range as long as they are within global guidelines.
7. Create a list of pre-approved design templates. Our most

successful global clients have created a menu of five to 10
sales incentive designs that are pre-approved for business units
or geographies that select them. For example, there might
be a template for a monthly commission plan for hunters, a
quarterly bonus plan for farmers, a multiyear payout plan for
long-term contracts, a sales incentive for indirect sales, and
so on. This way, if these plans are selected and administered
based on the guidelines in items No. 5 and 6 above, local
units have the ability to operate with minimal requirements
for corporate approval. For units that require customized
plans, the traditional approval process applies. In general,
companies that use this type of arrangement find that 70
percent to 80 percent of units select the pre-approved plans,
thus significantly cutting down on individual plan-design
negotiations and approvals.
Final Analysis
Despite significant levels of globalization during the past decade,
our research and client experience demonstrate that while the world
may indeed have become smaller for salesforces, individual selling
roles and processes as well as cultural and regulatory variations
across regions impact the design and administration of sales rewards
programs. But too often, multinational companies assume that because
their salespeople sell the same products and services worldwide,
what works in one country from a sales rewards perspective will
work in another. However, companies cannot export home country
best practices and expect them to be effective globally.
Most companies strive to design competitive and compelling
total rewards programs for their salesforces. Accomplishing this in
one country is difficult enough, but doing so globally is an even
greater challenge. On one hand, firms desire program consistency
to create alignment and simplify administration. On the other, they
face the realities of cultural variation, established pay practices,
legal environments and data tracking limitations that may restrict
the types of plans they can implement. Finding the right balance
represents the true global challenge. The good news is that for
companies that are willing to follow them, there does exist a
cogent set of design principles, or guard rails, that can make the
challenge more surmountable.
84 Global Rewards
What in the World is Happening With Long-Term Incentives? 85
What in the World is Happening

With Long-Term Incentives?
Peter Acker | John Cummings, CCP
Not long ago, most U.S. multinationals gave little thought to

differentiating long-term incentive (LTI) grant sizes based on local
market practice, choosing instead to extend their corporate grant
guidelines in a uniform manner to employees in all countries.
At that time, extending the corporate LTI program globally offered
plenty of advantages. Most notably, it afforded U.S. multinational
companies a competitive advantage when competing for key talent
in local markets. Non-U.S.-based competitors often did not offer
equity compensation, making LTIs a useful tool for attracting and
retaining key employees. And since stock option expensing was
not a requirement for U.S. companies before 2005, there was no
adverse impact on financial statements for many organizations.
Besides, the number of non-U.S. LTI plan participants in many
companies was insufficient to justify the administrative cost of
using differentiated grant guidelines. With a limited numb er of
plan participants distributed across multiple countries, tracking
local market grant sizes was not a worthwhile investment.
In recent years, however, significant changes have caused leading
multinational companies to reconsider the practice of using a one-
size-fits-all approach for global LTIs, including:
Globalization, which has significantly increased the number of

LTI-eligible employees working outside of the parent location
for both U.S. and non-U.S. organizations. This has resulted in a
corresponding increase in the percentage of the overall share
pool earmarked for those employees.
Increased shareholder scrutiny and media attention, which emphasize

the importance of efficient share usage for LTI programs.
86 Global Rewards
FAS 123R, which requires that the cost of all share-based payment
transactions be recognized in financial statements. (See Figure 1.)
Suggested Criteria for Developing Differentiated Global

Grant Guidelines
In response to this changing environment, many U.S. multinational
companies with a significant number of long-term incentive plan
participants located outside of the country are transitioning from
a one-size-fits-all approach to differentiated global LTI grant poli-
cies. Typically, these programs are designed with the following
objectives in mind:
Align grant policy with competitive practice in key markets.

LTI levels in the United States are typically higher than those in
other countries. Under the differentiated approach, LTI award
levels for employees outside of the United States are reduced
to be more in line with competitive practice in key non-U.S.
markets. Typically, key markets are comprised of those countries
with the highest number of LTI receivers and locations of high
strategic importance for the organization.
Make the policy relatively easy to administer. Instead of developing

a separate set of grant guidelines for each country, companies often
group countries with similar market LTI grant sizes into categories.
Grouping into two to four categories or tiers is common. To
facilitate program administration, award levels under these programs
are often expressed as a percentage of U.S. policy.
FIGURE 1
The Global LTI Program Balancing Act
Driving forces behind reductions Driving forces behind increased

in global LTI awards and eligibility prevalence of global LTIs
Accounting rule changes for
equity-based compensation Globalization and growth in
(FAS 123R and IFRS2) non-U.S. employee workforce
Increased shareholder scrutiny Increased use of global equity

of dilution, run rates and equity compensation by U.S. and
compensation in general non-U.S. multinationals
Conserve share usage. Once these groupings or tiers are estab-

lished based on LTI market practice in key countries, differentiated
grant guidelines for non-U.S. locations can be developed by tier
and organizational level. Since these guidelines are frequently
expressed as a reduced percentage of U.S. policy, share usage
under the plan is conserved.
Considerations When Developing a Differentiated Program

When considering global LTI practices across countries, its essential to
analyze relevant data using consistent methodologies across countries.
That means using one LTI valuation methodology and developing
an agreed-upon definition of comparator-group companies across
geographies. This is important because the results will be significantly
less reliable if you compare companies from a particular industry in
one country to companies from another industry in another country.
In addition, it would be difficult to defend decisions if you are using
different valuation methodologies across locations.
It is also important to consider each countrys tax, employment
and regulatory environments as they relate to equity compensation
programs, given the increasing global workforce and the introduc-
tion of LTI vehicles other than stock options. When reviewing these
issues, companies should address the following areas:
Securities registration: Is it necessary to file a prospectus? If so,

are any exemptions available?
Exchange controls: Are there any limits on foreign currency

exchange transactions?
Employee taxation: When is the employee taxed? Are there any

tax-favored plans available?
Local tax deduction: Is a tax deduction available locally for the

company?
Severance risks: Will LTI grant values need to be included in

severance calculations for legal purposes?
88 Global Rewards
Acquired rights: Will plan participants become legally

entitled to future grants or immediately vest at termination of
employment?
Data privacy: Will the company need to take any additional

measures to adhere to local data privacy laws?
Translation: Is the company required to translate plan

documents and employee communication materials into the
local language?
Countervailing Pressures to Maintain Uniform LTI Grant

Guidelines on a Global Basis
While U.S. companies contemplate reducing LTI grant sizes, there
is building pressure outside of the United States to maintain
current LTI levels. After all, LTI prevalence and grant sizes are
on the rise among large non-U.S. multinationals across global
regions. Additionally, currency fluctuations are an increasingly
common concern since the weakening dollar has significantly
reduced the value of U.S. grants for employees outside of the
United States.
However, these factors should not impede companies from
implementing differentiated grant policies. A lthough LTI
prevalence and award levels continue to rise in many countries,
U.S. LTI levels are very competitive relative to levels in other
countries. Yes, the gap is closing, but the difference is still
significant, particularly at higher organizational levels.
Regarding the weakening dollar: despite the increased atten-
tion on foreign exchange risk, companies do not seem to be
adjusting LTI grants in response to the dollars slide. While
the topic is being increasingly debated, adjusting LTI grants
upward in response to the decline is not recommended for
the following reasons:
Shareholder concerns. Institutional shareholders and their

representative bodies do not generally look favorably on
foreign exchange hedging arrangements for executive share
plans since foreign investors are not afforded this same

protection.
Share price adjustment. Share price movements already adjust

for foreign currency fluctuations to the extent that company
earnings are sourced from outside the United States.
Subjective assumptions. In order to calculate currency risk

adjustments, it would be necessary to determine the appropriate
exchange rates to use for different currencies over time. However,
these decisions are subjective in nature and may vary widely
based on the time period chosen.
Competitive LTI grant sizes among U.S. multinationals. As

previously mentioned, LTI grant sizes at U.S. multinational
companies are higher than LTI grants at non-U.S. multinationals.
This holds true despite the declining dollar and the more
conservative grant sizes in the U.S. market in recent years.
Reciprocity in the event of a stronger dollar. If grant sizes

were increased for non-U.S. employees to adjust for the weak
dollar then, in turn, they would need to be decreased when the
dollar strengthens. Any downward adjustments might not be
well-received, with the argument being made that they unfairly
penalize LTI recipients outside of the United States based on
economic events unrelated to actual share performance. The
same argument inversely applies to upward adjustments.
In Summary
As we enter a new era for long-term incentives, globalization
is increasing the number of LTI-eligible employees working
outside of the country at many U.S. multinational companies.
As a result, these companies will increasingly implement
differentiated global grant guidelines that are competitive in
key global markets, relatively easy to administer and designed
to conserve share usage. (See Figure 2 on page 90.) To develop
these policies, it will be important to rely on market data that
90 Global Rewards
FIGURE 2
Most Prevalent Recent Changes to Global LTI Programs
Smaller Grant Sizes
Reduced Eligibility
Introduction of
Restricted Shares/Units
Introduction of Tax
Favored Plans
0% 5% 10% 15% 20% 25% 30%
% of Responses
Source: Hewitt Associates 2007-2008 Global Long-Term Incentive
Practices Survey; Largest 25% of Companies.
uses consistent LTI valuation methodologies and well-defined

comparator groups. Additionally, with the rising number of LTI
recipients outside of the United States and the increased prevalence
of LTI vehicles other than stock options, addressing key tax and
regulatory considerations prior to implementation will become
increasingly important.
Broad-Based Variable Pay Goes Global 91
Broad-Based Variable Pay Goes Global

Ken Abosch | Jill Schermerhorn | Lori Wisper
In the global rewards arena, there has been a widely held notion
that broad-based variable pay plays a more prominent role in the
United States than in many other locations around the world. Perhaps
its because Amer ic ans are often viewed as highly compensated,
or maybe its a result of the news media focusing its lens on
aggressive compensation levels for senior executives of U.S.-
based companies.
At the same time, theres a misconception that cultural, regula-
tory or union-related issues prevent extensive use of broad-based
variable pay in other countries. In Europe, its been suggested
that unions and work councils serve as obstacles to implementing
variable pay programs, while tax laws and unstable economies
are said to create barriers in Latin America. Meanwhile, in Asia,
a perceived dominance of team-oriented cultures is sometimes
thought to stand in the way of more individually focused broad-
based variable pay structures.
When reviewing pay trends, global companies tend to focus on
these and other geographical differences. However, in reality, the
research detailed in this article shows there are more similarities
than ever before. In terms of prevalence, eligibility and level of
spend, the world is truly getting flatter when it comes to broad-
based variable pay.
A Global Phenomenon
While its true that variable pay has been around longer in the
United States particularly in terms of indiv idual awards at the
management and professional levels any suggestion that it
is primarily a U.S. phenomenon is blatantly false. Variable pay
has become an integral part of the compensation landscape for
management- and professional-level employees in every region.
92 Global Rewards
Across the globe, approximately 86 percent of companies offer at

least one type of broad-based variable pay program, with 91 percent
doing so in Asia-Pacific, 90 percent in the United States, 85 percent
in Europe, 81 percent in Latin America and 80 percent in Canada.
As shown in Figure 1, these results are remarkably similar from one
country to another.
Not only has variable pay usage become more consistent around
the world, company spending on broad-based variable pay programs
has also converged. Regardless of economic conditions, political
challenges or their level of market development, variable pay spending
in emerging and high-growth markets has come to match the levels
in more mature markets, essentially showing this practice to be more
globally similar than previously thought.
From 2003 to 2008, spending for broad-based variable pay programs
for management and professional roles rose from 11.1 percent to 18.5
percent of total payroll in Latin America, and in the United States,
spending grew from 8.8 percent to 11.6 percent. Higher variable pay
budgets in Latin America are likely the result of often mandatory
profit-sharing programs, whereas higher budgets in the United States
have been driven by the need to find alternative approaches to pay
for performance. European spending experienced smaller gains
inching up from 10.8 percent to 11.3 percent while in Asia Pacific,
overall variable pay spending actually decreased slightly from 13.5
percent to 12.3 percent. However, Hewitt research shows that there
were significant increases in spending in high-growth markets such
as China a reflection of the need for creative compensation
strategies in areas where key talent is in high demand.
At the same time, base salary increases, which tend to be driven
by local labor market considerations, remain relatively flat around
the world. (See Figure 2 on page 94.)
Naturally, there are exceptions, like Argentina, Poland and India,
where budgets have increased more drastically due to economic
growth, crisis and/or competition for key talent. In many countries,
howe ver, its fair to say that base salary increases have not varied
significantly from the rate of inflation.
This leaves employees in many countries wondering how
they can possibly achieve any kind of growth in terms of their
FIGURE 1
Overall Prevalence of Broad-Based Variable Pay Programs
United States
Canada
Venezuela
Puerto Rico
Mexico
Chile
Brazil
Argentina
United Kingdom
Switzerland
Sweden
Spain
Netherlands
Italy
Hungary
Germany
Belgium
Austria
Thailand
Taiwan
Singapore
Philippines
Malaysia
Korea
Japan
India
Hong Kong
China
Australia
0 20 40 60 80 100%
Percent of Companies
Source: Hewitt Associates 2007-2008 Salary Increase Surveys.
compensation. In all likelihood, its going to come less from base

salary increases and more from variable pay. From the employees
pers p ective, variable pay represents the greatest opportunity to
increase overall compensation.
Not only does it have the potential to put more cash in their pockets,
but it will do so in a manner that moves them further beyond the
94 Global Rewards
FIGURE 2
Overall Salary Increases Management & Professional Roles
12.0
10.0
Latin America
Percent of Payroll
8.0
6.0 Europe
4.0
Asia Pacific
2.0
0 United States
2003 2004 2005 2006 2007 2008 Proj.
Source: Hewitt Associates Salary Increase Surveys 2003-2004;

2004-2005; 2005-2006; 2006-2007; and 2007-2008.
inflation rate than a standard raise. In addition, with a well-designed

program that offers solid line-of-sight to bonus measures, employees
say they feel a stronger sense of control over their variable bonus
payouts than they do over their base salary increases.
For employers, broad-based variable pay is a critical tool to drive
business results. Such programs provide unique opportunities to
recognize, create energy around and pay for performance while
protecting the company from having to shell out extra cash if the
results arent there. Consequently, in a global HR environment
in which ROI is a growing focus, employers across the globe are
increasingly turning to broad-based variable pay programs as a
means of rewarding employees and differentiating performance.
More Similarities in Plan Design

As with prevalence and spending, there are remarkable similarities
around the world when it comes to target bonuses and eligibility.
Expressed as a percentage of base salary, target bonuses for
management and professional-level employees have become quite
similar globally over the last three years, dispelling the notion
that U.S. programs have more pay at risk. While the average 2007
management and professional target award in the United States
was 18 percent, Europe was only slightly less at 15 percent, and
Asia and Latin America were slightly higher at 19 percent. This is
a higher degree of synergy than has been seen in the past.
Along with the similarity in target bonus levels, theres also been a
convergence in variable pay plan eligibility both for management
and professional as well as general staff. Over the last three years,
the portion of management and professional employees receiving
variable pay has increased from 79 percent to 85 percent (globally,
on average) throughout Europe, the United States, Asia Pacific
and Latin America. Currently, eligibility levels in all regions are
amazingly comparable to one another. (See Figure 3.)
This similarity across regions also extends to general staff roles.
Historically, there have been lower levels of eligibility when it comes
to jobs at this level, as variable pay has sometimes been viewed
primarily as a management perk. This appears to no longer be
the case at least not to the extent that it once was. On average,
eligibility for general staff positions increased from
69 percent to 75 percent globally over the past three years. With
the exception of Europe, where general staff eligibility is not as
prevalent, this is fast approaching eligibility levels for management
and professional ranks. In Latin America, statutory requirements
appear to have influenced eligibility, as general staff and management/
professional are nearly tied. (See Figure 4 on page 96.)
Some Differences in Plan Types

Even with all the similarities seen globally, there are some
differences in the types of broad-based variable pay programs
FIGURE 3
Variable Pay Eligibility Management &Professional

100%
2005 2006 2007
80%
60%
40%
20%
0%
Europe Asia Pacific Latin America United States
Source: Hewitt Associates Total Compensation Measurement 2005-2007.
96 Global Rewards
FIGURE 4
2007 Broad-Based Variable Pay Eligibility

by Job Level and Region
Europe
Mgt & Professional
General Staff
Asia Pacific
Mgt & Professional
General Staff
Latin America
Mgt & Professional
General Staff
United States
Mgt & Professional
General Staff
0% 20% 40% 60% 80% 100%

Percent of Employees Receiving
Source: Hewitt Associates Total Compensation Measurement 2007.
utilized across countries. Three years ago, the majority of coun

tries favored special recognition awards: small cash awards or
non-cash incentives, such as employee-of-the-month designations,
dinners with the CEO or prized parking spots. The easiest form
of variable pay to put in place, such awards cost the company
very little and can be spontaneously granted to coincide with
the desirable performance.
However, as organizations around the globe have shifted their
focus to individual performance differentiation, theres been a
rise in the popularity of individual performance awards, which
now constitute the most prevalent form of broad-based variable
pay programs in China and India, as well as several other Asian
and European countries. As broad-based variable pay has become
more prevalent in these locations, such countries gravitate toward
individual performance awards because they are easier to design
and implement, and they require a less complicated infrastructure
than other types of plans (e.g., business incentive awards).
Countries that have been working with variable pay for a longer
period of time are further up the learning curve and have more
historical data with which to set good metrics. As a whole, they
tend to exhibit greater usage of business incentive awards, a
more all-encompassing qualitative and quantitative means of

measuring and rewarding performance, using some combina-
tion of company, business-unit or individual-level measures. The
United States, Hong Kong, Puerto Rico, Belgium and Canada, as
well as a number of countries in Europe, use business incentive
awards more than any other form of broad-based variable pay.
As organizations become more sophisticated in measuring and
tracking performance, there likely will be a higher prevalence
of business incentive awards in the future.
Cash profit-sharing, a one-size-fits-all kind of program in which
awards are depe nd ent on overall company performance rather
than individual or business-unit results, was found to be utilized in
Latin America more so than any other region. This is a reflection
of Latin Amer icas statutory requirements. As might be expected,
widespread use of team awards is only reported in a few Asian
countries. However, its important to note that, even in these
countries, individual performance awards, business incentive
awards and special recognition awards are more prevalent. This
is an indication that strong competition for top talent is changing
some of the traditional pay practices.
Global Implications
Clearly, geographical differences have blurred with regard to
broad-based variable pay plans and practices. In terms of eligibility,
target levels and spending, regional practices are surprisingly
similar, leading to the conclusion that overall broad-based pay
programs are more globally consistent than ever before.
Organizations that have been operating under the assumption
that they dont need to move toward a global broad-based variable
pay approach should rethink their strategy. By not offering such
plans globally, they are putting themselves at a major disadvan-
tage both in terms of attracting and retaining top talent, and
in driving individual and business performance.
Broad-based variable pay has the ability to serve as a global
driver of behavior, marshaling the collective strength of the global
workforce and unifying divergent geographies that may otherwise
have very different pay practices. It also has the power to further
98 Global Rewards
enhance a global focus on business results. Simply put, organi

zations would be well-advised to include broad-based variable pay
as part of a globally coord inated rewards program. Broad-based
variable pay has definitely gone global.
99
HR Practices | Recognition |
Retirement
100 Global Rewards
Designing Employee Policies

for an International Workforce
Ute Krudenwagen | Susan Eandi
In an increasingly global workplace where standardized branding

and uniformity compete with varying legal requirements and cultural
expectations, HR professionals and in-house attorneys repeatedly
face the same question when implementing employee policies:
Should they develop a single, broad global policy to cover their
entire global operations in a consistent and predictable manner, or
should they do as the Romans do and develop local policies with
the local employer in local language, subject to local law? While
there is no single answer to this question, there are recognized
and tested approaches that a company can take, depending on the
organizations specific needs and profile.
This article will identify the spectrum of approaches for employee
policies along with the various advantages and disadvantages
as well as address implementation requirements.
Drafting Employee Policies for an International Workforce

There are numerous approaches to drafting company employee
policies for an international workforce, but they generally fall on
three key points on the spectrum:
At one end of the spectrum is the global policy, a single policy that
applies to the companys U.S. and international workforce.
At the other end of the spectrum is the local policy, a policy

that applies only to the workforce in one specific jurisdiction.
Somewhere in the middle of the spectrum are two possibilities:

regionalized policies for example, a policy for Asia-Pacific, a
policy for Europe, a policy for the Americas and a U.S. policy
with subplans or amendments for each jurisdiction.
102 Global Rewards
Figure 1 suggests the various approaches that can be taken to

commonly used employee policies.
The Global Policy

A single global policy applicable to all of a companys employees
worldwide appears to be the quickest approach, and also ensures
the most consistency, at least in drafting. With the few exceptions
outlined below, however, where a true global policy is appropriate,
the trade-off for speed is limited ability to actually enforce any
specific language or obligations against the employees. For instance,
in order for a policy not to offend local laws in the numerous
jurisdictions in which it may be used, its provisions would need to
FIGURE 1
The Spectrum of Employee Policies

Global Plan Middle-of-the-Road Plan Localized Plan
Global equity plan Equity subplan
Code of ethics and conduct
Whistleblower policy
International assignment and tax equalization policy
Change-in-control plan
Bonus/commission plan
Discrimination/harassment policy
Open-door policy
Safety and security policy
IT policy
Grievance policy
Handbooks/work rules/
internal regs.
Vacation/leave policy
Working-time policy
be vague (resulting in ambiguities that would be interpreted against

the drafter) and/or broad with phrases like to the extent permissible
by applicable law (raising questions about what the law is).
Furthermore, in seeking uniformity, companies often inadvertently
and contractually extend protections that do not otherwise apply
to employees outside of the United States. For example, an overly
U.S.-centric policy may extend protections to employees against
discrimination or harassment based on U.S.-protected categories,
such as gender and sexual orientation, but outside the United States
such protections may not exist or may be interpreted differently. In
some cases, local laws might even require discrimination or different
treatment, such as in various Middle Eastern and some European
jurisdictions that have specific working-hour restrictions for women.
Also, whereas in the United States, age discrimination is defined as
discrimination against employees age 40 or older, in Europe, the equal
treatment directive is generally interpreted to prohibit discrimination
against employees of all ages, including younger employees.
Finally, because the truly global policy is often promulgated by
the parent company to all employees engaged by subsidiaries and
affiliates within the group of companies worldwide, such policies
may create joint employer liability. That is, there is a risk that an
employee in a foreign jurisdiction can bring a claim for policy
violations against both his/her employer and the parent company
that issued the global policy.
With that said, global policies are appropriate in certain limited
situations. For example, U.S. equity plans governing the grant of
equity in the U.S. parent company to employees worldwide are
subject to U.S. securities laws and, as such, such companies should
have global policies. (Even for global equity programs, however,
in some countries, such as France and the United Kingdom, it
can be advantageous to have local subplans to take advantage of
favorable tax and social security treatment.)
Similarly, global codes of conduct and ethics are driven by U.S.
requirements, such as under the Sarbanes-Oxley Act and New York
Stock Exchange or Nasdaq listing rules and, for that reason, many
companies have truly global codes. Even for codes, however, given
data privacy and employment law restrictions in the European
104 Global Rewards
Union and an increased number of other jurisdictions worldwide,

care must be taken in drafting such codes. For example, policies
for anonymous cross-border, whistle-blowing-hotline reporting
need to be regionalized or country-specific.
Note that international assignment, tax equalization or employee
mobility policies by their nature are also often global policies.
This is because they are intended to govern a companys entire
expatriate workforce including, among others, inbound or
outbound assignments in a consistent and predictable manner.
Some companies even set up so-called global employment companies
or GECs to engage expatriate workforces in a consistent manner.
Nonetheless, each expatriate assignment triggers a host of corporate
and individual tax, social security, benefits, equity, employment and
immigration considerations that need to be specifically addressed
for each expat employee, and global mobility policies must permit
sufficient flexibility in this regard.
The Local Policy

The biggest potential advantage of local policies is they can offer
a company the greatest protection under local laws and can be
drafted to be consistent with cultural norms. That said, for many
U.S. multinationals, individualized, locally compliant policies are
disfavored because they simply increase the number of policies
to manage.
Despite the increase in number of policies that localization may
cause, in some instances local policies are strongly recommended.
For example, employee handbooks are driven by local employment
laws. As in the United States, where a company operating in numerous
states will need to carefully draft and disseminate its handbook to
avoid imparting specific state protections (e.g., leaves and overtime)
to out-of-state employees, multinational employers need to recognize
local legal requirements. In fact, various jurisdictions require local
work rules or internal regulations, which must contain specific
provisions mandated by local law, be in local language, be filed
with local courts or labor authorities, and so on. For instance, in
France, any company with 13 or more employees must have internal
regulations; in Japan and Korea, work rules are required for any
company with 10 or more employees; and in Taiwan, work rules

are required for companies with 30 or more employees.
Local policies are also strongly favored where legal requirements
vary dramatically from country to country. This includes vacation
policies (if not already covered in a handbook), since vacation
entitlements can range from no statutory entitlement to paid vacation
(such as in the United States) to six or even more weeks of statutory
entitlement to paid vacation (such as in EU jurisdictions), and the
legal requirements for vacation carryover or vacation caps differ
significantly from jurisdiction to jurisdiction.
The Middle-of-the-Road Approaches

In an attempt to get the best of both worlds that is, the consistency
of global policies and the differentiation and local compliance
of local policies companies often experiment with various
middle-of-the-road approaches. One such approach is to prepare
regionalized policies. Regionalized policies are appropriate in certain
areas where there are common rules across a region, but creating
them is often easier said than done. For instance, even within the
European Union there can be tangible differences between countries
because of the flexibility in implementation of EU directives and
subsequent interpretation of local laws. For example, while the EU
working-time directive sets forth a maximum working week of 48
hours, a minimum rest period of 11 hours in each 24 hours, and a
minimum four weeks of paid vacation, the directive leaves significant
flexibility to the member states. Accordingly, countries like France
still require a 35-hour workweek (with limited exceptions), whereas
others, such as the United Kingdom, even permit employees to
opt out of the 48-hour working week. Therefore, even in Europe,
a uniform working time policy is virtually impossible.
Another middle-of-the-road approach is creation of locally compliant
subplans or amendments to U.S. parent company policies. While
this approach lends itself to maintenance of the look and feel
of a global policy (and is common for change-in-control plans),
the disadvantage is that it can be overly complicated because an
employee will have to review both the U.S. policy and the country
policy to understand how the policy applies to himself/herself.
106 Global Rewards
Also, such policies often contain various rules specific to U.S. poli-
cies (such as ERISA or Internal Revenue Service 409A language)
that simply do not translate or apply internationally. Finally, such
policies will need to carefully address whether changes to the U.S.
policy should also result in changes to the local policy.
Implementation Requirements
Whatever approach is taken, it is important to realize the exercise
does not stop there. Care should be used to ensure that the policy
is properly rolled out and implemented. Lack of proper rollout and
implementation can negate the companys ability to rely on the policy
and, for instance, discipline an employee for failure to comply.
Proper implementation includes:
Translations where required (e.g., Canada [Quebec], France,

Belgium, Russia, Turkey) or recommended to ensure that employees
understand the policies
Notification or consultations with works councils or employee

representative bodies (on issues such as so-called democratic
procedures with unions or elected employee representatives
in China)
Filings with labor authorities or courts (e.g., for internal regula-

tions in France, or work rules in Japan or Korea)
Presentation of the policy to all employees for acknowledgement

and consent.
Summary
Unfortunately, there is no one-size-fits-all approach for drafting global
policies. Instead, whether to draft a global policy, a local policy or
something in between depends on the type of policy being rolled out
and the companys general philosophy and appetite for distinctions
in line with local laws, as suggested in Figure 1. Companies should
work with experienced counsel to identify the factors that go into
determining where on the spectrum a policy may fall, and to draft
and implement legally compliant policies. Noncompliant policies or

those that have not been properly rolled out can result in significant
and often unanticipated legal liability. On the other hand, with
advanced planning, companies can create global employee policies
that are a tool to responding to commonly asked employee questions,
protect the companys position in litigation, and communicate the
companys philosophy and enhance employee retention.
108 Global Rewards
Communication Strategies for Effective

International HR Management
Susan Allerow | Rebecca Rosenzwaig, CPA
Within a companys corporate communications plan, communicating

with international assignees requires special care, even when the HR
department is simply delivering routine information. However, the flow
of information should be two-way, with HR encouraging or soliciting
feedback. After all, finding out how assignees feel about what is
happening and its impact on their work and professional life in the
host country is as important as the messages delivered to them.
To maximize interaction with the entire workforce, HR should
be on the lookout for opportunities to become more involved
with organizational communication programs to ensure that the
personnel in their care do not feel out of sight, out of mind.
This article will present the general objectives of a communication
program, the specific challenges brought about by an international
workforce, and practical communication vehicles that can help HR
address the relevant issues that arise.
Objectives of an Effective Communication Program

Whether the communication program is for general corporate use,
overall HR or topics specific to expatriates, there are a number of
basic objectives to be met:
There should be a complete understanding of corporate policies

and specific programs so that employees not only know what
is expected of them in terms of the organizational mission and
their behavior related to that mission, but also what they should
expect in return from the company.
There needs to be a mechanism to ensure that a dialogue exists

between employees and management on matters of policy,
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procedures and strategy. Expatriates in particular need to know

who has the answers when they have questions, as this helps
them maintain their ties to the home country office contacts and
offers familiar connections when administrative, career develop-
ment and other matters crop up.
There should be awareness across the board of international

assignment opportunities, which will help HR identify and select
candidates while building a pipeline of interested individuals.
Challenges in Communicating with Expatriates

Beyond the inherent complexity of international compensation
programs, it is harder and more time-consuming to communicate
with expatriates. Keeping them informed of general corporate and
business issues adds another layer of information sharing that can
create an extra level of challenge. For example:
Assignees not only work outside their normal communication

networks, but also in different time zones, which presents logistical
difficulties.
Workforces today are multicultural, with their own traditions and

languages. When it comes to a certain communication style (or
vehicle), what may work for some employees might be considered
dismissive or insulting by another.
There may be different cultural norms or legal restrictions related

to sharing certain types of information.
Assignments often involve families, whether they accompany the

expatriate or remain at home. HR therefore has to view relocation
and compensation programs from the perspective of spouses/
partners and children.
An additional problem for HR is the inevitability of assignees

comparing their pay packages with their peers compensation.
This behavior can lead to equity and morale issues along with
the complication of bad press if word gets around that some

individuals get better packages particularly if those better
deals are insupportable.
Common Issues and Practical Solutions

The areas of particular interest for assignees often relate to the
policy that governs their assignment, including relocation logistics,
HR and other resources for support, compensation elements,
emergency planning and family concerns. Anticipating assignee
needs and concerns enables HR, in conjunction with the corporate
communications group, to plan appropriately for preassignment
and ongoing information sharing. Numerous vehicles are available
for communicating with employees, as illustrated in the sidebar,
Common Communication Tools and Venues. Each organization has
to decide for itself what works best within the culture to optimize
the spread of news, whether good or bad.
Recurring expatriate topics include the pay approach and payroll
updates, the comparison of government and vendor indexes,
peer pay comparisons, and career development and repatriation.
To successfully address each of these issues requires technical
knowledge and a clear presentation of facts.
Compensation Approach and Payroll Updates

The balance-sheet approach remains a common pay methodology,
particularly in Western countries, although employers are implementing
alternate systems to meet the needs of diverse assignment types
and destinations. For the purposes of this discussion, assume
the balance sheet is the pay approach and that the focus of the
explanatory material is goods and services; other components of
the methodology include payment of incremental costs for housing,
goods and services, and taxes. The items for HR to address in its
communication pieces include the following:
Exchange-rate fluctuation
Cost-of-living index movement, including negative differentials

when home-country prices are higher than in the host country
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Common Communication Tools and Venues
Preassignment
Selection and orientation kits: For employees who are interested in an
international assignment or who have been approached with a potential
position abroad, an introduction to the selection criteria, interview and
application process, the decision makers and so on is helpful. An orientation
packet removes the mystery from the process, allowing the employee to
know ahead of time what to expect.
Vendor meetings: Employers often use external experts to provide
information and services for relocation and moving, destination services,
cultural training and immigration. Meeting with a vendor representative to
explain the process and services is advantageous for the family not only
before the assignment, but also after arrival to ensure that the settling-in
process progresses with minimal disruption. This same type of interaction
is also helpful when the employee is returning home, although it is likely to
focus on moving logistics.
Policy and pay package data: Standardized policy manuals provide
a general view of the company policy, but formal assignment letters (or
contracts) delineate the pay and benefits components of the expatriate
package, the expected duration of the assignment and other key details.
An expatriates family also appreciates communication that addresses its
concerns availability of new schools, whether or not the spouse will
be allowed to work in the new host location, expatriate communities and
neighborhoods, and important contacts.
On Assignment
Monthly newsletters: While expatriate-specific and/or companywide
newsletters connect all expatriates, they especially link those who are either in
remote locations or startup operations with the rest of the organization. While
the news might cover corporate strategy, new products, high-profile projects
and other business information, it can also convey personal news, such as new
baby announcements and volunteer efforts. E-mail rather than printed copy is
more cost-effective and environmentally friendly if the worldwide employee
population is large.
Location pricing updates for goods and services
Updates to home-country data for comparison of expenditures

between home and host locations.
Communications should include a comprehensible description of

the compensation methodology and the actual calculation relative
to the individuals pay; the cost-of-living index movement and a
rationale for what happened; the net effect on what the expatriate
receives; the influence of exchange rates on indexes; and a look
Team meetings: If a project team is scattered in multiple locations, regular

teleconferencing is a good idea, with annual or semiannual face-to-face meetings.
Webinars: Web-based seminars about development skills, new products
and other useful information are another way to allow colleagues to interact
and remain in touch.
Surveys and questionnaires: Some employers ask expatriates and family
members to express their opinions about vendor performance (such as re-
location and language-training services), family issues and concerns, and
other topics about which the employer needs to gather data. Once informa-
tion is solicited, it is important to let the participants know the results, and
what will be done with them.
Intranet: A special site dedicated to expatriate needs can be an open part
of the corporate Web site or a special password-protected section of the
site, particularly if it involves pay policies. The site can include bulletin
boards that allow an exchange of information and questions/answers
among expatriates in different locations.
Pay explanations: While special notice payroll stuffers can accompany any
adjustment in the assignees pay, a more in-depth communication is usually
necessary when a policy is changed or there is a significant adjustment to a
goods-and-services differential/index. Including examples and frequently
asked questions with these lengthier explanations can save time and
trouble on the part of HR and line managers.
On Completion of Assignment
Mentors and peers: While a mentor for the expatriate is useful throughout
the assignment duration, as the assignment comes to a close, that
relationship becomes critical, guiding the employee to job openings
and contacts within the organization. Other helpful interaction involves
repatriated workers who can share their experiences on resettling back
home and finding ways to use the skills and knowledge they acquired
overseas.
at the big picture to put changes in perspective. However, while

it is appropriate to provide clear and unambiguous information to
assignees regarding their compensation within the context of the
economics that influence the balance sheet, it is equally important
not to get lost in an individuals spending patterns.
For example, it is not uncommon for a disgruntled assignee to
compare, say, the price of milk in the host location with milk back
home. Seeking to validate the price of an item for this individual
may obscure the balance-sheet objective that considers the average
prices of a comprehensive market basket of goods and services
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taken as a whole. Based on national averages of consumer

spending behavior, the balance-sheet concept is designed to
equalize an approximate net income. Consequently, losing sight
of the forest for the trees in these discussions can consume
significant HR and management time in explaining details that
may be better addressed by helping the assignee understand the
bigger picture and the underlying compensation model. Inaccurate
and nonrepresentative explanations may confuse or frustrate an
assignee, thereby making the method of delivering an appropriate
level of detail as important as the message.
A further point is the need to address policy changes. Assume,
for example, that the company decides to cap the goods-and-
services allowance or perhaps implement a more cost-effective
index. A clear explanation of the new policy, along with the
rationale and impact on the individuals package, is essential,
particularly if the assignee will not be grandfathered under the
existing policy.
Comparison of Government and Vendor Indexes

Topics HR needs to address include the methodology used by
governments and cost-of-living data providers, and how they differ.
Once again, HR should define the approach used, as each source
includes different items in its data collection and analysis (e.g.,
education may be included in some cost-of-living indexes, but
not others). Also important for the expatriate to understand is
the difference between the host economy from the perspective of
local-national employees as compared with expatriates. Related
newspaper articles and service provider Internet reports are useful
as supplementary material.
Peer Pay Comparisons

Since expatriates often tend to compare their pay and benefits
package with their peers, HR should provide a rationale for any
obvious differences in, for example, housing or education. Employees
need to understand the pay methodology, along with the effect
of salary, position, family size and business unit. Above all, it is
important to emphasize the need for confidentiality.
Career Development and Repatriation

To help minimize anxiety about what happens after the assignment
has been successfully concluded, HR should discuss:
Tracking the assignees career (by management and the individual)
The cycle of performance reviews
Relocation logistics
Position upon repatriation.
To help get these points across, HR should encourage engaging

all parties (business lines, employee, HR) in the process and refer
to the companys policy on guarantees with regard to a job upon
repatriation. If there are no guarantees, be honest about that
fact, and tell the individual what the organization expects upon
repatriation. Avoid surprises if possible.
Accentuate the Positive and Alleviate the Fear Factor

In all the above discussions which often take the form of defending
company policy HR sometimes overlooks the opportunity to
say, Look at what the company does for you. For example, the
company may provide:
Free host housing in situations where the company feels it is

beneficial, more cost-effective or safer
Company cars, drivers (for status or safety) and transportation

allowances
A cash windfall, should the company ignore negative differentials

by not deducting an amount from pay when home-country prices
are higher than in the host country
Lack of index modifications, so that the employee, in effect, is

paid twice for certain items, such as a company car
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Private school for expatriate children who might have attended

public schools back home.
While employees might appreciate benefits from an international

assignment, there are other things on their mind, too. Concerns
for family, home, career and finances complicate the myriad issues
an employee manages, from the initial assignment offer through
repatriation. If the employer recognizes that these matters can
be overwhelming and provides resources to alleviate the worries
(and indirectly help the individual make appropriate personal and
professional decisions), the chances for a successful assignment
are enhanced.
Given the demands on HRs time, there is value added not only
in directly talking to assignees (and their families) but also in
developing appropriate networks to provide necessary information
and follow-up. External network members can include cultural
trainers, destination services, education consultants, immigration
counselors, employee assistance programs and tax professionals.
Internal network members are likely to include line managers,
mentors and other assignees.
A common oversight in these networks involves the exclusion of
business managers and senior leaders whose communication flow
is multidirectional. A good assumption is that senior leaders and
business managers are advocates of the corporate strategy that drives
the need for international assignments. Therefore, their endorsement
and direct involvement in assignees business and career objectives
is invaluable, while their understanding of the assignment program
supports HRs efforts. Without that understanding, a well-meaning
manager can cause problems.
For example, imagine a scenario in which an assignee expresses
concern to a business manager about continued participation in the
home-country pension plan and the managers response is, Dont
worry, well take care of it. In reality, the company may not wish
to or may not be able to retain the employee in the pension plan,
and the managers well-intentioned response actually serves to
mislead the employee, potentially resulting in future administrative
and legal complications. Communication within an organization
about policy terms and knowledgeable internal resources can help

maintain consistent treatment for assignees.
A final concern is that when company communications include
announcements about mergers, acquisitions or other organizational
and leadership changes, assignees are especially vulnerable to
speculation about the assignment programs status, their roles
in the host country, their status upon repatriation, termination
while abroad and so on. While assignees should receive general
communications on the subject, it is also valuable to provide more
directed announcements and updates to address their unique issues
and concerns in the changing circumstances. Even if the news is
not good, providing clear, factual information and direction will
go a long way to support the transition plan.
Spreading the Word Is Common Sense

The importance of effective commun ication between management
and employees is not a new idea by any means. Yet HR, often with
overworked personnel who are busy resolving problems for the
global workforce, may inadvertently overlook the need for good
communication strategies. But by making an effort to determine the
best ways to get their message across while soliciting employee
feedback HR can save time, money and employee goodwill in
the long run.
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Helping Expats Get Ready

for a Healthy Assignment
Frank Gillingham, M.D.
Of the many goals that expatriates, accompanying family members

and employers have for an international assignment, none is more
important than having a safe and healthy experience both abroad
and upon repatriation. In fact, the success of an entire assignment
may depend on the health of the employee and family. As with
any business objective, the key is careful preparation.
HR and benefits professionals should encourage expatriates to
spend time on careful, health-oriented preparation before leaving
home and provide the necessary tools before and during the
assignment. The practical points discussed in this two-part article
allow the well-prepared expatriate to avoid considerable anxiety
and frustration when the inevitable illness strikes. Part one focuses
on finding a primary physician, vaccinations and prescription dos
and donts. Part two covers the needs of the expatriates family,
foreign medical terminology, hospital inform ation and tips for
emergency situations or serious illness.
Part 1
Home Visits with a Primary Physician
Just as a tune-up for the family car is a good idea prior to a cross-
country road trip, expatriates and their families should visit their
primary care physician before going abroad. Remind them to ask
whether all routine screening tests (e.g., cholesterol, colonoscopy,
pap test, mammogram), which would normally be performed during
the assignment, can instead be performed in advance. It might be
helpful to confirm whether the primary doctor is willing to consult
from time to time while the family is abroad, clearly explaining that
the expatriate would not call for emergency situations but only for
comment on whether a treatment plan sounds reasonable.
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Reinforce the need to obtain medical records, along with a short

letter recounting any past medical history and current problems,
including treatment. Unfortunately, many expatriates forget this
important point.
While photocopies are better than nothing, they can be hard to
read; duplicates of important diagnostic tests (e.g., electrocardiograms,
mammograms) are better. If possible, the expatriate should bring
two copies of everything: one for the family records (which should
not be surrendered at any time due to the difficulty of obtaining
new originals while abroad), and one copy for the new primary care
physician. Another option is entering a personal medical history
on the Web using an online service, allowing data availability
through a Web browser.
The Search for a Foreign Physician

Establishing a comfortable relationship with a primary care physician
in the host country is absolutely critical to a successful assignment.
HR managers can help expatriates find a new physician overseas
through knowledgeable resources or colleagues references in the
host country. Expatriates should review as much information as
possible, including the doctors medical education, board certification
status, special interests and so forth. One HTH surgeon in So
Paulo, Brazil, suggests making sure the physician is accredited by
the local hospital.
It is important to encourage expatriates to make the selection and
schedule an introductory appointment while on a preassignment
trip. These visits are crucial and more likely to occur if scheduled
before the actual assignment begins. Newcomers should go to
the doctor upon arrival, before they have any illness, to become
acquainted, and acquire confidence when judgment is not impaired
by sudden illness, recommends one medical expert. Consequently,
if the first visit is unsuccessful, there is still time to select a new
physician. Switching is much more difficult once evaluation and
treatment have begun.
As patient-physician relationships are very personal, the family
should decide on the initial visit how comfortable each member is
with the doctors bedside manner and facility with the familys
native language. For example, a physician in Tokyo reported, Most

Japanese doctors do not appreciate comments and ideas from their
patients but expect a lot of respect and esteem Many Japanese
doctors who mention that they speak English do not speak fluent
or decent English, especially when it comes to daily conversation.
If the family feels comfortable, it should leave behind a copy of
its medical records.
An important point to ask is how the physician should be reached
after hours; expatriates and their family members should keep the
doctors home telephone number, cell phone and pager number
with them all the time. Why? In Korea, for example, the family
physician who is able to speak the familys native language will
make arrangements for specialist and emergency-room visits. One
final point the expatriate might not consider is billing procedures.
Cash payment is generally required in some countries, such as Italy,
and the expatriate should bring cash on the first visit, just in case.
Health Risks and Vaccinations

Is the water safe to drink? Do malaria and yellow fever occur? Expatriates
should be aware of the risks associated with their primary host country
and other cities in the region to which they might travel frequently.
HR professionals should provide assignees with information resources
(e.g., HTH Worldwide, www.hthworldwide.com, the Centers for Disease
Control, www.cdc.gov), along with a list of qualified travel-medicine
physicians and/or clinics from which they can obtain the appropriate
vaccinations. This is critical for the expatriates family as well. (See
If the Expatriate Has Children on page 122.)
It is important not only to remind assignees that some vaccines
require time to take effect (or need several injections over a few
months), but also to confirm that standard vaccinations (e.g., diphtheria/
tetanus) are up to date. When the host location is geographically
remote or the required vaccination complex, the expatriate might
be best served by a consultation with a travel medicine specialist.
Translating Prescription Names

Blood pressure pills, antibiotics, birth control pills and other
prescription medications are available under different names in
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If the Expatriate Has Children
Expatriate life with children requires special preparation:

Schedule well-child visits prior to leaving, and obtain copies of growth charts
and medical records.
Bring a book on common childhood illnesses.
Become knowledgeable about vaccination requirements, which vary by
country (the child might not be admitted to school in the host country, nor
admitted to home-country schools upon repatriation if the vaccinations
are not up to date according to country standards). Consider accelerating
vaccinations before moving, obtain a recommended vaccination
schedule for the time overseas and discuss home-host differences with
the physician.
different countries. If possible, expatriates should determine the

commercial name of any past and present medication using a drug
information guide. They should also learn the generic (chemical)
names, which are more likely to be familiar to physicians and
pharmacists. Those requiring allergy injections should get a
letter from the physician describing the exact components of
the shots.
Recommend that expatriates carry an adequate supply of all
their medications (at least six months worth) in case there is
a delay in finding an equivalent supply. And they should pack
half this amount in a carry-on bag. Since oral contraceptives
are particularly difficult to duplicate, expatriates might consider
supplying themselves from home during their entire stay abroad.
Pharmacy plan limitations may make it problematic to obtain these
medications without significant out-of-pocket cost, a dilemma that
HR should discuss with the employee. Suggest to expatriates that
they bring along their glasses (and an extra pair) and contact lens
prescriptions, with disposable contacts supplied from home.
Conclusion
HR professionals need to be educated on how to assist expatriates
to ensure their and their familys health, thereby ensuring the future
of the companys investment in talent. By providing expatriates with
the information contained in this series of articles, HR professionals
can help them get off to a healthy start.
Part 2
Part two focuses on the needs of the expatriates family and some
of the tools available. It also helps HR professionals know how
to assist expatriates in learning crucial medical terminology and
evacuation procedures.
Self-Help Tools for Family Care

The value of reference material is self-evident in a place where
medical care might not be as easily accessed or understood as in
the expatriates home country. Medical Web sites are a definite
asset, especially for researching uncommon illnesses. In addition,
the family should bring a first-aid kit that includes:
Typical supplies (bandages, band-aids, splints, tweezers).
Over-the-counter (OTC) medications (vitamins, analgesics,

decongestants, antacids, contact lens solutions, sunscreens,
mosquito repellants, contraceptives), each of which is likely to
be sold in a different formulation in the host country. A written
description of the components of the OTC agents on which they
rely is helpful so that a physician or pharmacist can recommend
something similar.
Depending on the host country, prescription medications,

antibiotics (for both travelers diarrhea and skin infections), jet
lag and motion sickness remedies, and injectable epinephrine (for
unexpected allergic reactions). To avoid problems with curious
customs agents, leave all medications in the original bottles and
include the physicians letter of explanation.
Deciphering the Foreign Health-Care System

Expatriates need working knowledge of the foreign health-care
system. What hospitals are preferred for routine care, trauma, or
emergencies? What is the difference between private and public
hospitals regarding quality of care and availability of services? As
one psychiatrist in Brussels, Belgium notes: Private and public do
not mean good and bad here.
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Expatriates should learn not only the emergency telephone

numbers for ambulance, fire, poison control, and other such
resources, but also whether these numbers, and the ambulance
system, are reliable. For example, Emergency numbers do exist
in So Paulo, said a physician in Brazil, but, except for the fire
department, you should not count too much on them in moments
of need.
Finally, as all expatriates will eventually require a headache
remedy, decongestant or even sunscreen, basic knowledge about
pharmacies is necessary: hours of operation, product reliability,
and staff trustworthiness. In a Farmcia, there are normally a
handful of persons who are totally unqualified to give any health-
related advice and who feel absolutely free to suggest that you
buy medicines different than those prescribed by your physician
(because they have a wider profit margin on some medications),
said the Brazilian physician. Also, expatriates should ensure that
they are clear on the medications instructions, as this is often not
included on the package in some countries such as France.
A Working Knowledge of Local Medical Lingo

Although there may be physicians who speak the expatriates native
tongue in many parts of the world, it is rarer to find this facility
with nurses, office staff, ambulance drivers, medical technicians
and others. It is therefore critical that expatriates are able to
communicate key medical needs in the local language.
To start, the expatriate should learn (or have available) translations
of key medical phrases such as I want to see a doctor and I need
something for pain, as well as relevant medical idioms such as
hay fever (nasite in Portuguese) or chicken pox (windpocken in
German). The expatriate should also be familiar with the medical,
not simply laymans, term for his/her key medical conditions. (See
If the Expatriate Has a Chronic Medical Condition.)
Contingency Plans for Serious Illness

Under rare but critical circumstances of accident, injury, or sudden
illness, the expatriate or a family member may require evacuation
to the home country or a third location. As one HTH surgeon in
If the Expatriate Has a Chronic Medical Condition
Individuals with chronic medical conditions should consider additional

preparation:
Arrange an appointment with the appropriate specialist (e.g., cardiologist,
endocrinologist) overseas.
Consider a bracelet or pendant indicating the medical condition (note, if
possible in both the home and local language, any life-threatening allergies,
diabetes, epilepsy/seizures, heart disease, and other conditions that can
cause acute complications).
Be vigilant for symptoms and signs that the condition is worsening. Local
diets and microbes, differences in air quality, and stress related to a new
job and cultural adjustment can exacerbate a chronic condition or cause
a return of other long-forgotten conditions. Receive medical care before
matters get serious.
Sydney, Australia explains, Expatriates should know how to get

out of the country as rapidly as possible in case a better medical
facility is needed. Employers should provide an evacuation plan,
which the family can share with friends, family, and colleagues
both at home and abroad. Following are the key questions for
the HR professional to ask when helping prepare the expatriate
for evacuation:
Does the expatriate have a medical evacuation assistance benefit?

If so, how can he/she contact the assistance company?
What is the preferred hospital in the home country for transfer?

How can a transfer be arranged to that hospital?
What regional facility is preferred if transport home is medically

unwise?
What are the creditable air ambulance companies that service

the area?
For those expatriates who are not enrolled in a group assistance

benefit, the HR manager should strongly recommend that they join
an individual plan.
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Expatriate Health Insurance Benefits

Many domestic health plans are unsuitable for out-of-country
coverage; conversely, plans that provide excellent international
coverage are often inadequate coverage for care received at home.
Further problems include complaints of claims hassles, prepayment
of bills and delayed reimbursement, and translation problems.
Benefits managers can play a key role by helping expatriates
understand their standard medical benefits and any extra benefits
related to their expatriate status (e.g., medical assistance), as well
as provide customer service contact numbers and claims filing
procedures. When choosing coverage for expatriates, it is critical
that benefits managers understand the characteristics of the many
different options as follows:
Domestic health plan. Many expatriates remain in their domestic plan,

which is a convenient choice even though coverage overseas may
be inadequate. Domestic insurance carriers are often inexperienced
with foreign doctors and hospitals, international claims, and
tricky medical evacuations. Consequently, the benefits manager
is sometimes pulled into claims disputes or finds that employees
are submitting medical claims on expense reimbursement forms.
Host-country plan. Often an inexp ensive option (even free, if

the expatriate uses a national health plan), local benefits may be
less generous then those in the home country and subject to a
waiting period. Worse, these plans rarely offer coverage inside
the home country.
Carve-out plan. Designed specifically for the expatriate, they offer

excellent coverage inside and outside the home country, as well as
emergency assistance benefits and expertise in international claims
processing. Companies pay more for this coverage and expertise.
Supplemental plan. Covering overseas care and medical evacuation

while the domestic plan remains in place for care delivered
at home, this approach can be attractive. While flexible like a
carve-out plan, it is often more affordable.
Dont Dismiss Foreign Health Care

Remind expatriates that the way in which medical conditions are
diagnosed and treated varies significantly across geographic areas.
Advice and recommendations they receive overseas may be very
different from what they might receive back home; but different
does not necessarily mean wrong. In June 2000, the World Health
Organization (WHO) published a comparison of 191 health systems
around the world, using five indicators of quality. The results
proclaimed France as the provider of the best overall health care
followed, among major countries, by Italy, Spain, Oman, Austria,
and Japan, with the United States ranking 37 (in part, because of
the large number of uninsured individuals).
Many expatriates are pleasantly surprised by their experiences
with foreign physicians. One gastroenterologist in Buenos Aires,
Argentina, reports that it is common for medical doctors to visit
patients homes, provide care and decide if the person needs
referral to a specialist or hospital admission. According to an
expatriate in Berlin, When you are actually ill, you are written
out of work and required to stay home and rest. They take getting
well seriously, and dont want people at work ill.
The HR Contribution to a Healthy Assignment

By recognizing that the physical and emotional health of the
expatriate and family is critical to the success of an international
assignment, HR can play a crucial role. The employers job is to
encourage expatriates to carefully prepare for their health abroad
and to provide them with the necessary tools and resources. With
the right preparation and knowledge, the entire family has a better
chance to enjoy a positive, and healthy, expatriate experience.
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Human Resources in Emerging Markets

Carol Neumeister | Ruxandria Stoian, GRP
As the labor cost advantages of India and China have begun to erode,
many organizations have targeted markets in relatively underserved
parts of Asia, South America, and Eastern and Central Europe.
Even in the face of the global recession and sometimes because
of it conditions remain favorable in a significant number of
these locales. In fact, many emerging countries are seeing both
business expansion and strong merger and acquisition activity on
the local level.
When dealing in these markets, the skill and aggressiveness of a
companys human resources team can make the difference between
success and failure, as each market has unique operational challenges
in terms of economic structure, access to capital, consumption
patterns, educational achievement and cultural expectations. Bringing
HR to the table as early as possible can help avoid potential missteps
and produce better long-term results, as HR can address specific
issues at every step of the startup or acquisition process, from site
selection to recruitment and retention.
To help your company make the most of global markets, this article
will provide background on expanding into new markets as well as
explore several key areas in which HR can make a difference.
Background
Too often, HR teams are excluded from the due diligence process in
approaching emerging markets, sometimes leading to complications
that might have been avoided. For example, confusion concerning
Brazilian social security legislation passed in 2007 caused 90 percent
of organizations in one survey to accrue credits unnecessarily
on social security contributions. Companies are now working to
recapture the accrued credits and to reorganize HR policies to protect
companies from future questioning by the authorities. Involving
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HR professionals with specialties in Brazilian law, or even Brazilian

contractors, might have helped avoid this problem.
Another complication has been highlighted by studies showing
that low-wage countries generally present a consistent human capital
challenge. Only a small percentage of university graduates with
general degrees are equipped to work in a multinational company, and
graduates with technical degrees can be similarly unprepared.
As companies look to underserved consumers and lower labor costs
of emerging markets as engines of future growth, HRs role is critical.
Key areas for HR involvement include site selection, labor laws and
regulations, staffing determination, and recruitment and retention.
Site Selection
In evaluating potential sites for expansion, organizations need to
address several key questions early in the due diligence phase:
How large is the potential pool of talent? Does the education

system consistently replenish that pool?
How much flexibility is there for future growth? Alternatively, how

easy is it to shut down operations in the future, if it is necessary?
Are there special country-unique considerations that may come

into play? For example, many Romanians who were living and
studying abroad are returning home. These half expat/half local
individuals, with international skills but salary requirements
between locals and expats, represent a good potential labor
pool for companies expanding into Romania.
In addition to studying publicly available demographic research,

companies may find it useful to contact the local chamber of
commerce, if there is one, for basic data on the specific locale. If
local HR consulting firms exist, they can provide valuable background
information for due diligence. Local HR talent can help in this
respect even before final site selection.
After site selection and during implementation, the companys HR
team should recruit a local HR presence to handle and integrate staff
within the broader context of the corporation. The local personnel

will know how to recruit local talent, review and evaluate rsums,
and interpret policies and procedures.
If acquiring a subsidiary, the parent company must ensure that local
policies and procedures are integrated into its standards of operation
and work rules. Even where the rules are similar, developing clear
written policies can forestall challenges by authorities. Such policies,
put in the context of understanding local laws, can even reduce
payroll costs. For example, in Brazil, the price of a company car
must be included in payroll, with social security contributions and
labor benefits paid on this amount. However, it may be possible
to reduce or avoid the payroll cost associated with using company
cars with an appropriately documented corporate policy.
Labor Laws and Regulations

Cultural and political norms have a powerful impact on business
enterprises, but laws and regulations can be more onerous. In
PricewaterhouseCoopers 11th Annual Global CEO Survey, participants
viewed labor laws as the most important area in which governments
could improve the business climate in emerging markets as a whole
and in Latin America in particular. Taxation followed labor law on the
list, with Central and Eastern Europe posing the most concern.
Labor laws in many countries are protective of employees and, as
a result, pose a potentially significant strain on a companys budget.
Organizations may not be permitted to terminate employees, for
example, without incurring government-mandated costs.
To see the potential strain, consider Romanian labor laws, which
require 90 to 100 days between notification and layoff. Moreover, in
Romania, employee contracts are widespread and usually promise
larger benefits than the law provides. For example, where the law
requires that one months salary be paid to terminated employees,
employees governed by labor contracts may wind up with six to 12
months salary. This arrangement is not likely to affect organizations
starting new companies but can be a significant element in the
takeover of an existing company.
In Brazil, when an employee is dismissed without cause, the
employer must pay a penalty of 50 percent 40 percent to the
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employee and 10 percent to the government of the amount held

for that employee in a government-maintained employment and
severance benefit fund. That fund, which serves to compensate
for nonexistent government unemployment benefits, is created by
mandatory employer contributions of 8 percent of each employees
monthly remuneration.
These laws should figure into a companys planning and cost
analysis prior to an acquisition. HR teams should make their
companies aware of such laws, regulations and practices, and help
distinguish between fixed salary costs and additional premiums
and/or bonuses that may be customary and expected.
HR can also help organizations look beyond the initial acquisition
and expansion to the impact of laws and regulations on future
facility closings. Health care, pension benefits and unemployment
compensation must all be considered in light of the eventual
possibility of terminating individual employees or shutting down
or downsizing an entire operation.
Staffing Determination
The local talent pool in an emerging market often lacks the
breadth and depth to meet startup staffing needs or plans for
future growth.
As the CEO survey reported, Companies succeed or fail because
of the people they employ from the executive suite to the factory
floor. While emerging markets are home to vast and inexpensive
labor pools, the depth of talent with the skills and experience to
face global competition is often much thinner.
As a result, companies often need to assign home-office
employees to work in the new locale, at least in the short term. If
an organization wants to assign expatriate employees to a startup
venture in a new location, as is frequently the case, the HR team
should help management determine an appropriate mix of local
hires and expatriates and put in place a plan for transitioning to
an increasingly local workforce.
Expatriates typically populate the executive and managerial level,
assigned to establish the local operation and integrate it into the
corporate framework. At first, they frequently focus on harmonizing
operations with headquarters. In the case of acquisitions, companies

trust them to determine if any business practices need to be
corrected or, conversely, if there are best practices that can be
integrated into the U.S. operation.
Expatriate employees are costly, both in terms of direct compensation
and infrastructure. They will inevitably have higher salaries than
local talent, a discrepancy that should be properly managed in
order to avoid disgruntled local employees. Furthermore, they must
be provided with adequate housing, education for accompanying
children, periodic trips home and so on.
Regarding executive-level expatriates, while it is typically far too
expensive to use them for the long term, each situation is different
and must be assessed accordingly. Someone accustomed to the culture
can hit the ground running, while others may need more time to
acclimate. In Brazil, top executive expatriates typically stay from
two to five years so companies abroad can keep a close eye on the
business. Managers are more likely to stay for two to three years.
Ultimately, the parent organization must decide how much control
it wants over the local situation. Can adequate supervision be
provided via occasional business trips? Or is a more permanent or
semipermanent presence necessary to ensure success?
If expatriates are to be used, there are important considerations
beyond cost, as there is a complex set of laws and regulations to
heed. Particular attention must be paid to work authorizations, visas
and tax considerations. Some of the specific questions include: Can
expats be treated differently from local hires? Does the process for
securing work authorizations differ for employees from different
countries? What are the requirements for visas, and how long will
they take to obtain? Use the wrong kind of visa there are three
that guarantee the right to work in Brazil and the foreigner may
be deported, while the company may face problems in obtaining
new visas in the future.
When companies use expatriates, HR plays a vital role in
understanding and successfully navigating the complexities of using
noncitizen staffers and integrating them with local employees. One
method that works well in bringing local employees up to speed
involves selecting potential local managerial talent at the outset
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and sending that team abroad often to headquarters for six

to nine months. There the local talent learns global business norms
in preparation for return to the home country. Then, when it is
time for the startup expatriates to leave, there is a local team in
place that has been trained abroad.
Recruitment and Retention

The global war for talent has shifted its battleground to emerging
markets. As multinationals work toward gaining share in these
markets, the competition for people grows more intense.
The global CEO survey cited the importance of this competition
in its conclusion, reporting, Its no wonder that all of the CEOs we
interviewed mentioned people as a key constraint and a potential
differentiator.
During the due diligence phase, corporate HR, with the help
of local HR talent, should review the broad demographic and
educational environment as well as details of collective employment
agreements and other potentially limiting factors. Companies may
discover country-specific issues associated with finding and retaining
workers. Highly skilled local talent may be lured to higher-paying
jobs in developed nations. Or, local governments that are growing
may hire workers away from the private sector.
Furthermore, special employee contracts or ingrained practices may
pose land mines for multinationals looking to invest in emerging
markets. For example, in one target company in Latin America,
due diligence revealed that a golden parachute clause guaranteed
millions of dollars to executives in the event of retirement or
dismissal without cause. Such a provision can be extremely costly,
and its existence needs to be factored into negotiations.
In another Latin American example, companies sometimes seek
to avoid payment of payroll taxes, vacation obligations or other
benefits by hiring contract employees as autonomous workers
or through outside legal entities. Or they may use profit-sharing
plans, pension plans or stock options in an effort to bypass both
payroll charges and labor rights. This may not be an ideal approach
from a risk perspective. In countries where the practice is actually
illegal, it can cost an unsuspecting organization. During due
diligence and long before implementation, HR should investigate

and inform organizations about such irregularities as well as the
rights and obligations already established between executives and
the company to be acquired.
Regarding negotiations, in preparing offer letters companies should
consider local law and customs, which may carry greater weight
in emerging markets than in more established global business
centers. Letters may need to use local language, including specific
terms, as well as meet a standard format, and there may be legal
requirements concerning probationary periods, overtime and other
elements of the job offer. Employees may be required to sign a
formal contract. HR should ascertain all of these details during
the due diligence phase. Benchmarking will be important, along
with comparing the cost of local administration and outsourcing
certain functions.
Throughout this process, outstanding HR teams will go beyond
the strict realm of laws and regulations and pay attention to local
culture and customs. Employees of high-tech companies in the
Silicon Valley area of California, for example, may be accustomed
to wearing jeans to work and to receiving stock options in partial
compensation. In the more formal culture of Eastern Europe,
jeans would be unheard of. And stock options, while used as
incentives in the United States, may not be understood in other
locations where employees prefer cash. Local HR consultants, if
brought in early, can prevent such inadvertent but potentially
dangerous mistakes.
Note that in order to recruit and retain good professionals,
organizations should develop an attractive and well-designed
remuneration package for each category of employee. In addition,
a career path should be formulated and presented to potential
and current employees.
Along with recruiting talent in the new location, HR will also
have responsibility for developing local HR and benefits policy
documents, producing a mandatory staff handbook and documenting
disciplinary procedures. At this point, too, contracts can be drawn up
with vendors for services such as payroll that can reasonably
be outsourced.
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Conclusion
Expanding into new markets, especially the newest emerging
markets, is a complex but necessary endeavor in this era of global
competition. Your organization must decide if it wants to be at the
bleeding edge to act as the leader, set up training programs
for employees and run the risk that competitors will steal them
from you.
Whether your organization decides to be first off the mark in
entering a newly emerging market or follow a few steps behind, the
complexities inherent in the move can be reduced if HR becomes
involved during the earliest stages of expansion. HR can play a
critical role during due diligence and implementation of specific
projects, and help your organization establish a culture in which
every employee in the international workforce makes decisions
that apply and enhance your core business strategy.
HR Outsourcing and the Bottom Line

Jeff Miller
How a Strategic Approach Benefits Employees

and Employers
We live in an environment where even recent business models are
challenged by the shifting realities of today and tomorrow, and
where the HR industry continues its evolution as a strategic force
despite the increasing complexity of the administrative burdens it
must shoulder. Combine those factors, and the outsourcing of HR
tasks has had to evolve, as well.
HR leaders continue to take on a more strategic role, and yet they
also report that their staffs lack either the skills or the bandwidth
to carry out substantive business contributions. Instead, leaders and
teams alike spend considerable time on tactical or administrative
activities rather than high-level strategic partnering. While the
first wave of HR transformation was mainly concerned with cost
containment and domestic service delivery, global service delivery
is now the priority for firms that want to compete on the global
playing field.
Thus, HR outsourcing has been gaining traction all along as
organizations seek more efficient and cost-effective ways to handle
global HR operations. These companies are realizing additional
benefits, as well. Among the less obvious advantages of outsourcing
on a global basis is that a reputable outsourcing provider should
be able to better monitor and react to legislative changes outside
a companys home geography.
Not surprisingly, the most frequently outsourced operations among
companies worldwide have been benefits administration, training
and relocation, with approximately 50 percent to 60 percent of
survey respondents worldwide reporting that they outsource those
functions. Interestingly, these outsourcing decisions have often
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seemed more opportunistic than truly strategic. (See Typical

Outsourcing Strategies for Human Resources.)
Logically, the opportunity for a truly strategic approach one that
can contribute more holistically to business results and workforce
management rather than merely offload transactional work to
a third party lies in the outsourcing of major tasks, such as
benefits administration. But companies should consider precisely
how much an outsourcing provider can bring to the table.
For example, theres a total benefits outsourcing, or TBO,
solution in which a single outsourcing partner handles the
administration of all health and retirement benefits, from health-
care benefits (including retiree health benefits) to defined benefit
and defined contribution retirement programs. TBO allows for
a seamless administration of these benefits, including vendor
relations, employee communications and self-service tools, all
from a unified technology platform. This can work very well
for organizations within a defined geography, but outsourcers
are still evolving a global service delivery model, so it is yet to
emerge as a panacea.
One company that uses TBO is New York-based CBS Corp.,
which uses a TBO solution for the administration of its U.S.-based
defined contribution and defined benefit retirement plans, along
with its retiree health benefits.
We were looking for an outsourcing solution that would really
enhance the CBS employee benefits experience, said Steve Mirante,
senior vice president of human resources specialty services for CBS
Corp., in explaining why his large media organization opted for
TBO. The company wanted an outsourcing solution to complement
Typical Outsourcing Strategies for Human Resources
In addition to the widely outsourced payroll function, more than 50 percent

of surveyed companies worldwide most frequently outsource the following
HR functions:
Benefits administration
Training
Relocation
and reinforce its overarching HR and talent-management strategies

by aggregating the various CBS benefits programs into a single
source that allows employees to choose the program features
and options that work best for them.
Work in Progress
Clearly, HR outsourcing like HR transformation itself remains
a work in progress. When the concept arose, its first-generation
phase was rather narrowly focused on meeting employer needs and
HR goals; that is, creating greater time and cost efficiencies. The
latest generation of HR outsourcing represents a tremendous shift
from the earlier model namely, moving the employer-oriented
outsourcing of the first generation to an employee-focused model.
How so? Consider that HRs primary strategic goal is to attract,
retain and motivate the best talent. But in order to accomplish
this, human resources requires a compelling value proposition for
current and prospective employees.
Benefits play a huge role in creating value for employees, and
are understandably one of the reasons they work where they do.
And now there is a rising tide of consumerism attached to benefits
offerings, as indicated by high-deductible health plan options and
the accompanying health savings and reimbursement accounts
not to mention increased choices in 401(k) plans.
All of this requires a higher level of employee involvement,
more access to information and a higher level of accountability
than in the past. Next-generation HR outsourcing providers can
bring the products, tools and resources to help employees navigate
the increasingly complex matrix of benefits options. (See Next-
Generation HR Outsourcing. on page 140) The resulting focus on
personalized, self-service benefits and other options for employees
will go a long way toward affirming an employers value proposition,
which directly impacts the attraction and retention of the right
employees. This involves showing employees that the move from
defined benefit plans to defined contribution plans is a positive
change, not a takeaway. It also entails the creation of benefits
programs that attract and retain talent, especially as more older
workers near retirement.
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Next-Generation HR Outsourcing
The evolution of HR outsourcing involves moving from typical outsourcing

strategies to a more holistic approach focused on employee retention and
engagement. This means a shift:
From To
Employer-focused outsourcing, Employee-focused outsourcing,
with emphasis on efficiencies and emphasizing tools and resources
cost control to help workers navigate benefits
offerings and come to a greater
realization of their overall value.
An emphasis on the aggregation The extraction of HR data, refined
of HR data, often residing on into more meaningful information
different systems and reported as to allow for the customization
transactions and personalization of employee
transactions, and to see if patterns
of employee benefits usage calls
for business changes.
The old lift and shift of handing A trusted partner model in

off transactional HR work which the outsourcer has the
institutional knowledge as well as
the advanced capabilities to create
operational efficiencies, enhance
the corporate brand and provide
robust support for employees.
From Aggregation to Extraction

Of course, enhancement of the employee experience will be better
enabled through better data analytics. First-generation HR outsourcing
was built on aggregated data, often residing on different systems and
reported as transactions. The key to the success of next-generation
HR outsourcing is the extraction of that data, so that it may be
refined into meaningful information to allow the customization
and personalization of employee transactions.
This requires, however, real expertise and resources including
the latest technology at the outsourcing-provider level to analyze
data and changes in the benefits landscape in order to provide
the innovative products and services that employees need. The
fact is, many HR departments suffer from a scarcity of resources
and a lack of expertise when it comes to technology, and even
in departments where technology resources may be ample, the
HR imperative is to be more strategic. Thus, organizations should
seek an outsourcing partner equipped not only with the proper

technology, but also the core competencies to master it and
ensure it remains state of the art in order to be more accountable
and more efficient.
For example, when employee data such as a pattern of increased
visits to emergency rooms, a drop in the use of employee assistance
programs or decreased participation in 401(k) plans suggests
significant shifts or trends, the ongoing extraction and analysis
of that data may help to proactively generate products, services
or education programs that can address the potential issues and
solutions. Of importance is that this can be delivered on an individual
employee basis as well as throughout the enterprise.
Through data extraction and analysis, an outsourcing partner can
take a deeper dive into specific behaviors to see if they call for
business changes. For example, a trend of increased emergency-room
visits might generate targeted communication related to wellness
education and the cost of emergency care. Or, a decrease in retirement
plan participation could trigger a corporate policy change related to
401(k) contributions, such as better employee education programs
emphasizing the advantage of pretax contributions. Since benefits
management is only one aspect of the HR function, the outsourcing
provider can proactively deliver where internal HR departments
may be stretched thin in terms of time and resources.
Consider the case of a global company in the health-care and
pharmaceuticals industry that was providing benefits to approximately
27,000 active employees and 20,000 retirees, and working with a
variety of benefits providers. The organizations HR team was spending
more time on benefits administration than corporate strategy. In
fact, it was handling all HR functions in-house, from accounting,
procurement and IT to recruiting and benefits administration.
Faced with multiple vendors and a mounting administrative
workload, the CEO chose to put the focus back where it belonged
on developing and marketing new pharmaceuticals and health-care
products and mandated a move to HR outsourcing. The
company entered into an HR outsourcing arrangement with a
global firm that had already been providing it with a range of
health and benefits consulting services. The decision to move to
142 Global Rewards
a single provider for all employee benefits services was made

easier by the level of institutional knowledge that the outsourcer
could bring to the table.
The decision meant a service delivery model that would integrate
company functions in the following areas: retirement, health and
benefits, the call center and absence management. Its important to
note that upon implementation of this strategy, the employees were
able to receive the same benefits as before, at the same cost in
part because the provider was also tasked with negotiating with
insurance vendors to reduce the companys overall health and
insurance costs. There are now plans to further globalize this
approach and extend fully enhanced benefits servicing the companys
employees in Asia, Europe, the Middle East and Africa.
The bottom line, of course, is that HR executives face difficult
challenges related to the increasing cost, complexity and growing
technology requirements of managing and delivering benefits and
other services to employees. Depending on the size of the company,
HR departments typically find themselves having to deal with multiple
administrators across multiple disciplines, requiring in-house expertise
that companies may not have, or may not wish to have if, for example,
the task involves managing the transition from defined benefit to
defined contribution plans, or evaluating options like health savings
accounts or consumer-directed health plans.
Beyond Lift and Shift

But theres more to effective outsourcing arrangements than
merely handing off the work also known as the old lift and
shift dynamic of HR outsourcings early days. Now, an effective
outsourcing provider is a trusted partner that has the institutional
knowledge as well as the advanced capabilities to create operational
efficiencies, enhance the corporate brand and provide robust
support for employees. The ultimate result is a more motivated and
engaged workforce that views its companys HR service model and
benefits delivery as measures of employer commitment, reinforcing
HR efforts to recruit, retain and mobilize workers worldwide.
And thats where outsourcing especially the TBO model
breaks from its transactional past. Instead of trafficking primarily
in the expectation of lowered costs and increased efficiency,

outsourcing today makes its strongest connection to the ongoing
HR transformation efforts, which are all about driving business
results in a global economy.
The successful outsourcing model will help simplify the complex
world of HR services and benefits, and help employees maximize
the value of their companys offerings by providing them with
timely delivery of accurate information, a single view of all their
benefits and HR services through a Web-based portal, and the
flexibility of self-service transactions. While its true that many
large companies offer their employees a portal for benefits
management, an outsourcing provider should be able to link
to or bring additional capabilities to an existing portal. This
can enhance and extend the range of service for example,
providing education, targeted communication and proprietary tools
for calculating retirement income or other financial needs. Indeed,
companies large and small are finding that the outsourcing of such
information technology with its need for steady maintenance,
upgrade requirements and human-capital overhead is preferable
to keeping it in-house. If anything, theres a compelling logic to
the outsourced solution for benefits and HR services, but success
requires the right partner, one that can provide seamless not
just stitched-together service.
144 Global Rewards
A Best-of-Breed Approach 145
A Best-of-Breed Approach:
Addressing the ROI and Retention Challenges
of Global Workforce Management
Thomas Shelton
Multinational companies recognize the need to adhere to sound

business practices to remain competitive in an increasingly flat
business world. Moreover, they realize the critical and increasingly
important role that expatriate employees play in managing and
maintaining their global operations. In fact, according to Mercers
2008/2009 Benefits Survey for Expatriates and Globally Mobile
Employees, the number of employees on international assignments
has doubled during the past three years as part of a continuing
trend toward globalization.
However, recruiting and retaining such talent may be more challenging
in the years ahead. According to a recent KPMG study, its not just
the global economy that is contracting; so is the global labor pool.
The Global Skills Convergence: Issues and Ideas for the Management
of an International Workforce study indicates that well see a labor
pool contraction during the coming decade that affects countries like
Japan, Australia, Canada, China, New Zealand, the United Kingdom,
the United States and much of Western Europe. Expatriates may be
not only invaluable but also irreplaceable in the near future.
The good news is that domestic and global companies have long
recognized that benefits and compensation are key determinants of
employee productivity, satisfaction and, as a result, retention. The
Mercer survey bears this point out, as the majority of companies
surveyed (86 percent) consider benefits provisions for expatriate
employees a medium or high business priority. Surprisingly, however,
26 percent admit to having no overarching policy for providing
expatriate benefits. Moreover, nearly two-thirds of companies (64
percent) have no specific procedures in place to measure the
success of their expatriate benefits programs.
146 Global Rewards
Findings from the study and survey indicate that multinational

companies face a two-pronged challenge. First, they need to track
various elements of their expatriate programs to ensure consistent
administration and quantify a solid return on investment (ROI).
Second, they need to address the global economic situation by
communicating clearly with expatriates and providing transparency
with regard to their benefits and compensation which, in turn,
can promote retention.
As the Mercer report notes, Establishing an international policy
is essential to stay competitive, maintain geographical consistency
and control costs. Even against a backdrop of economic uncertainty
there is still competition for the best talent. Companies that are
lax in this area will lose out.
To that end, multinational companies should look to a best-of-
breed global workforce management solution that can address such
issues and, ultimately, meet these two pressing challenges.
Making the Technology Investment

Conventional wisdom might dictate that companies would be scaling
back their investment in technology given the times. However, according
to Towers Perrins Eleventh Annual Study of HR Service Delivery and
Technology, global organizations continue to invest and find value
in HR technology systems despite current economic challenges. The
study found that close to one-third of the respondents (30 percent)
have increased their investment in HR-related technologies (which
is somewhat less than the response last year). In addition, only 15
percent of respondents decreased their technology spending in
2008, while the remaining 55 percent maintained their technology
budgets at 2007 levels. Clearly, most global companies understand
the importance of pressing ahead and investing in solutions that can
impact and benefit operations, and chief among those solutions is
one that involves global workforce management.
On a broad level, a best-of-breed global workforce management
solution should offer the following:
Proactive support and client service. Of course, no best-of-

breed solution is complete without a support and client service
component to ensure effective implementation. Support should also

be evident on a proactive basis to ensure the ongoing efficacy of the
solution. For example, periodic follow-up is automatically conducted
in addition to providing immediate response to inbound calls and
e-mails from clients requesting assistance or information. Such ongoing
communication ensures that client needs are addressed and that, if
necessary, enhancements are made to products or services. Note
that it is important that support staff speak your language. That is,
staff should not only be familiar with the technology, but also with
the challenges that multinational companies face in administering
and managing compensation in different industries and countries.
Flexible technology platform. By freeing companies from the complex

and time-consuming burden of technology management, application
service providers (ASPs) help end users better focus on their core
business requirements and avoid the risks of making costly planning
and implementation errors. In addition, new technologies enable
ASPs to rapidly change the solution to meet the specific needs of
each client. It should be possible for vendors to make minor changes
within a few days or even hours, and complex changes should be
measured in weeks, not months.
Data security. While the Internet provides many benefits, the way
in which personal data is transferred through the public domain
and ultimately stored must be thoroughly scrutinized to ensure
the highest level of integrity and security. Additional security
features include the capability to track access to the system and
any subsequent additions or changes that are made. This includes
authentication of the users identity, secure login, encryption, data
filters, secure and restricted navigation, and a sophisticated activity
log. Finally, Safe Harbor certification (www.export.gov/safeharbor)
can ensure compliance with the European Commissions Directive
on Data Protection.
Expense Management
From an ROI perspective, a best-of-breed global compensation solution
can provide organizations with a means to collect data and compile
148 Global Rewards
reports to monitor a number of areas to ensure that the company is

not incurring added expenses. Consider the following:
Tax equalization. When an employee goes on an international

assignment, employers often choose to assume liability for foreign
taxes, which puts assignees in a neutral position during the
assignment. This ensures that assignees neither suffer financial
hardship nor collect a windfall as a result of varying tax structures
in different countries. Employers typically pay taxes in the home
and host location and deduct a hypothetical tax from employees
pay. The hypothetical tax is an estimate of the taxes the employees
would have paid if they had continued working in the home
country. On an annual basis, human resources should work closely
with payroll and other departments to monitor and reconcile
these tax payments to identify instances where employees may
have been overpaid or underpaid in terms of tax equalization.
Assignment budgets. Using a technology solution to manage

budgeted versus actual expenses and compens ation of an
assignment can help identify areas where costs are too high or
which assignment locations cost the company the most. In turn,
this information can help human resources determine how to
reduce expat packages on an individual or geographic basis.
In addition, ongoing monitoring and tracking can serve as an
advanced warning system to indicate when the dollar amount that
was initially set aside for the assignment is being approached.
Compensation Management
Compensation management is key to ensuring the accuracy of
calculations and is critical to holding down costs and improving
ROI. Not only do multinational companies need to account for
exchange rates, but many expatriates also elect a split-pay option
where they may allocate which allowances even what percentage
of each allowance should be paid in their home-country currency
versus host-country currency.
Given the fluctuating status of the dollar and the turbulence in the
economy, many expatriates carefully monitor how their allowances are
distributed and, in many cases, can frequently change the distribution

of their allowances. There are few, if any, regulations governing these
distributions, and multinational companies are more than willing
to extend this flexibility to expatriates to improve retention. Note
also that while expatriates are operating under different policies
and arrangements and in multiple currencies, they are also subject
to different employment laws and taxation structures.
On a feature-specific level, the compensation management
component for expatriates should offer the following:
Easily review compensation and taxation information in various

currencies
Easily identify exceptions or regions with unique practices

through the use of standard compensation templates that highlight
modifications to standard practice.
Easily manage and update employee split-payroll requests
Extract data in a format best suited to each end users needs;

end users can include payroll and human resources.
From an employee perspective, adding an element of

self-service whether its the ability to track benefits, change
compensation allocation or monitor assignments (i.e., view
authorization for travel and expenses) can provide expatriates
with a level of transparency. Moreover, such transparency offers
reassurance by providing a clear picture regarding figures and
calculations and a full understanding of the value of the compensation
being provided. In short, communicating the value the organization
places on each expatriate promotes a sense of commitment and
stability, which can contribute to retention.
Conclusion
The increased competition for global talent, along with the growing
dependency on expatriates, means that multin ational companies
need to adopt a long-term outlook and embrace solutions that
150 Global Rewards
can manage and administer functions that are critical to human

capital management. However, this business need is tempered by
the reality that maintaining an expatriate workforce can be costly
and complex. And, as such, the investment must help validate ROI.
As the Mercer survey report notes, many organ izations miss the
opportunity to improve their offerings and sharpen their competitive
edge by failing to assess the value of their expatriate programs
to the company or the employees themselves. A global workforce
management solution that can validate ROI and serve to improve
retention offers a win-win for the survival and ongoing success of
multinational companies and their expatriates.
Applause Heard Around the World: Designing & Implementing Global Recognition Programs 151
Applause Heard Around the World:

Designing & Implementing Global
Recognition Programs
Marc Wallace, CSCP
During the past several years, there have been a number of articles
and reviews addressing the value of employee recognition as well
as an increased interest in the design of formal recognition plans.
Not surprisingly, there is currently a renewed interest in recognition
programs as challenging economic times force employers to look
for new, nonfinancial ways to reward, retain and enhance the
performance of their employees.
Few question the positive impact that recognition can provide,
but many organizations struggle because recognition is so personal,
and typically so public. These struggles are compounded when
considering a global recognition program that covers the entire
workforce because the perception, value and impact of recognition
vary widely across countries and cultures.
This article focuses on the benefits, challenges and trade-offs
organizations experience when they design and implement global
recognition programs. It also presents a framework and process
that has been used globally by organizations in the design and
implementation of their global recognition program.
Informal recognition has always been a part of engaging and
motivating an organization. It has only been more recently that
organizations have started to develop formalized plans. According
to the Managers Guide to Rewards by Jensen, McMullen and Stark,
these plans typically include:
A formal, written link to strategy (70 percent have this)
Measurement criteria (66 percent)
Formal budgets (the majority).

152 Global Rewards
In Hay Group research conducted with WorldatWork, organizations

were found to primarily view recognition programs as a way to
engage and motivate employees, not as a tool for competitive
compensation. Managers have repeatedly said that it is a powerful
communication tool.
Perils of Going Global

While their benefits are clear, global recognition plans can be very
challenging to design. In addition to the usual challenges faced when
designing global reward programs, recognition programs present
several additional complicating factors. By definition, recognition
is a personal award made public to ones colleagues. How this is
perceived can vary greatly based on culture and background. Two
examples illustrate this:
A Chinese employee of an American organization was awarded

a clock as a token of recognition. The organization did not
realize that a clock can be a symbol of mortality in the Chinese
culture.
A U.S.-based entrepreneurial engineering team created a new

system that made the company millions of dollars, and leadership,
consisting mainly of Europeans operating under an egalitarian
work culture, rewarded the team with a gift certificate for dinner
at a local restaurant.
Given the challenges of designing global recognition programs,

it is reasonable to question the value in taking on this type of
significant initiative when there is clearly the risk of derailing
good intentions. The answer is in two parts. The first are the
benefits around leveraging a total rewards structure that goes
beyond financial forms of reward. The second is the need to
have a global approach to recognition to address:
Reinforcing and sustaining organization values and culture
Global expansion
Compliance and regulatory obligations
Cost containment
Competitiveness and equity
International mobility.
Feedback from organizations that have taken this approach

indicate that:
Contributions that are recognized provide good examples of

organization values.
There was improved clarity and communication about the

organizations values.
Staff around the world felt more interconnected.
Global understanding of pay increased overall.
It is a challenge, however. While it is common to design good

recognition plans for one facility or country where the diversity
of the employee base may be relatively narrow, it is a much
more daunting challenge to design a global plan. In the case of
one organization operating in 15 countries, the leadership team
identified the following challenges to overcome when designing
a worldwide recognition plan:
Reflecting local cultures and values while supporting the

organization overall.
Identifying a common set of criteria that would merit an award.
Working within multiple organizational structures around

the world.
154 Global Rewards
Providing awards commensurate with the level of the job and

appropriate pay polices.
These concerns are consistent with those faced by other

organizations contemplating global recognition programs.
Where to Start?
Organizations that have successfully designed and implemented
global recognition plans have built the right plan structure (the
what) in a highly participative manner (the how).
The What of a Global Recognition Plan

We advise organizations designing recognition programs to consider
a three-tier approach to balance the need for flexibility at a local
level with the global strategic objectives for the plan. This structure
allows the organization to provide recognition at multiple levels
based on the situation. Table 1 provides an overview of the plan.
Level A is typically a quick, local thank you that provides the
flexibility to reward in an appropriate manner on a local level. On the
other end of the continuum, level C is a formal, significant recognition
celebrated on a global basis. Organizations have found this framework
to be an effective way to balance local recognition practices within a
global framework. Table 2 on page 156 provides an overview of how a
recognition program can be designed to work on a global basis. There
are three key parties involved in the management of the plan:
Global leadership team: Global senior executives of the organization.

Often direct reports to the CEO or executive director. Very little
time is required other than review and approval of recipients and
guiding the overall philosophy and strategy of the plan.
Global recognition team: Managers or directors who have been

asked to participate on a rotating basis in the ongoing management
of the plan. For the year that the manager sits on the team, he/
she is asked to contribute two to three days providing guidance
to the program, modifying the program as needed and vetting
nominations in the plan.
TABLE 1
Three-Tier Approach to Global Recognition
Level Description Sample Achievements

A Thank you award Acts of good will
Awarded as nominated Consistently proactive
there is no set timeline
Makes a successful hire or
Reflects transactional referral
improvement or achievement
Promotes a learning
Managed at local level. environment
Manager and nominee can
Goes above and beyond to
determine how award is
achieve a milestone.
provided and degree of
related publicity.
B Intermediate level of award Achieves major milestone on
project
Quarterly or as nominated
Innovative problem-solving
Reflects on going
that generates cost savings
improvement or systematic
achievement Takes on additional
responsibilities
Managed at local level.
Manager and nominee can Exceptional role model to
determine how award is other staff
provided and degree of
Builds partnerships with other
related publicity.
organizations.
C Highest level of award Sustained impact across
the organization
Typically annual, similar to a
presidents or chairmans Consistently displays
award outstanding commitment and
dedication.
Reflects organizationwide
impact or lifetime
commitment
Managed at a global level.
Human resources: Overall steward of the plan and ensures the

program is working as it is intended. Provides oversight and
administrative management and reports on the effectiveness of
the program. Is aware of all awards and activities. Updates the
global recognition team and the global leadership team.
One might assume that in developing this framework that the

philosophy around awardable actions would be the most difficult
to design, but this often turns out to be relatively straightforward.
156
Global Rewards
TABLE 2
Design Overview
Level Nomination Approval Monitoring Oversight

Any colleague of the nominee Global recognition team
can nominate for an award. reviews and reports to global
The nominator must cite: leadership.
Reason
Proposed award.
A Nominations submitted to a Global recognition team Global leadership reviews Global leadership team
global team through a call for reviews the call for nominations global recognition team provides oversight in the
nominations. results and develops a short recommendations. selection of recipients.
list. Global leadership team
determines final recipients
and award.
B Nominations submitted directly Manager of the nominees Global leadership reviews Manager monitors awards and
to manager/supervisors of the reporting unit approves and asks recognition team to reports to global recognition
reporting unit. recognition and award. Manager intervene if required. team. HR provides oversight
determines process for to ensure consistent and fair
providing the award. application of awards.
C Manager monitors awards

given to staff. HR provides
oversight to ensure consistent
and fair application of awards.
Often, some of the most intensive work is in the details. In one

project, the hands-down most exhausting conversation was what
to name each level. The A, B and C levels seem very innocuous
here, but naming them in the spirit and strategy of the organization
really required a significant amount of collective discussion.
The How
Having the right people at the table is critical to making a global
recognition program a success. One organization was very aware
of the importance of its global recognition plan not just being a
U.S. plan exported to the rest of the world. As a result, it chartered
a truly global design team to jointly develop the program. Team
members represented local management globally and consisted of
a combination of line, HR, finance and IT staff. Using a global team
ensured that feedback was received from all continents. At the table
were employees from Australia, Brazil, France, Germany, Kenya,
Mexico, Russia, the United Kingdom and the United States. A subset of
the team was asked to serve as the first global recognition team.
To design the plan, the team took advantage of an annual meeting
already on the calendar. The meeting was extended by two days to
design the plan. The first day focused on design using the three-level
template, and the second on implementation and communication.
Recognition Implementation
Part of the work of the global recognition team members is to
communicate the plan to their home constituencies and monitor/
provide feedback on awardable actions. Many organizations typically
find that:
The initial volume is often low. Teams often spend time designing
administrative guidelines to deal with volume and dysfunction.
In reality, most plans are initially underused and it takes some
prodding to increase the use of recognition.
They must communicate and celebrate achievements. Many

organizations do not focus on the continuing communications
needs of the plan. There should be regular updates. One
158 Global Rewards
organization uses a simple communication method that outlines

the number of awards and estimates the monetary impact of
the recognized achievements.
They must ask nominators to do most of the work. They should

adequately describe the awardable action as well as identify the
award. Many organizations make them responsible for obtaining
the award and providing it to the recipient.
Conclusion
Recognition can be used to highlight significant or interesting
achievements. For-profit organizations can highlight commercial
successes and cost-saving or strategic actions, and provide an
award for a fraction of the achievements benefits. Not-for-profit
organizations can highlight how the organizations mission has
been further fulfilled, such as acres set aside for nature preserve
and additional people assisted.
In addition to the impact, a global recognition process allows
organizations to celebrate achievement and spirit in a very
compelling manner. Employees tend to welcome news from the
broader organization, and the stories across countries are typically
of great interest to most employees.
The right recognition plan can help transform an organization. The
right approach will surmount the inevitable challenges of a global
approach. The result is a level of global awareness, engagement
and impact that was not previously achieved and celebrated.
Retirement Abroad:
Employer and Employee Considerations
Serena Hubbell | Matthew Pascual | Cheryl Spielman
A unique challenge is evolving as the international expatriate popu-

lation of multinational companies begins to near retirement age.
Many individuals who have spent their careers working around
the world find themselves gravitating toward retiring outside their
country of citizenship. What does that mean for employers who
will be required to make pension and/or deferred compensation
payments? And what does this mean to the individuals who depend
on receiving these payments?
Determining tax jurisdictions and residency requirements for inter-
national expatriates is complex for employers and employees alike.
Navigating home country tax rules and, in some cases, host-country
and third-country tax implications can be challenging and requires
a detailed review of the tax law at all levels to ensure global income
reporting compliance. It is vital for employers and employees to
keep careful records on their global movements. Ultimately, it is
this documentation tracking and attention to detail that will make
payouts to retirees a more streamlined process.
Why would employees choose to retire abroad? It is an intensely
personal decision involving many factors that generally fall into
three categories: family ties, familiarity resulting from work place-
ments and financial reasons. This article will focus on the financial
implications of retiring abroad.
The financial implications of where someone decides to retire
carry more weight now than at any other time in recent history.
With the number of workers in the 55 and over age group projected
by the U.S. Bureau of Labor Statistics to grow by 46.7 percent by
2016, representing an astounding 5.5 times the 8.5 percent growth
160 Global Rewards
projected for the entire labor force, the question of where to retire
will be pondered in increasing numbers.
Retiring abroad was once thought of as something only available
to the wealthy. There are now economic reasons for people of a
variety of levels of wealth to consider doing so. Due to the growing
concern that future U.S. federal debt levels will result in higher tax
rates, coupled with the recent recession causing nest eggs to shrink
or disappear entirely, people are looking for ways to ensure their
retirement savings can sustain them for the remainder of their life.
Getting the most out of retirement savings involves a number
of non-tax considerations, such as:
Can you find a less expensive lifestyle in the new country while
maintaining the same or better quality of life?
Will your departure trigger a deemed disposition of any prop-

erty that you own in your home country? As a result, do you
need to sell any assets prior to leaving in order to avoid the
complexity associated with owning and reporting on properties
in multiple jurisdictions?
Medicare only covers treatment in the United States. Does your

supplemental medical insurance cover you in the country where
you plan to retire? Do you need to purchase an international or
country-specific health-care policy?
How much confidence do you have in the local medical system

should you require medical attention? Would you prefer to be
transported back to the United States for any serious illness and,
if so, how will you pay for it?
Can you obtain the proper immigration status in order to retire

in your chosen country? Are you planning to live there just part
of the year or become a permanent resident?
What are the cost of living and inflationary issues that will affect
your standard of living in your retirement location?
Has there been a history of dramatic currency fluctuations that

will impact your U.S.-dollar-based retirement savings?
How much of your money can you move out of the United States
into a local currency without incurring excessive exchange fees?
Will your new country allow for the regular inflow and outflow
of money?
Have you given any consideration to estate tax planning and

how retiring abroad may impact your assets in the United States
and the host country in the event of your death?
Maximizing retirement savings also requires retirees and prere-

tirees to do some strategic tax planning. Thankfully, the United
States has tax treaties with more than 50 countries that are not
only large trading partners but also tend to have larger expatriate
populations, making tax treatment more streamlined.
Pension Plans
In the case of a U.S. citizen or green card holder, retiring overseas
and maintaining citizenship or permanent residence status in the
United States will require pension distributions to be taxed at the
source at the time funds are distributed from the plan. All pension
plans are treated differently, as such distributions and tax treatments
are based on the type of plan in which the individual participates.
Typically, depending on the type of pension plan, lump-sum taxable
pension distributions will be subject to U.S. federal tax withholding
at time of distribution at flat statutory rates, currently 20 percent,
25 percent or 35 percent. These pension distributions are taxed
at ordinary income tax rates. In the case where an individual is
receiving regular (monthly, semimonthly, etc.) distributions from a
U.S. pension plan, the applicable U.S. federal graduated withholding
rates would apply. State tax will also apply for an individual main-
taining a state tax residence. Some foreign jurisdictions may also
try to tax the payments exclusive of foreign tax credits, which in
general could result in double taxation, but there could be excep-
tions depending on the fact pattern and countries involved.
162 Global Rewards
With regard to an individual who renounces U.S. citizenship or

relinquishes green card status, the withholding tax on the pension
would differ depending on the type of plan. In accordance with
expatriation rules in the Heroes Earnings Assistance and Relief Tax
(HEART) act of 2008, the tax treatment of qualified and nonquali-
fied deferred compensation will vary.
In a case where the compensation is considered an eligible deferred
compensation item (qualified retirement plans), a 30-percent federal
withholding rate would apply to the payment. This would apply to
the extent it would be included in the individuals gross income
as if the person were subject to U.S. tax as a U.S. citizen or tax
resident. For those deferred compensation items that do not fall
under this umbrella, the mark-to-market rules would apply as if
the payment were received on the day before the expiration date,
and thus regular U.S. income tax rates would apply. This treatment
would also apply to individual retirement accounts.
Those retirees living in a foreign country and receiving a pension
or annuity paid by a U.S. employer may claim an exemption
from withholding of U.S. federal income tax under a tax treaty by
completing Form W-8BEN and delivering it to their former employer.
It will therefore be critical for the former employer to implement
or maintain a comprehensive tracking system for these requests.
Stock Options
Employer tracking systems must be sophisticated enough to capture
where employees are at any time in the life cycle of stock-based
compensation. Depending on the foreign location, they may demand
to know where the employee was living when the equity was
granted, vested, exercised or sold. The tax rules related to stock-
based compensation vary considerably by country. Employers have
attempted to mitigate this by assessing withholding at the source
based on the location in which the assignee was working for
the life of the stock option. As a result, the employee will pay
the tax in the appropriate location and reduce the risk for tax
assessment. Many countries, such as Japan and Germany, have
already started to aggressively audit stock-based compensation.
International employees should consult with their employer and
tax preparer to further understand the tax impact of stock-based

compensation within their assignment locations.
Social Security
The United States has Totalization Agreements (TAs) with many
countries. TAs are international social security agreements that
can be advantageous for people who are currently working and
those who previously worked in the country in which they will
be retiring. For current employees, it eliminates the dilemma of
making contributions to the social security systems of both the
United States and the host country. Retirees who have worked in
the U.S. and abroad and paid into both systems will benefit from
payments from both systems should they meet all the require-
ments. However, to do so, individuals must file a claim for benefits
at both any social security office in the United States and in the
foreign country.
The purpose of these agreements is to enable companies with
internationally mobile employees to maintain their competitive posi-
tion with foreign operations by reducing their cost of conducting
business abroad.
Employers should work closely with their international employees
to ensure they are aware of those employees planning to retire
outside of their home location. This will support both the employee
and the employer in planning to ensure global compliance in
regard to retirement income and, in some locations, planning the
distributions in the most tax advantageous manner.
164 Global Rewards
Beyond Borders: Mastering Pension and Benefit Issues Transactions in Global M&A 165
Beyond Borders:
Mastering Pension and Benefit Issues
Transactions in Global M&A
Adam Rosenberg | Noam Lakser
When credit markets stabilize, more companies likely will again

seek growth through acquisition. Many times, that means growth
outside their home geographies or customary territories. Such
cross-border mergers, acquisitions and other transactions have
increased markedly in recent years, and one result of this activity
is an increased focus on the effect pension and related benefits
issues can have on transactions.
While difficult enough due to local market regulation in most
cases, the picture is complicated by global investment markets and
widespread underfunding of defined benefit pension plans. If the
trend in cross-border M&A does continue, company-management
teams including total rewards professionals, financial executives
and CEOs will need to deal increasingly with the complexities
of retirement provision around the world. This paper sets out a
process for managing the retirement-benefits implications in such
cross-border transactions.
Global Practices
A look at the general employment environment worldwide is a
good place to begin. One of the more revealing comparisons is
to look at the United States market compared to the remainder of
the world; indeed, some stark differences are evident (Figure1
on page 166 identifies some key employment-conditions inside
and outside of the United States). For example, in the U.S., the
majority of benefits are employer-sponsored and not mandatory;
outside the U.S., benefits such as health care tend to be either
government-provided or mandatory. Also in the U.S., changes in
the terms and conditions of employment or benefits decisions can
166
FIGURE 1
Global Rewards
Employment Conditions: U.S. versus Non-U.S. Practice
Employment Agreements U.S. Practices Non-U.S. Practice

Unionization Less common than in other industrialized Widespread in many non-U.S. countries
countries. Typically covers more blue collar than
office/ technical/professional workers.
Pay for performance A widely employed incentive Less widespread than in the U.S., but growing in
popularity
Workforce reductions Relatively easily and quickly achieved there is Long and difficult process in many jurisdictions,
a view that the overall labor force benefits from frequently dictated by local statute there is a
flexibility in undertaking workforce changes. view that social responsibility is key in workforce
decisions
Nature of benefits provision The majority of benefits are sponsored by the A number of the benefits are mandatory or
employer and are not mandatory. primarily government provided (e.g., health).
Changes in terms and Except where there is a union, changes in terms It is often impossible for the employer to
conditions of employment and conditions of employment or benefits do unilaterally change terms of conditions of
not have to be agreed upon or approved by the employment. Employees or their representatives
workforce or its representatives. (for example, works councils) have co-
determination rights.
Decisions on plan transfers In the U.S., decisions on the transfer of plan liabili- Pension-plan trustees influence decisions about
and future benefits ties and future benefits can be made unilaterally transfers of plan liabilities and possibly future
by companies. benefits provisions as well.
be made unilaterally by companies, whereas this is often not the

case elsewhere.
When it comes to Europe, the European Unions Acquired Rights
Directive is explicit in requiring the buyer in an asset deal to
continue to guarantee that the workforce of the acquired company
will continue to enjoy the acquired rights of the employees; in
other words, salary, seniority and other terms and conditions
of employment must continue largely unchanged. (See Europes
Acquired Rights Directive) It is therefore difficult, though not
impossible, to make changes to those inherited terms once a deal
has been completed.
Global differences only compound the fact that many financial
considerations must be taken into account when evaluating the
effect of pensions and related benefits on an M&A transaction.
Europes Acquired Rights Directive (The Directive)
The European Union issued the Acquired Rights Directive more than 30
years ago. It requires the buyer in an asset deal (as opposed to a share deal)
to step into the shoes of the seller from an employment perspective. All
acquired rights of employees transfer with the business; salary, seniority
and all other terms and conditions of employment must largely continue
unchanged. It is difficult, though not impossible, to make changes to the
inherited terms after the deal has completed.
In line with standard EU legislation, each country must adopt the directive
in line with other local legislation. The U.K. spent a lot of time on this
and developed and adopted the Transfer of Undertakings Protection of
Employment (TUPE) regulations. These were first issued in 1981 and
updated several times since then. TUPEs intricate and complex pension-
benefits requirements are beyond the scope of this paper.
No additional employee protection is triggered upon a share transaction,
as contracts of employment in these deals are automatically inherited by
the buyer. This has led some to comment that there is more employee
protection under asset-based deals than share-based deals, though this
was never the intent of the legislation.
The Directive imposes information and consultation obligations on both
buyer and seller, though typically the obligation falls on the seller. At a
minimum, these communications to the employees should include:
The business rationale for the deal
The target completion date
Any consequences on benefits plans
Planned workforce reductions.
168 Global Rewards
But organizations must also keep in mind the need for consistent
employee communications, and take into consideration the entities
respective corporate cultures that are being combined, so that
changes to pension and benefits strategies are developed in the
context of organizational behavior.
On the most basic level, companies must be rigorous in gathering
information about pension plans and liabilities from subsidiaries
and operations in different countries.
From there, identifying the potential financial ramifications must
lead to a proper course of action and the establishment of a Day
One strategy for pension and other related benefits.
Human resources executives and total rewards professionals are
always well-served by this type of financial information, even
though it may not be, strictly speaking, within their operational
orbit. But a keen awareness of the details of global pension-plan
liabilities can help HR leadership to add more strategic value to
the organization, and to provide more-informed business advice
during the complex transitional periods of M&A activity.
Pension Liability Differences in Key Geographies

As noted, anyone who assesses the financial elements of a deal will
be aware that the financial treatment of defined benefit pensions
and similar benefits liabilities can differ radically from country to
country. Individual country accounting standards may vary markedly
from global accounting standards when defining what constitutes a
pension liability, how any such liability is measured and the level
of required funding.
For example, under the German tax valuation (which is also
often used for German accounting requirements), future salary-
increase projections are not allowed for at all, although international
accounting standards typically require an allowance for future pay
increases. This treatment makes for a significant difference in the
liabilitys size. Differences also exist between formal plan rules and
typical practices. In Brazil, for example, defined contribution plan
benefits are sometimes enhanced or uplifted for employees
who are made redundant; this practice is also applied, in some
cases, for normal retirements or those leaving the company for other
reasons. When looking at a Brazilian company, it is important to

look at the history of such uplifts, as this can create an expectation
that they will continue to be applied.
Also, early-retirement provisions in many countries for example,
the U.K. may be discretionary. However, if in practice such
benefits have been granted for many years, they may have become a
constructive obligation of the company, and changing past practice
may be difficult.
Mortality assumptions are also a key item when considering any
plan deficits. Longevity is increasing faster than anticipated in
many parts of the world, and the resulting mortality assumptions
can have a material influence on the liability values. This is a hot
topic at the moment in the U.K., in particular, causing a lot of
debate in transactions.
Other regulatory controls can also govern pricing and risk. For
example, in 2005, the U.K. Pensions Regulator put in place a process
whereby companies can go for clearance for certain corporate
events. Obtaining a clearance statement from the regulator is a
voluntary process for those considering corporate transactions
where there is an underfunded defined benefit pension scheme
(The Pensions Regulator 2008).
But a clearance statement is not approval of a transaction such
as an acquisition or merger; rather, it gives assurance that the U.K.
government will not use its anti-avoidance powers in relation to that
transaction. Initially, most companies used this clearance process,
the benefit of which was assurance that the regulator would not
come back at a later date in relation to the matter that had been
cleared. The quid pro quo for this protection was typically more
cash paid into the pension scheme (program).
During the past year or so, however, bearing in mind that clearance
is optional, an increasing number of companies have opted to forgo
it to avoid paying extra cash into their pension schemes. Revised
clearance guidance has recently been published.
In another U.K. regulatory example, almost all defined benefit
pension plans are subject to Section 75 of the Pensions Act of 1995.
This legislation (supplemented by regulations) provides that when
a pension plan is ended, the plans employers are liable to fully
170 Global Rewards
fund the plan so that all members benefits can be bought out in
full with an insurance company (The Lawyer.com 2008). A Section
75 debt typically can be triggered on the sale of a companys shares.
It requires a cash payment to the sellers pension plan to cover the
shortfall for the part of the pension plan related to that employer.
To put Section 75 debt into context, in a recent deal the accounting
deficit shown in the latest company accounts was 100 million (U.K.)
($185.5 million in U.S. dollars). Deal completion would have triggered
a cash payment of 500 million (U.K.) ($927.5 million in U.S. dollars),
or five times the original deficit. The reason for this is that the
assets in the plan were several billion pounds, and small changes
in actuarial assumptions largely influenced liability values.
Logic Of The Deal

While it is important to understand the employees, their reward
structure and the interaction of any contracts or unions, initial analysis
is often heavily focused on the financials. If the numbers dont add
up, then the logic for the deal may need to be reconsidered.
Focusing on the accounting numbers is made more difficult
as pension assets are not always counted under the definition
of pension assets in corporate accounts; they may be held or
hidden elsewhere on the balance sheet. Examples are found in
German reinsurance contracts, bond issues in Austria and U.S.
rabbi trusts.
Outdated valuations of plan assets and liabilities are also commonplace.
Complete actuarial valuations are often required only once every three
years for Canadian defined benefit arrangements, for example.
It is important to remember that defined benefit plan portfolios are
subject to market conditions that can reduce their asset values relative
to liabilities in the weeks and months following a financial assessment.
Many savvy buyers deal with this problem by asking their advisers to
periodically update pension figures to reflect changes in investment
markets to ensure realistic valuations during price negotiations.
Other employee benefits programs may be accounted for at the
division level as defined contribution-type plans (that is, in cash
terms), but at the corporate level as defined benefit plans. This
can be solely the result of historical reasons; where full defined
benefits accounting has not been required at the divisional level,

such figures may not be subject to any full-audit process.
Also, keep in mind that defined contribution plans sometimes
offer defined benefits features such as minimum guarantees on
investment returns (for example, in Switzerland). Further, it is
important to assess whether the employer retains any risk for
pensioners, for example in relation to increases to pensions in
payment that may depend on the profitability of the company in
countries such as Germany.
Buyers must carefully consider (before and after the deal is

signed):
The actual benefits promise made to individuals
The corporate structure governing the plan
How these affect the target companys financials.
Benefits plans considered immaterial are sometimes excluded from

the financial results presented for target businesses. Buyers should be
wary and determine for themselves if these plans are truly immaterial.
It can be challenging to obtain detailed information on such plans once
the decision is made that they are below the materiality threshold.
Executive benefits are sometimes hidden in separate plans not
administered by, or even known to, the HR departments of local
countries. These plans may only be accounted for in the parent
companys consolidated accounts. This is common practice in the
U.S. and Canada, Japan, Ireland, the U.K., France, Italy and Spain,
among other countries.
Past-Service Obligations
Dealmakers must also understand how to handle past service
obligations as they move toward the post-closing phase. Regulations
governing these obligations vary by jurisdiction.
For example, in the U.K., a group of employees transferring
out as the result of an acquisition is automatically vested in the
172 Global Rewards
sellers pension plan (as an aside, this can leave employees with
a lower benefits expectation, if any benefits link to final pay is
lost). In Germany, the opposite can be true: Past obligations for
the pensions of active employees automatically transfer with the
acquirer. In Canada, the matter is negotiated between the buyer
and seller.
The type of acquisition can also affect the handling of past-service
obligations. If the acquirer is buying all the shares of a company
with stand-alone benefits plans, things are straightforward: All
obligations simply transfer on the deals completion.
The situation is more complicated when only part of a company
is acquired; in these cases, the buyer may have to carve out the
assets associated with benefits, transferring them to the buyer
along with the target employees. It is worth noting that past-service
obligations in some countries may include postretirement medical
plans as well as reserves for long-term disability payments.
Preparing For Day One

Mastering the challenges of complex pension and benefits requirements
and liabilities will put a total rewards professional on the path to
a profitable transaction. The outcome will be even better if the
following steps are taken in advance of Day One:
Get the Transitional Services Agreement (TSAs) in order.
Show respect for employees.
Prepare a Day One workplan/issues tracker.
Get the TSAs In Order

Before the deal closes, everything that will need the sellers support
should be put into a TSA. A TSA describes the services payroll,
IT, health-care plans and so forth that will be provided by
the seller for a particular time period at a stipulated price. TSAs
are generally needed when the people responsible for planning
the transition have too little time to design programs or systems
for the new organization, or to properly investigate off-the-shelf
programs available from private vendors (for example, in the U.S.,

401(k) retirement plans).
Show Respect for Employees

Another Day One problem to avoid is the short-circuiting of benefits
for employees who are at the doorstep of enhanced benefits (for
example, early retirement eligibility). Apart from the legal and
financial risk that the courts may take a bite out of the acquirer
(or seller), actions that short-change these employees can shift
company morale squarely against the deal and against its managers.
By identifying individuals who would be disadvantaged by the
deal and ensuring that they are treated fairly, these risks can
be avoided. Fairly, in this case, may mean continuing a practice
of allowing future salary increases into past service accruals and
taking care that those whose benefits are about to vest do not lose
their vesting opportunity.
Prepare a Day One Workplan/Issues Tracker

Most transition managers have less than nine months to prepare and, in
some cases, significantly less than this. To ensure a smooth transition,
the authors recommend focusing on the following key issues.
Follow the terms of the sale and purchase agreement in both

letter and spirit.
Monitor operation of the TSA for effectiveness. But remember,

the TSA has an end date, so continue implementing the HR
programs and systems that will replace it.
Unless a decision is made to stop certain benefits, ensure that

benefits coverage is continuous.
Ensure that payroll provider and supporting technologies

have been implemented. Missing payroll dates would be a
disastrous consequence of a transaction. It can send a clear
message of disarray in the new business and is to be avoided
at all costs.
174 Global Rewards
Finalize all changes to retirement coverage in the months following

closing. In an ideal world, all changes should be agreed to in
advance of closing, but there is often a period after closing when
these benefits can be finalized. All transfers and management
of pension assets must be in line with the sale and purchase
agreement; in some countries, this needs to be considered prior
to Day One, and in others, it will not need to happen until after
Day One.
Future Benefits Strategy

In every corporate M&A transaction, employees will want to know
as soon as possible how their benefits programs will change and
whether they will be the same as or different than those provided
in the past. Much will ride on these decisions, therefore the analysis
must quickly move from past to future and to the costs associated
with the benefits strategy anticipated by the new organization.
Two main models to bear in mind when considering how ones
future benefits strategy will support the new business strategy
going forward include:
1. I nvestment model. This model is often used by financial buyers

(private equity firms), who typically acquire and run a company
with the intention of exiting profitably in three to five years.
Under this model, the targeted companys existing benefits
plans are normally left in place for the period of ownership.
There is typically some investigation into plan costs, with an
eye toward synergies that might be captured or inefficiencies
that might be reduced.
2. A
ssimilation model. This approach is used more frequently when the
purchase is for strategic rather than financial reasons (consolidation,
geographic expansion, extend product portfolio, add intellectual
capital, etc.). The buyer looks for ways to integrate the benefits
plans of the target business with its own. Full integration is often
attempted when the target is small relative to the buyer and benefits
can be easily assimilated into the buyers existing programs. If, on
the other hand, the buyer and the acquired company are of equal
size in a particular territory, or if the acquisition strategy involves

entering new markets where the buyer has no current presence,
then it may be appropriate to create new benefits programs for
the combined entity going forward.
When constructing a timetable for benefits change, insured

benefits for example, life and medical insurance should be
a priority. A lack of continuing coverage after the deal closes can
create large costs if an employee should die or go on long-term
disability while awaiting coverage. The buyer and seller should
work together to ensure that appropriate coverage is put in place
on Day One.
Retirement plans, in contrast, can often be handled retrospectively
as long as all necessary agreements have been reached regarding
past-service obligations. The same goes for compensation and career
programs; those can generally wait until after the closing as long as
payroll dates are synchronized. This is not true of executive benefits.
Acquirers should lock in the leadership they need to effectively
manage the business and achieve its strategic objectives.
Though the issues identified in this paper are challenging in
cross-border transactions, the authors have found that dealmakers
around the globe have demonstrated that these challenges are not
insurmountable. Maximizing a deals success requires attention to
due diligence, the ability to cope with geographic differences in
employment conditions, and a solid understanding of the local
market employment policies and regulations.
176 Global Rewards
177
Talent | Management |
Strategy
178 Global Rewards
Think Global Act Global: Integrating International Assignments into Talent Management Programs 179
Think Global Act Global:

Integrating International Assignments
into Talent Management Programs
Esther Hahm
An organizations commitment to enhancing its people is directly

related to its ability to attract, retain and develop talent. A company
with existing or future global expansion plans must extend this
thinking to its internationally mobile employee population. If
executed properly, the company will benefit from the international
experiences and knowledge this employee population brings to
the table. In turn, employees can use these experiences to further
their careers.
Recognizing that a growing number of global organizations
are driven to improve the return on investment for international
assignees and the larger talent management cycle, the authors
company, Ernst & Young, conducted a survey to discover how
talent management and global mobility programs are being aligned
and integrated with overall business strategy. An analysis released
in spring 2010 of responses from more than 340 HR, finance, risk
management and C-suite executives from global Fortune 1,000
companies showed companies that aligned their talent management
programs with their business strategy enjoyed a 20-percent higher
annual return on equity (ROE) over a five-year period than those
that did not. Returns were even more dramatic among those
companies that integrated talent management programs, processes
and IT systems/IT processes on a global scale. These companies
experienced an ROE over five years that was 38 percent better than
those that did not. Simply put, as a highly sophisticated aligned
and integrated program, talent management produces tangible
results on a global scale.
180 Global Rewards
The definition of talent management is really about more than

managing physical bodies that come to work each day. It is about
managing human capital, a phrase that describes an intangible
resource comprising your employees knowledge, abilities, capabilities
and skills. Technologies, products and strategies can be replicated,
but it is people who enable a company to innovate, differentiate
and succeed. Harnessing that human capital requires elevating
your view of talent management to a more strategic level.
A highly sophisticated talent management program requires
both alignment of the companys values and strategies to the way
talent is managed, and integration to ensure all components of
your talent management programs are tied together across the
organization. Say, for example, your organizations values and
strategies are designed to increase personal accountability, risk-
taking and teaming. Do your talent management programs support
those goals? Does your organization evaluate and reward risk-taking
and teaming behaviors? Do you try to define competencies that
support these behaviors in the recruiting and hiring process and
provide leadership development to foster them in your organization?
Do you understand what competencies will be required going
forward, and do your employees have the necessary skill sets to
match? If so, your talent management programs are aligned with
your business strategy.
Integration means that the output of one component of your
talent management program is the input of another, creating an
interlocking, self-reinforcing and internally consistent whole. Do
you use information from workforce analytics to identify high-
performing employees and key groups of required skills? Do you
then use that information to develop the appropriate training,
development, succession planning, and compensation and benefits
programs? Are all these programs coordinated on an enterprisewide
basis? If so, your talent management programs are integrated.
This article explores the survey results, as well as how global
mobility has changed; the repercussions of not integrating
international assignees into an overall talent management framework;
and how companies can begin developing an effective talent
management program.
The Changing Face of Global Mobility

Without regard to geographic location, most organizations recognize
that they operate in a global marketplace. In fact, nearly two-thirds
of the Ernst & Young survey respondents (60 percent) were identified
as having at least some internationally mobile employees (see Figure
1), while more than one-third (36 percent) have more than 100. (Note
that percentages for all survey respondents were rounded up or
down to avoid using fractions when reporting final data. In addition,
not all survey respondents answered all of the questions in the
survey and, therefore, percentages may not add up to 100 percent.)
The bottom line is whether they are multinational corporations or
smaller companies that occasionally send employees on an overseas
business trip, organizations have become international to a degree
that would have been unimaginable 20 years ago. As a result,
managing international assignees has become a far more strategic
exercise. Companies must have a better understanding of cultural
differences, legislative and regulatory issues, demographic trends and
labor laws which vary from one jurisdiction to another while
also trying to effectively integrate mobility programs and the affected
employee population into their enterprisewide talent management
programs.
FIGURE 1
Internationally Mobile Employees in the Workforce
Do you have internationally mobile employees (employees working

in a location other than the country in which they were hired?)
1% Dont Know
60% Yes
39% No
39% No 60% Yes
1% Dont Know
182 Global Rewards
Realizing the need to manage the increased complexity brought

about by globalization, many organizations have established
mobility programs for traditionally recognized assignments (see
Figure 2). More than half (52 percent) have policies for short-
term international assignments, while 60 percent have them for
longer-term expatriates.
Note that the economic slowdown brought about challenges for
companies that grapple with the issue of getting the most out of their
FIGURE 2
Mobility Program
What policies for internationally mobile employees exist in your organization?
Long-term policy
60%
(more than 12 months)
Short-term policy
52%
(less than 12 months)
Transfer policy 49%
Foreign local hire policy 30%
Commuter policy 29%

(local talent travels on global projects)
Regional policies 25%
All of the above 8%

FIGURE 3
Economic-Driven Changes to Mobility Programs

Which of the following have you done as a result of the current economic
downturn?
Reduced the number of new international

assignees within our organization 43%
Revisited expatriate
30%
policies to reduce costs
Increased local hiring 28%
Reduced international
23%
assignment timeframes
Suspended international
16%
expansions
None of the above 28%
Dont know 8%
global mobility programs (see Figure 3). The survey showed that many
reacted by reducing their number of international assignees (43 percent),
reviewing assignment policies for cost-reduction opportunities (30 percent)
or making greater use of local hiring (28 percent). Additionally, although
greater opportunities can be realized by incorporating international
assignees into the overall corporate talent management programs, findings
showed these opportunities go largely untapped. Nearly two-thirds of
survey respondents (63 percent) said their organizations lack standard
policies for managing the careers of international assignees or do not
know if their organizations have such policies. Nearly one-third (32
percent) said their organizations have no consistent talent management
strategy for internationally mobile employees, while almost half (47
percent) place little or no importance on helping returning expatriates
reintegrate into the organization (see Figure 4).
You Dont Know What You Have Until Its Gone

The consequences of these deficiencies are serious and can have
a long-term financial impact, making employees reluctant to go
abroad, and companies reluctant to send them. For example,
if employees return from a posting abroad to find they cant
use what they learned overseas or that their organization
doesnt value the experience they acquired there they will feel
FIGURE 4
International Assignment Process Priorities

Please rank the following phases of the international assignment process in terms
of priority and where the majority of your organizations efforts are focused.
54%
Selection of assignments 37%
9%
25%
Preparation 56%
(predeparture) 19%
50%
Assignment 44%
5%
17%
Repatriation 54%
29%
10%
Post-repatriation 43%
47%
Very important Important Not important

184 Global Rewards
disheartened at best and disillusioned at worst, given they take

international assignments to advance their careers. Furthermore,
too often, international assignees return to find that things changed
while they were gone, and not only are they expected to catch
up without missing a beat, but colleagues who remained at home
might pass them by. If, as a result of these issues, international
assignees feel unappreciated, they may take their new knowledge
(acquired at company expense) and defect to a competitor, an
unfortunate consequence that is often difficult to appreciate until
that employee is gone. Global organizations must not discount the
impact of lost productivity that may come as a result of turnover
or the lost investment in employee development.
Many organizations, however, have difficulty computing an accurate
return on investment (ROI) for employees posted overseas. HR
departments perform some calculations, but international postings often
fall outside of the companys main talent management platform and tend
to be fragmented across multiple vendors and geographic locations. In
fact, the survey showed that only 37 percent of international corporate
programs are coordinated across the enterprise, and 34 percent have
no talent management programs whatsoever for international assignees
(see Figure 5). Because no single group is in control, companies often
cannot track the total cost of their expatriate programs, which may
creep quite high.
FIGURE 5
Management of Internationally Mobile Employees Careers

Are the careers of internationally mobile employees managed on an enterprisewide basis (as
part of an overall strategic talent management program)?
10% 37% Yes, they are part of an

enterprisewide program
19% No, we coordinate talent
37% management of global employees within
the international assignee program itself
34% 34% We do not have a standard talent
management program for international
assignees
10% I dont know
19%
Attracting and Keeping Talent in a Growing Economy
During the past decade, Brazils economy has evolved from one with a primarily
agricultural base to one powered by manufacturing, construction, mining, oil and
gas. Combined with demographic changes, this shift in the countrys economic
base has presented Brazil with some formidable challenges. One of them has
to do with Brazils younger-than-average workforce. Its members are looking for
exciting careers, sparking a talent war among companies there. Many compa-
nies have responded by creating two-year trainee programs that are aimed at at-
tracting and retaining Generation Y employees. These programs rotate new hires
throughout different business units and assign a senior executive to serve as a
mentor or counselor. Some companies incorporate an international assignment
into these programs a powerful tool for attracting and retaining key talent. The
young employees view international assignments as a stepping stone to their
career development. Many organizations also use international assignments to
develop the careers of fast-track, high-potential employees.
Brazilian companies are increasingly seeking to expand into other markets in
Latin America, North America and Africa, which is leading them to a more inter-
national perspective. Among South American respondents to the Ernst & Young
survey, close to half said their companies had international assignment programs.
But many programs are not yet sophisticated nor aligned with the companys
overall business strategy. This suggests a tremendous opportunity to make the
programs far more effective and productive through greater centralization and
integration, as well as to focus on the needs of repatriating employees to ensure
key talent does not leave the organization. Planned workforce reductions.
Taking Action: A Program That Works For You

Considering the benefits and consequences of integrating
international assignees into an overall talent management framework,
companies would do well to develop effective talent management
programs that meet their needs. Either with the aid of an external
consultant which would provide you with access to best
practices or internally, companies should ask three key questions
to begin the process:
1. Have your talent management programs been reviewed as part

of the overall business strategy?
What skills do you need, now and in the future?
Where do you need those skills (by business unit

or geographically)?
186 Global Rewards
What are the demographics of the workforce?
2. Does your company really understand what drives its workforce?
What motivates the companys employee population?
How do you use the information from entry and exit surveys?
3. H ow have these strategies been executed?
Do you have the right strategy for program execution to successfully

achieve the larger business goals and boost performance?
Do you have the right people in place to execute against

the strategy?
Have you considered the different talent management strategies

within the emerging markets?
Conclusion
Although the economic downturn prompted some companies to fill more
international assignments with local hires, the long-term trend toward
greater global integration means that overseas postings will continue to
play a key role in talent management for most midsized to large companies.
Organizations that want to run effective talent management platforms
should think about how to incorporate their international assignments
across the entire firm, to manage global talent systematically rather than
on a hit-or-miss basis. This will enable them to centralize management
of the programs and, moreover, to accurately measure their return on
investments. Whats more, increased coordination will undoubtedly aid
retention if returning international assignees feel their experiences and
global perspectives are appreciated and even celebrated, as they will
be less tempted to take their knowledge and talents elsewhere.
Companies that include international assignments in their overall
talent management framework will benefit from the investments
made in employees, rather than losing that value when their people
move elsewhere.
Best Practices for Integrating Talent Across

Cultures & Geographies
Rajiv Burman, CCP, CHRP, SPHR
Acquisitions are notoriously challenging, and we are all familiar

with the very public failures of such transactions. Integration and
obtaining synergistic value between two organizations is fraught
with challenges. When you add cultural dissonance the entire
process is at tremendous risk.
In recent years, companies in the BRIC a term coined by
Goldman Sachs labeling Brazil, Russia, India and China countries
have used their newly acquired wealth and confidence to acquire
distressed or strategic assets in the West. These acquisitions have
been in commodities (oil, steel, gas and minerals), high technology
and pharmaceuticals. Acquisitions have provided companies with
an easier entry into unknown markets and overcome brand or
legislative barriers.
Acquired G7 (a forum consisting of the seven richest countries:
France, Germany, the United States, Canada, Italy, Japan and
the United Kingdom) companies include the Anglo-Dutch steel
manufacturer Corus Group, which was purchased by Indias Tata
for US$6.2 billion following a BRIC-led competitive bid between
Tata and Companhia Siderurgica Nacional of Brazil, and IBMs PC
business, acquired by Chinas Lenovo Group for US$1.25 billion.
Among other BRIC nations, Russias Severstal recently agreed to
buy Esmark Inc.s extensive steel manufacturing operations in the
United States for US$775 million. Indias Tata Chemicals acquired
General Chemical Industrial Products Inc. in the United States for
just over US$1 billion in 2008, and Infosys signed an agreement
to acquire McCamish Systems for US$38 million.
These acquisitions are not isolated examples. Both the KPMGs
Emerging Markets International Acquisition Tracker and research
carried out by the United Nations Conference on Trade and
188 Global Rewards
Development report that BRIC-nation companies are increasingly

willing to engage in mergers and acquisitions activity with G7
companies. Of Fortunes ranking of the top 500 global companies,
62 are from emerging markets, up from 32 in 2003. Despite the
global downturn, 41 percent of the privately held businesses plan
to grow through acquisitions in the next three years to acquire
established brands or new technology, according to the 2009
International Business Report by Grant Thornton. In 2009, BRIC
companies account for 15 percent of the world economy and 40
percent of the world population, and hold 42 percent of global
currency reserves.
There will, invariably, be specific areas of friction between the
companys new head office and the newly relegated G7 branch
office. According to a KPMG study, Eighty-three percent of all
mergers and acquisitions [M&As] failed to produce any benefit for
the shareholders and over half actually destroyed value. Interviews
of more than 100 senior executives involved in these 700 deals
during a two-year period revealed that the overwhelming cause
for failure is the people and the cultural differences. Difficulties
encountered in M&As are amplified in cross-cultural situations,
when the companies involved are from more than one country.
Global HR professionals have an opportunity to build solutions
and create business success through successful integration. This
can lead to recognition at the board level for the value provided
by the HR function.
Managing Integration of Acquisitions

There are cultural differences among first-world countries, and between
the old and new first worlds. At the extreme end are transactions
between the G7 and third-world companies, some of whom are
getting in the game for the first time. Since no two acquisitions
can be the same, uniqueness due to the industry, local culture and
expectations will require you to fine-tune this template.
Successful integration in acquisitions is possible when all areas of
the process, people and technology are covered. This enables the
acquiring company to ensure that it is able to realize the strategic
plans behind the acquisition. But without a well-planned integration,
the acquired company will falter, cause internal distraction and lead
to value erosion. Given the large number of acquisitions in the past
few decades, companies and consultants have developed tools for
achieving cost reductions through business process improvements,
consolidation and technology integration. But the field of people
integration has received insufficient attention, and this has caused
many acquisitions to falter. Although most companies recognize the
value of people talent, it is the financial processes and technology
integration activities that receive most of the focus and funds.
Subjective, difficult-to-measure metrics, as well as lack of financial
metrics on cultural integration complicate the picture. Companies
routinely underestimate the value of integrating cultures and its
stickiness. Increasingly companies have realized the folly of this
approach. Low morale, resignations, unionization, expensive
retention Band-Aids, political infighting and outright conflict lead
to a sapping of energy and an inward focus rather than competing
in the market.
Steps to Success
There are three critical steps to achieve people integration in multi-
cultural post-acquisitions. Successful integration requires significant
change on the part of both the acquired and the acquiring company.
A process of mutual adjustment and acculturation must take place
for successful integration.
Step 1: Understand the gaps between the acquiring and

acquired companies in culture; train employees for sensitivity.
Culture is the way things are done in an organization. It is the
glue that binds its employees and enables the company to operate
smoothly. Its manifestations are diverse from decision-making
to dress code and it is built from the countrys and organiza-
tions values. A structured process like the Hofstedes cultural
assessment is a great starting point to understand the countrys
cultural values.
Professor Geert Hofstede conducted perhaps the most comprehensive
study of how values in the workplace are influenced by culture.
Hofstede analyzed a large database of employee values scores
190 Global Rewards
collected by IBM between 1967 and 1973 covering more than 70

countries. He identified five dimensions to define culture. These are
power distance, long-term orientation, individualism, masculinity and
uncertainty avoidance. These elements are critical in understanding
the large gaps among countries. Using Hofstedes cultural dimensions
as a framework in a cross-border acquisition will prove very helpful.
Building on this framework, you can help create understanding
and solutions like training, counseling, identifying communication
and relationship pitfalls in advance.
The following provides an example of differences between cultures
of India and the United States. (See Figure 1.)
India has power distance index (PDI) as the highest Hofstede
Dimension for the culture, with a ranking of 77 compared to a
world average of 56.5. This power distance score for India indicates
a high level of inequality of power and wealth within the society.
This condition is not necessarily subverted upon the population,
but rather accepted by the population as a cultural norm. PDI is
the most indicative dimension of managerial and corporate culture.
Indias long term orientation (LTO) dimension rank is 61, with the
world average at 48. A higher LTO score can be indicative of a
culture that is perseverant and parsimonious. India has masculinity
FIGURE 1
The 5D Model of Professor Geert Hofstede U.S. and India

100
United States
India
80
PDI | power distance index
60 IDV | individualism
MAS | masculinity
UAI | u
ncertainty
40 avoidance index
LTO| long-term orientation
20
0
PDI IDV MAS UAI LTO
as the third-highest ranking Hofstede Dimension at 56, with the

world average just slightly lower at 51. The higher the country ranks
in this dimension, the greater the gap between values of men and
women. India is a male-dominated society, and generally male
managers are more easily accepted than female managers. Hence,
assertiveness, performance, success and competition are emphasized.
Indias lowest-ranking dimension is uncertainty avoidance (UAI) at
40, compared to the world average of 65. On the lower end of this
ranking, the culture may be more open to unstructured ideas and
situations. The population may have fewer rules and regulations
with which to attempt control of every unknown and unexpected
event or situation, as is the case in high-uncertainty-avoidance
countries. This is reflected in a strong entrepreneurial spirit in India,
creative solutions and an ability to think outside the rule book. It
also leads to poor process mapping and documentation.
On the other hand, the values alignment between Canada and the United
States (see Figure 2) confirms the reason why integrating organization
cultures between these two countries is so much easier.
After understanding these differences, it is important to establish a
plan for sensitizing employees. This can be done through exchange
visits of leadership team members, and key employees, organizing
FIGURE 2
The 5D Model of Professor Geert Hofstede U.S. and Canada

100
United States
Canada
80
PDI | power distance index
60 IDV | individualism
MAS | masculinity
UAI | u
ncertainty
40 avoidance index
LTO| long-term orientation
20
0
PDI IDV MAS UAI LTO
192 Global Rewards
familiarization training for employees to build an appreciation of

the differences. Doosan, a South Korean company, successfully
used this method for its acquisition of the BobCat unit from
Ingersoll Rand Co.
For the organizations cultural gaps, observing, surveying, discussing
and identifying different business practices is key to avoiding
inefficiencies and in worst-cases clashes. Successful integration plans
also include explicit, interactive feedback systems through work groups,
task forces, etc., so that members of the new organization can learn
what it means to be a part of the new company. For example, when
HP and Compaq merged, HP required each operational manager to
conduct a half-day session, with the support of human resources
staff, on the differences between the two previous company cultures.
The sessions revealed that HP staff typically used voice mail while
Compaqs people typically used e-mail. People from either side did
not have the same ideas about how to collaborate, which lead to
confusion and misunderstanding.
Step 2: Build the new organization and decision chart

of authority
New organization charts and the accompanying decision charts of
authority provide much needed clarity in the early days of post-
acquisition integration. They also clarify the degree of operational
interdependence or need for autonomy to retain the acquired compa-
nies competencies. There can be a complete preservation of existing
structure, absorption or symbiosis of the two organizations.
Ideally, a detailed organizational chart will provide the business
owner or manager with an accurate overview of the relationships of
these units/responsibilities to one another and a reliable indication as
to whether the firm is positioned to meet the businesss fundamental
goals. Decision charts are a key organization design element that
helps acquiring companies avoid surprises, as well as the risk of being
out of control and incurring future financial liabilities. It is helpful
to think of organizational design elements as building blocks that
can be used to create a structure to fulfill a particular purpose, said
Phyllis and Leonard Schlesinger in The Portable MBA in Management.
Organizational design allows the acquired company to continue to
operate in fast-moving markets without referring all decisions to

the acquiring company. Most importantly it provides the acquired
companys managers a sense of control and empowerment a
much needed sentiment after having been acquired. Acquisitions
lead to a sense of uncertainty and confusion. Clarity in decision
making mitigates these feelings. HP and Compaq built a careful
partnership, starting at the top, between both companies to make
critical executive selections and organization structures in advance
of the deal, and then announced their decisions shortly after the
deal went through. This, among other integration actions, helped
make theirs a successful acquisition.
A complete organization chart will identify the new hierarchy and
decision-making process flow. An accompanying chart of authority
will cover elements of headcount, compensation, talent management,
capital, expenses and employee relations (see Figure 3). Having taken
over from Tata Liebert, coping with the challenge of change was
surely the dominating concern for Emerson Power Network. And
this drove the company into rolling out a set of people practices.
This included creating a cross-functional team, empowering these
FIGURE 3
Sample Chart of Authority

Acquiring company
Elements Local office authority authority
Adding headcount within Approves positions below Global HR and CEO head
approved budgets direct reports of CEO. approve all positions in
Head of HR and CEO leadership team at local
approve. company.
Headcount Oversees replacement Global CFO and CEO

hiring due to voluntary and approve all headcount and
involuntary attrition. budget variances.
Customer contacts Negotiate contracts within Global CFO and/or CEO

established financial approve exceptions to
metrics financial metrics.
Compensation merit Approves distribution Compensation committee

and bonus based on performance approves merit and bonus
management program and pool.
bonus plans within overall
pool. Leadership team
jointly approves.
Vendor and insurance Head of HR and finance Approves budget.

contracts jointly sign off on new
contracts within approved
budget.
194 Global Rewards
teams to deploy a new organization structure in the organization,

and making customer-centricity the focus of the complete HR
action plan.
Step 3: Build the new people strategy

This helps focus the acquired organization on the future and
understand the acquiring companys vision. It avoids the negative
outcome that comes from employees getting bogged down in
comparing policy differences between companies.
Companies have to deal with the need to change policies and
programs to align with the acquiring company philosophy and values.
This is a tricky process since employees are overly sensitive and
losses to past practices and benefits can quickly lead to a drop in
morale. Hence a wholesale substitution of the acquired companies
programs by the acquiring companies programs could lead to
employee relations problems, especially if the new programs are
lower in value to the employee. Instead, focus on understanding
what people strategy in the acquired company made it a valuable
asset to be acquired, and assess practices in the industry, geography
and legislative differences before making changes.
Develop and paint the new people vision and strategy. Describing
the path and process to get there will create a positive energy for
employees. Involving employees and overcommunicating through
all possible means town halls, departmental meetings, Web
site and e-mails will be critical in quashing rumors, clarifying
questions and selling the rationale. The acquisition is a major
change for the employees, and you need to help them move from
the fear to excitement phase.
The Lincoln Electric Co. based in Cleveland has a well-developed
process to build an HR strategy linked to its business strategy.
Lincoln has grown through acquisitions and it has learned to
build an HR strategy that reflects the cultural factors at societal
and organizational levels.
People strategy must encompass six dimensions. (See Figure 4.) Long-
term vision coupled with clarity on the basics of their employment
relationship helps employees move higher up the Maslows hierarchy.
Abraham Maslow proposed that human beings move up a hierarchy
FIGURE 4
People Strategy
Rewards People
Decision-Making Work Processes
Information Managerial
and Knowledge Structure
of five levels of basic needs. In the levels of the five basic needs,
the person does not feel the second need until the demands of the
first have been satisfied, and so on. These needs are physiological,
safety, belongingness, esteem and self-actualization. For most business
professionals satisfying the need for esteem and self-actualization are
crucial to be able to operate at their productive best. See Figure 5 for
an example of an HR strategy.
FIGURE 5
Example of an HR Strategy at a nuclear reactor supplier

This has been identified using the strengths of both organizations. The intent is to
build on the success of both companies.
We will aim to hire, retain and train best-in-class nuclear engineers and develop the
worlds most reliable and safest nuclear reactor design.
Employer of Choice
Achieve Gallup score of 70+ and be recognized as a Best Place to Work.
Achieve a zero-incident safety record at every plant.
Invest in training and development at 4+ man-days per employee.
Acquire and Retain High-Performing Talent
Create a strong employer brand.
Target pay and benefits at 50P for Meets Expectations; 75P for Exceeds Expec-
tations.
Hire for cultural fit.
Have a compliant, equitable and fair professional environment.
Pay for Performance
Performance incentive programs to cover 100 percent of salaried employees
Employee growth based on performance.
196 Global Rewards
Tackling Global Talent Management

During a Recession
Bill Leisy, CCP | N. S. Rajan
In the midst of the current world financial crisis, todays best-

performing global organizations are exploring new opportunities to
enhance their ability to succeed. Rather than addressing programs
and processes perceived as broken or misaligned, many organiza-
tions are instead pursuing business improvement through a broader
approach that includes a greater focus on HR risk. The area of HR
risk that poses the most daunting challenge to organizations today
is talent management. Addressing this HR risk requires the overall
alignment of business strategy and objectives with your human
talent. In other words, effectively putting the right people with the
right skills in the right jobs at the right time and retaining them.
To see the significance of talent management, look no further than
the results of the Ernst & Young 2008 Global HR Risk survey. When
more than 150 global executives from Fortune 1,000 companies were
canvassed for the survey, talent management was seen as the HR risk
with the greatest impact on an organization and also the HR risk
most likely to occur. These results are understandable, especially
given the realities of globalization. With many organizations now
viewing the entire world, not just a single country or region, as the
milieu in which they conduct business, managing talent optimally is
an increasingly complex and critical goal. After all, these organizations
must deal with significant differences between mature versus emerging
markets, employee mobility and increasingly challenging countries,
cultures, demographics and regulatory environments. In addition,
global labor costs are rising as the formerly abundant supply of skilled
and semiskilled labor from countries like China, India and Malaysia
diminishes. And then theres the aging of the worlds workforce,
which requires organizations to simultaneously manage the Baby
Boomer generation while attracting Gen Y talent (people born
198 Global Rewards
between 1982 and 1993). All the while, with technology increasing
the speed at which business is conducted, organizations are feeling
constant pressure to stay ahead of the talent management curve,
even in difficult financial times.
With so many intricate issues shaping talent management, it
shouldnt be surprising that a large percentage of the 2008 Global
HR Risk survey respondents plan to devote more attention to
talent management during the next three to five years as well
they should. Globalization has given rise to a new world in which
organizations must develop new approaches to all segments of
the talent management life cycle recruitment, development,
retention and separation in order to strengthen their competitive
advantage and increase shareholder value.
Effective Talent Management Requires a Holistic View

of People
Talent management is not simply about managing physical bodies
that report to work each day. Its about managing human capital,
an intangible resource comprised of peoples knowledge, abilities,
capabilities and skills. Youve probably heard it many times before, but
people and the human capital they represent are an organizations
most important asset. Technologies, products and strategies can be
replicated, but people drive an organizations competitive advantage.
Employees who are well-educated, well-trained and highly motivated
are critical to the development and execution of business strategies
and the pursuit of business goals. A deliberate and carefully planned
talent management program provides the framework for people to
make significant contributions to business performance.
An Integrated Approach
Talent management programs run the gamut of maturity, sophis-
tication and complexity. The most basic program simply focuses
on identifying individuals to fill open positions. At the other end
of the continuum and far more likely to contribute to business
success is a fully integrated approach that addresses all facets
of the employee life cycle in advance of need and based on readi-
ness, competencies and experiences.
The keys to a successful talent management program include a

dedicated, integrated approach from those within and outside the
realm of human resources. Note that programs for high-performing
organizations must be strategically designed so they are in line with
the goals and objectives of the business; contain specific areas of
support to manage the process from recruitment to retirement; and
include information technology systems designed to continuously
analyze, track and report on the overall effectiveness of the talent
management program.
Components of a successful talent management program include:
1. Workforce analytics and planning. Through analyzing workforce

metrics, an organization can improve its return on investment
in talent management. From a planning perspective, research
shows that leading organizations integrate workforce planning
with strategic planning and review their projections at least
twice annually.
2. Role and competency design. Organizations that routinely achieve

or exceed their business objectives have a well-defined structure
with clear accountabilities and levels of authority. People in
successful organizations possess the necessary competencies
(knowledge, skills and behaviors) and are continually developed
so they can take on greater roles.
3. Recruitment and onboarding. Organizations that hire the right

people have a sourcing, screening and selection process that
identifies candidates with the necessary knowledge, skills and
behaviors to perform in a particular position. These organiza-
tions also have an onboarding process that extends beyond
the orientation process to fully immerse new hires into the
organization. Onboarding processes include a focused induc-
tion program that not only provides new hires with clarity on
their job responsibilities, but is designed to set performance
expectations, introduce new hires to other employees and supply
an overview of the division or group so they have a sense of
the organizations strategy. Additionally, some companies may
200 Global Rewards
have regular contact with new hires before their first day on
the job to begin the assimilation process early.
4. Deployment and redeployment strategies. Once the right people

are on board, its essential to effectively deploy them to use their
strengths and match their competencies with the interests of the
business. This requires strategic deployment strategies and effective
scheduling practices that match work requirements with individual
competencies and developmental needs. For example, companies
should identify short- and long-term assignments that align indi-
viduals knowledge, experiences and interests with the goals of the
project. Successful organizations also maintain a comprehensive
online database of their employees skills, knowledge and experi-
ence profiles. However, this database must be reviewed regularly
against organizational requirements in order to be used as an
effective source for scheduling and redeployment.
5. Recognition, rewards and engagement. To attract and retain

talent, organizations need to know and focus on what matters
most to employees and potential hires; this might include
factors like competitive pay, career advancement opportunities
and work-life balance.
6. Performance management. While most organizations are good

at measuring business performance, they may struggle with
measuring individual performance and providing constructive
feedback. Performance management programs with continuous
communication, as well as planning and monitoring and objec-
tive appraisal methods, can elevate employee performance and
positively impact overall business results.
7. Learning and training. To reduce deficiencies among current

talent and prepare employees to meet future business needs,
leading organizations create learning maps and training activities
appropriate for their workforce. A learning map is an individual-
ized plan typically developed with a manager for formal and
informal learning; it provides a recommended path for the
Key Questions Every HR Professional Should Ask When

Assessing Talent Management Planning
Is talent management a priority at your organization?

Do you have the right people in the right roles at the right time
for the right price to meet business needs?
Is your organization wondering how to do more with less?
When key talent in your organization leaves, are you prepared?
Have you identified the critical leadership competencies (that is,
functional knowledge, skills and behaviors) required to drive your
organizations long-term strategic objectives?
Do you know your return on investment in talent management programs?
Once you have answered these questions, youre that much closer to having
an accurate assessment of existing talent management at your organization.
individual that considers ones strengths and weaknesses. The

map prioritizes the employees developmental areas, outlines
needs in terms of skills training and identifies job experiences to
help bridge gaps in knowledge or technical expertise.
8. Career mapping. Creating detailed career maps for high-performing

employees will help individuals match their long-term professional
goals with organizational opportunities. A career map is an individual-
ized plan that addresses professional expectations based on personal
interests and long-term career goals. The map should be used to
clarify an employees career path and therefore must include specific
timelines and required areas in need of development. Through this
exercise, specific action steps can be identified to retain employees
during their development and transformation.
9. Leadership development. Leadership development is critical at all

levels in an organization not just at the management level. The
vital dimensions of performance and potential and how they are
incorporated into the development of talent management programs
needs to be revisited. Enhancing an individuals ability to establish
a clear vision and goals as well as to motivate and guide others
to achieve the vision and goals drives bottom-line results in an
organization.
202 Global Rewards
10. S uccession planning. Whether predicted or not, leadership

succession is inevitable. Fruitful successions have a distinct and
deliberate process that identifies and readies a qualified pool
of talent in advance of the event and provides for a seamless
transition from a leadership and financial perspective.
The Payoff in Business Performance

Organizations that use the leading talent management practices
above have outperformed other organizations across four stan-
dard financial metrics: return on assets, return on equity, net
profit margin and earnings before interest, taxes, depreciation and
amortization (EBITDA), according to Stephen Millers article The
ROI of Best-in-Class Talent Management, which appeared in HR
Outsourcing Library Vender Selection and Management. Such
leading talent management practices should be fully integrated
and aligned to the business strategy. (See Figure 1.)
Impressive as the bottom-line impact may be, its important not
to expect quick and easy results. Pouring resources into talent
management is akin to planting a bamboo tree. A bamboo requires
at least two years of patient watering every day, but when the shoot
finally does break through, it grows 50 feet tall in less than two
FIGURE 1
Talent Management Effectiveness
50%
Percent improvement
40%
30%
20%
10%
0%
Return on Return on Net profit EBITDA
assets equity margin
Source: Stephen Miller, (September 2007). The ROI of Best-in-Class Talent Management.
months. Similarly, the nurturing of talent management is far more

an investment a very worthwhile one than an expense.
204 Global Rewards
What Most Admired Companies Know About

Expatriates that You Dont
Mel Stark | Tom McMullen | Richard Bednarek
To become a global leader, a company must do many things

right. One critical differentiator for leading global companies is
how they manage expatriate assignments in several areas, mainly
talent evaluation, development and the incumbents compensation
during these assignments.
Conventional wisdom suggests expatriate assignments can be
more problematic than productive. Problems can arise due to a
number of factors. Managers may be poorly selected for international
assignments, inadequately developed to respond effectively to new
and challenging environments or poorly managed while they are
away. Likewise, many organizations lack effective mechanisms
for managing the re-entry process when managers return to their
home countries. Regardless of the source of the issues, it is often
the case that global organizations experience high costs without
reaping the benefits of international assignments.
But a Hay Group study of Fortune magazines Most Admired
Companies operating globally not only found that international
assignments need not be a problem, but with the right strategy,
they are a real competitive advantage. In fact, the study found
that approximately 80 percent of the Most Admired Companies
have a strong, successful track record with expatriates, compared
with little more than half of the survey respondents from peer
organizations (see Figure 1 on page 206.)
When you break it down, there are several key reasons why
leading global companies succeed and excel in an area where many
others do not. Following are a few of the tasks that successful
companies do well:
1. Integrate operations to foster economies of scale and efficient

internal knowledge transfer, while also promoting responsiveness
to local markets.
206 Global Rewards
FIGURE 1
Global Leaders Carefully Manage International Assignments
We have a strong track record of 80

success in achieving the objectives
of international assignments. 55
We have established clear criteria for 70

evaluating potential candidates for
international assignments. 49
We have established clear criteria for 77

determining the total cost of interna-
tional assignments. 57
We have established clear criteria for

48
evaluating the return on investment
in international assignments. 37
0 20 40 60 80
% Agree
Global Leaders Peer Group
2. Coordinate activitie s by aligning business units/subsidiaries

around a common strategic vision and corporate culture.
3. Drive execution through performance management and compen-

sation systems that promote global consistency and emphasize
enterprisewide as well as local objectives.
4. Actively manage talent to meet organizational needs and develop

an adequate breadth of leadership perspective.
In addition to the increased prevalence in the use of planned

international assignments and the use of expatriates in these
assignments, the effectiveness of leading global companies in
managing international assignments is supported by:
Clear criteria for evaluating potential candidates
Established procedures for determining both the total cost of and

the return on investment associated with international assignments
as shown in Figure 1.
As part of these major differentiators, Most Admired Companies

are far more effective in identifying talent on a global basis than
their peers. And, they devote a significant portion of their time to
managing talent and providing ongoing coaching to those specific
individuals. For example, when it comes to using planned career
assignments to develop global experience, Most Admired Companies
lead the way. Also, these same organizations are more likely to have
executive teams comprised of members who have held positions
outside of their home countries, and have boards of directors that are
diverse in terms of the members nationalities. (See Figure 2.)
In fact, many global organizations view an international
assignment as a key hurdle before an individual can be considered
as a candidate for an executive role. The benefits are obvious
to Most Admired Companies. In organizations like Procter and
Gamble (P&G), Caterpillar and IBM, an executive who has
worked internationally in different functions and/or business
units develops a broader perspective of the organization as well
as a richer and more extensive network of colleagues. These are
core differentiators for an executives success in navigating the
complex matrix organization structures that are prevalent in most
global organizations.
FIGURE 2
Global Leaders Benefit From the Global Perspective

of Their Leadership
In our company, international experi-
ence is viewed as a key criterion for 66
advancement to senior management
positions.
67
In our company, we make use of

75
planned career assignments to
develop global experience. 59
Most of the members of our 57

executive team have held positions
outside of their home countries. 48
Our board of directors is diverse in 48

terms of members nationalities.
37
0 20 40 60 80
% Agree

208 Global Rewards
Hay Groups past research also has repeatedly demonstrated

that leaders in the Worlds Most Admired Companies take a
very hands-on approach to developing talent. Leaders devote a
significant portion of their time to talent management and providing
ongoing coaching to their people. As a result, leaders in the Most
Admired Companies report they have a better understanding of the
capabilities of managers at all levels, and they do a better job of
matching individuals to jobs, taking into account the skills required
for the various roles and the career objectives and motivations
of their people.
Many Most Admired organizations Hay Group works with make
leadership development a top business priority. They devote
significant time and resources to talent management, including
buy-in and involvement by the CEO and the senior executive
team. They also know that talent development is not just an HR
initiative it is a core accountability of senior leaders.
Procter and Gamble, named by Chief Executive magazine as
the 2005 Best Company for Leaders, knows this. P&Gs Chairman
and CEO A.G. Lafley said, The people we hire, and the focus
we put on their development as leaders, are critical to P&Gs
ability to innovate and compete. Nothing I do will have a more
enduring impact on P&Gs long-term success than helping to
develop other leaders.
Novartis, the pharmaceutical giant based in Switzerland and
operating in 140 countries, also views talent development as a top
priority. Dr. Daniel Vasella, Novartis CEO, said, The most strategic
decision we can make is the selection of our people and leaders.
There is nothing that is more important. We have thousands of
employees worldwide, and there is much more talent around than
we know. And the question, therefore, is how do we identify the
talent quickly, and how do we help the talent develop to their
full potential? You can only do that by cascading. We do talent
reviews regularly. I do it for the talent pool I oversee, and then
my direct reports do it in their areas, and so forth.
It may be no surprise that when Hay Group first works with
an organization, it often finds the executives have some of their
greatest frustrations around how they can most efficiently and
effectively identify and manage talent on a global basis. Executives

often find that building these organization capabilities is the key
to leveraging the scale of their global operations.
With clarity and consistency as core components of the performance
management and compensation approaches of the Most Admired
Companies, compensation strategies are much more likely to be
globally consistent among this group. Most Admired are much more
likely to have more global consistency in their market comparators,
compensation positioning strategy and incentive eligibility criteria
than peer organizations. Most Admired Companies are also more
likely than their peers to report that they have more globally
consistent approaches to performance management than their peer
groups. (See Figure 3.)
Caterpillar, for example, approaches performance management
and succession planning the same way worldwide. According to
Stuart Levenick, a Caterpillar group president, Caterpillar evaluates
and measures performance the same way around the world. This is
true for succession planning as well. Using the same performance
measures, we are able to assess our talent and place individuals
in positions around the world that work for the company and the
individuals career growth.
In short, at leading global companies from the Most Admired study,
moving up frequently involves moving around. Yes, it is important
FIGURE 3
Global Leaders Manage Performance From the Center
We have a clearly defined

93
global approach to performance
management. 74
We have a clearly defined global 81

compensation strategy.
70
Our compensation strategies have

83
been effectively communicated to
line managers. 63
Our compensation structures are

centralized (emphasizing internal
83
consistency in market comparators, 55
positioning strategy and incentive
eligibility).
0 20 40 60 80 100
% Agree

210 Global Rewards
to get the compensation package right, but the critical differentiator

for Most Admired Companies is the ability to recognize and develop
talent, and then give those talented people the chance to make a
difference in an expatriate or international assignment.
Note on Fortune magazine survey analysis methodology:
The Fortune magazine Most Admired Companies survey is an
annual analysis of corporate reputations conducted by Hay Group.
More than 15,000 executives, directors and industry analysts are
involved in developing these overall rankings. The survey invites
these respondents to rate companies, overall and within industry
groupings, on nine criteria ranging from financial soundness and
use of corporate assets to quality of management and quality
of products and services. While the Most Admired analysis uses
a balanced set of rating attributes covering both financial and
nonfinancial criteria, it is important to note that Most Admired
Companies also outperform the market as a whole. In 2006, the
top 10 Most Admired Companies delivered a five-year average
total shareholder return of 11.1 percent compared to -2.7 percent
for the S&P 500.
Repatriation Considerations
in a Cost-Aware Economy
Vadim Kostovski
As companies develop an international assignment policy, many

factors impact the success of their expatriate program. Of the
various components, repatriation and post-assignment reintegration
are often the most difficult to effectively manage. Although many
companies recognize the importance of the repatriation component,
others place it on the back burner when formulating their overall
expatriate management model.
In fact, according to ORC Worldwides 2008 Worldwide Survey
of International Assignment Policies and Practices, only 6 percent
of respondents said the company handled the repatriation process
very well. Thirty-eight percent said the company dealt with it
well, and 43 percent responded somewhat well. That handling
(or lack of handling) can result in the loss of repatriated employees.
In ORCs survey, 22 percent of the overall respondents replied that
the turnover of repatriated employees was higher in the two years
following their return from abroad when compared to employees
who had not gone on an international assignment. These are not
inspiring findings.
Complicating matters are the current economic situation and
the resulting need to scale back costly expatriate programs. Some
companies are bringing personnel back from assignments before
their scheduled return, prompting the need to re-evaluate the internal
planning process that attempts to find open positions for repatriated
employees more quickly than originally anticipated. These individuals
(some of whom may have just finished the integration process at
the host location) return often with family in tow under a
cloud of uncertainty, as there might not be a job waiting for them
upon return. This scenario is especially troubling given the current
economy, as many people are seeking jobs.
212 Global Rewards
How a company acts with regard to the financial and personal

aspects of routine repatriations and early returns may very well
impact the expatriate programs future. To help companies make
the best decisions possible, the remainder of this article examines
key repatriation issues as well as solutions that will benefit both
employee and employer.
The Big Picture: Whats at Stake

Potential assignees who witness returning expatriates experiencing
job (and, therefore, financial) uncertainty may not be eager to accept
international assignments. With this in mind, HR and expatriate
managers need to think about the following questions to soften
the impact of the new reality:
What, if any, components should we include in a policy to address
the uncertainties caused by the current economic climate?
How do we not only prevent draining human capital but also
avoid failed assignments at essential operational locations?
How can we limit expenses as well as minimize employee
exposure to unnecessary financial and emotional hardships caused
by abrupt moves while still ensuring the successful continuation
of our foreign operations?
The answers to these questions may result in a change in
expatriate strategy.
Down to Details: Proactive Solutions

As expected, answers to these questions vary. However, as the
condition of the current world economy and the duration of the
downturn remain uncertain, circumstances demand that companies
react quickly. HRs task is to adjust current expatriate policies so
the organization can continue to entice qualified candidates into
accepting assignments while simultaneously minimizing adverse
effects from repatriation.
Some potential solutions can make HRs responsibility a little
easier and, quite possibly, lower expenses. While many of these
solutions are not new, they are timeless and underscore the
importance of flexibility within an expatriate program, no matter
the economic situation. Unfortunately, some companies focus more
on the logistics of expatriating and repatriating employees rather

than on considering the overall process, which includes support
for returning assignees.
Flexible agreements. With regard to the present economic situation,
one solution though rarely used is to set the duration of an
international assignment in periods, such as one year at a time. A
shorter commitment term provides a degree of flexibility, further
enhanced by including a provision that allows the company to
reassess the allowance package during the assignment extension
period, if necessary. This type of strategy works best in limited
circumstances for example, a rotational assignment to a remote
location, when the assignee is single and childless, and so on.
In these situations, although the assignee is uncertain as to when
repatriation will occur in one year, in two years or later
the possibility of an early return is there as the extension period
approaches. Furthermore, if the assignee receives sufficient advance
notice of repatriation, the transition can be a smoother process.
One thing to consider is that there is no right period of advance
notification. For example, an assignee with school-age children would
benefit from more advanced notice in order to resettle the children
in another school; a single employee with no family responsibilities
is easier to move on short notice. (See Figure 1 on page 214.)
Early return assistance. Traditionally, managements track record
on early return assistance is not encouraging: Nearly half (46 percent)
of respondents to ORCs 2008 survey do not guarantee a job on
repatriation. Also, only 18 percent guarantee employment at the
same level, while 35 percent guarantee a job depending on what is
available at the time. Nevertheless, some organizations might be able
to consider a safety provision for the assignee not a commitment
to provide a permanent position at home or headquarters upon
repatriation but perhaps, in the event of an early return, a commitment
for a temporary position.
For those companies that decide to offer a temporary job, there
remains the possibility of converting the position to a permanent
arrangement should an opportunity arise. If this result is not
possible, managers can remind assignees that, after returning home,
they can apply for any internal position although a job is not
214
FIGURE 1
Global Rewards
Typical Advance Notice by Employers
In general, how much advance notice is provided to expatriates prior to repatriation?
Europe/
Asia-Pacific Middle East Japan The Americas Worldwide
Less than 3 months 16% 11% 44% 12% 18%
3 to 6 months 39% 42% 16% 32% 32%
6 to 12 months 6% 16% 3% 10% 9%
More than 12 month 1% 0% 2% 2% 1%
Varies 33% 26% 35% 40% 35%
Depends primarily on suitable opening 4% 6% 1% 5% 5%

in headquarters organization
Source: ORC Worldwides 2008 Worldwide Survey of International Assignment Policies and Practices.
guaranteed. Yet by definition, an assignee possesses skills that

prompted the company to send this person on assignment in
the first place. Therefore, it is in the companys interest to do
everything possible to keep this individual and the newly
gained experience within the company.
Redesigned assignments. For smaller organizations or companies
operating with extremely tight budgets, even temporary commitments
may not work. In such circumstances, potential assignees may
be reluctant to trade the relative security of the home office for
the uncertainty of an international assignment. In this scenario,
the company may choose to re-evaluate its attitude regarding
expatriate assignments entirely (and avoid the issue of repatriation).
But before doing so, it should ask:
What is the bare minimum number of expatriates and/or local

employees required to keep an overseas operation functional?
How much time does an operationally key employee need to be

on site? Could the foreign operation function adequately with
this key employee present only for short intervals, interspersed
with working from the home office?
What is the role of technology in enabling this employee to

effectively carry out host-country responsibilities while in the
home office?
Consequently, the company may need to creatively redefine

the nature of the expatriate assignment, perhaps transforming
the potential long-term assignee into a frequent business traveler.
This change could avoid the high relocation cost of moving
the assignee and family, as the individual would travel to the
host location for short intervals and spend the intervening time
working from the home base. Although there are expenses
associated with repeat travel and temporary accommodations,
the overall assignment cost would be lower when relocation
costs (e.g., shipping, storage) and allowances (e.g., education)
are no longer necessary.
216 Global Rewards
Note that while the issue of repatriation is eliminated, the

organization still has other concerns and must continue to address
visa, immigration and tax issues, whose criticality depends on
the length of time an assignee remains in the host location. By
tracking the employees travel periods, the company can remain
in compliance with local regulations.
Assistance programs. Repatriation policies do not generally
provide comprehensive support to help returnees readjust to their
new job (if one is available) and cope with personal challenges,
such as a spouses job search or a childs re-entry into the home-
country school. To help retain and use expatriates skills and
knowledge and reintegrate assignees without an adverse effect on
their performance, management should actively search for effective
ways to support assignees throughout the repatriation process.
Some low-cost, practical solutions include:
A mentoring system throughout all stages of the assignment,

with particular emphasis as the date of repatriation approaches,
allows the mentor to guide the returning assignee to potential
jobs that match newly acquired job experience and skills. One
of the problems faced by many repatriates is that they feel they
no longer have a contributing place in the organization or a use
for their talent and knowledge which is ultimately a waste of
money for the company when that employee goes elsewhere.
Regular meetings between the expatriate and relevant managers

in the host country can ensure that the assignees goals in the
host country have been accomplished and, barring that in the
case of an early return, that there is a smooth transition process
as the assignee repatriates.
Better links with the home country through meetings,

teleconferences, newsletters and so on throughout the assignment
keeps the returning assignee up to date on what has been
happening in the organization, thereby minimizing the degree of
company culture shock when the assignee returns to headquarters
or elsewhere.
Cultural orientation programs for repatriates are useful if the

assignee has been away from the home country for an extended
period.
For additional suggestions, see Figure 2 on page 218.
Conclusion
In the current economic environment, the way the company handles
returning assignees will have a great impact on the health and
success of not only current assignments but also future ones. After
all, potential assignees will be watching how current assignees
are treated. HR must perform a delicate balancing act between
scaling back costs and continuing to attract top-tier individuals to
assignments. The companies able to adjust to the new environment
while minimizing the negative impact to the flow of human capital
and operations will ultimately succeed.
218
Global Rewards
FIGURE 2
Employer Assistance for Repatriating Assignees
Which of the following kinds of assistance does your company provide to assist with repatriation?
Europe/
Asia-Pacific Middle East Japan The Americas Worldwide
Networking and home-leave visits
46% 58% 12% 55% 47%
during assignment
Further job education 10% 12% 4% 9% 9%
Information services to keep 25% 34% 22% 25% 27%

employee informed of home-country
developments
Mentoring program 16% 18% 2% 14% 13%
Financial assistance 9% 23% 25% 22% 22%
Reacculturation sessions 7% 6% 1% 18% 11%
Debriefing/knowledge-transfer sessions 7% 14% 6% 15% 13%
Company does not provide assistance 40% 23% 50% 32% 34%
Source: ORC Worldwides 2008 Worldwide Survey of International Assignment Policies and Practices.
Reward Management in Multinational Enterprises: Global Principles; Local Strategies 219
Reward Management
in Multinational Enterprises:
Global Principles; Local Strategies
Robert J. Greene, Ph.D., GRP, GPHR, CPHRC
How effectively and appropriately multinational enterprises (MNEs)

reward performance significantly influences workforce effectiveness.
Going global presents several types of challenges including:
1. Conforming to local laws and regulations
2. Adapting to local cultures
3. Competing effectively in diverse labor markets
4. Developing strategies and programs that are consistent with

organizational culture
5. Efficiently administering programs.
Conforming to local laws and regulations is primarily a technical

issue, with specific answers. Each organization must identify the
relevant rules in each location and decide how it ensures that its
total rewards programs do not violate them. It must decide whether
to use outside experts or its own staff to ensure compliance. Coping
with the competitive realities faced in each local labor market is
also a technical issue, about which much has been written. The
supply/demand balance for specific skills, the role of third parties
such as unions, the cost of living and the nature of organizations
competing in the market all influence the workings of the labor
markets. For example, multinationals are facing challenges in China
due to the shortage of experienced management personnel. The
shortage is exacerbated by the reality that using expatriates or
220 Global Rewards
third-country nationals is often too expensive or difficult because

of language barriers and other impediments to effectiveness. But
global rewards professionals have tools to deal with these challenges,
albeit not without difficulty.
Cultural diversity challenges may be the most daunting of all.
Effectiveness in dealing with multiple cultures is best met by
practicing the 3 Rs of cross-cultural management. To effectively
attract, retain, motivate and satisfy a high-quality workforce, MNEs
must recognize cultural differences, respect the rights of those
with differing values and beliefs and reconcile the issues raised
by these differences (Trompenaars and Hambden-Turner 2004).
Many United States-based organizations are ethnocentric, which
means they believe the culture prevailing in the U.S. is the correct
one and act accordingly. Surveys by Trompenaars and Hofstede
(Hofstede 1990) show American organizations to rank low in cross-
cultural integration. This impedes efforts to turn cross-cultural
challenges into opportunities.
Cultural differences within global workforces create daunting
challenges for rewards management practitioners. Concepts such
as rewarding individuals based on their performance have proven
devilishly difficult to implement and to make work effectively in
some parts of the world. Perhaps it is challenging to make pay for
performance work well in some cultures, as the theories supporting
the use of this practice may not apply in all cultures. Most research
that led to formulating these theories was conducted on Western/
Northern employees in Western/Northern organizations by Western/
Northern researchers. One could therefore ask the question: Would
these research findings hold up in other parts of the world?
Figure 1 is based on research by Trompenaars and Hofstede,
who identified cultural differences among countries by measuring
the extent to which the characteristics existed in samples of the
populations. Both researchers used cultural dimensions to describe
contrasts across national borders. The dimensions cited in the
figure can be defined as follows:
Communitarian (group-/society-oriented) versus individualistic

(self-oriented)
FIGURE 1
The Contrast Between Conceptually Polar Western/Northern
and Eastern/Southern Cultural Profiles
Eastern/Southern Cultures Western/Northern Cultures

Communitarian Individualistic
Hierarchical Egalitarian
Particularistic Universalistic
Ascribed status Achieved status
Person-focused Task-focused
External control Internal control
Intuitive/holistic Analytical/reductionist
High power difference Low power difference
Countries with cultures that favor Countries with cultures that favor
this profile: Japan, China, Egypt, this profile: United States, United
Indonesia, Turkey, Brazil, Venezuela, Kingdom, Canada, Australia,
South Korea, France, Greece, Italy, Norway, Sweden, Switzerland,
Spain, Russia, Egypt Germany, Netherlands
Particularistic (circumstances or who is involved should impact

actions) versus universalistic (one set of rules to be applied to
everyone in all situations)
Ascriptive/ascribed status (how one is treated depends on who they are)

versus achieved status (all status is earned through achievements)
Outer-directed (person not in control; external forces impact

outcomes) versus inner-directed (can do attitude caused by
the belief that results follow effort and skill)
High power difference (hierarchy and authority are prominent)

versus low power difference (less differentiation by level and
more democratic processes).
No countrys culture exactly matches either of the two admittedly

exaggerated profiles in Figure 1. But differences among national
cultures are significant, a fact supported by research and experience.
And these differences have been shown to have a material impact
on the success of HR strategies and programs. By contrasting
222 Global Rewards
polar profiles, the full range of cultures can be appreciated, enabling

HR practitioners to develop robust strategies that can cope with a
wide range of difference.
This paper examines whether the principles underlying reward
systems that have proven to be effective in Western/Northern (W/N)-
type cultures are likely to hold in Eastern/Southern (E/S) and other
types of cultures. Hypotheses are presented that can be used to
anticipate different levels of effectiveness for various strategies and
programs. Implications for global organizations are examined, with a
focus on the overarching issue: whether one reward strategy should
be implemented globally or if local customization should be applied
to strategies and programs.
It should be noted that the cultures prevailing in any single W/N
organization may well vary from the W/N profile, despite being in a
country with a W/N culture. For example, organizational cultures in
many startup high-tech American companies are person-focused rather
than task-focused (what is commonly thought of as the Silicon Valley
culture). The reaction of employees to a particular reward strategy/
program may, in these organizations, take on many characteristics
of the E/S cultural profile. Further complicating the anticipation
of cultures impact is the reality that units or occupational clusters
within a W/N corporate culture may have their own subcultures.
For example, the research and development function may be more
E/S, a byproduct of the type of work being done and the nature of
the individuals who perform it. As a result, it is perilous to assume
a particular approach will be acceptable to all employees, even
when the organizations overall culture fits the countrys cultural
profile. Trompenaars and Hambden-Turner (1998 and 2004) point
out that there is as much variance within a country as there is across
countries. Given the way country borders are being adjusted (i.e.,
the Balkans and Eastern Europe), it may even be necessary to define
cultures for specific societies, rather than countries.
Cultural Differences Influence

on Reward-System Effectiveness
W/N cultures support individual rewards based on individual performance.
The majority of direct compensation is typically in the form of
merit pay in W/N organizations. Individual performance criteria

and standards are established in advance, and rewards are tied to
results compared to these standards. Performance appraisals and
rewards based on appraisal results are a result of a cultural bias
that argues for distributing rewards differently among individuals.
Also, telling it like it is is common practice. Identifying where
an employee succeeded and failed is not only acceptable it is
expected of managers. But this approach is not as acceptable in
more collectivist and person-focused cultures, as it will cause the
employee to lose face and/or it will conflict with the belief that
outcomes are not under the control of individuals. Other more
effective and more culturally compatible methods may be needed.
The anthropologist Edward T. Hall differentiates between high
context cultures (such as Japan), where intensive socialization
makes the restatement of values and expectations largely unneces-
sary and low context cultures (such as the U.S.) where explicit
communication is needed to define what is expected (Hall 1976).
In the high-context culture, it is often not necessary to explain
why rewards are administered in a particular manner or what the
expectations are for each party involved in the process. In a low-
context culture, the lack of specificity will likely be to reduce the
process effectiveness.
The practice of basing rewards on performance at an individual
level may not fit well in the more E/S cultures. When the prevailing
view is that it takes everyone to achieve continuous improvement
(for example, in Japan and several Asian countries), the act of
singling out one employees contributions (or lack thereof) may
not be accepted, or at least emphasized much less. As work is
generally assigned to teams, rather than individuals, it may be
difficult to convince employees that accurately measuring the relative
contribution of each person is even possible. When everyone does
whatever needs to be done at the time, the concept of measuring
individuals against specific objectives or performance standards
is tough to defend.
The universalistic character of W/N cultures favors the same
set of rules for everyone, with performance measured against
established expectations and rewards based on appraisals. But close
224 Global Rewards
personal relationships may cause poor results to be overlooked in

particularistic cultures, as the relationship must be preserved. It is
hard for Western managers to accept this particularistic point of view,
as evidenced by the negative reaction to nepotism experienced in
the U.S. In Asian or Latin American countries, it may be reasonable
to give preference to family members because there is an established
trust and a belief that the family members would not do anything
to damage the family reputation or their standing within the family,
thus making them a better risk than a stranger.
Many E/S cultures believe that who is being evaluated and rewarded
should be a consideration. For example, in an ascriptive culture, if a
graduate of a highly respected university is contributing little to the
organization, it might be assumed that circumstances caused this.
An ascriptive culture focuses on who the person is and their status.
As the persons quality has already been ascribed to the person by
the status of that schools graduates, it is difficult for evaluators to
attribute poor performance to the person. Therefore, the conclusion
may be that the person should not be penalized for poor results.
Another dominant belief in W/N cultures is that people are typically
in control of their destiny and should be held accountable (the can
do culture). However, a significant portion of the worlds population
believes that fortune and external forces determine outcomes much
more than individual effort. For people holding that belief, it is
difficult to establish causation for good or poor performance or to
sell people on tying rewards to a measure of individual contribution.
This is particularly true when/if an employee extends his/her best
effort. The top HR executive of a major corporation in the Middle
East once asked the author, How do you motivate someone who
believes that no matter what they do, the result is determined by
Allahs will? Tough question.
W. Edwards Demings tenets of quality management posit that
individuals should not be held responsible for outcomes determined
by the system. Companies in W/N cultures often try to limit
accountability to those things believed to be determined by individual
effort. But job-related results are still viewed as the primary basis for
determining career/compensation consequences in the West/North.
In a collective culture, the tendency is to focus efforts on creating a
consensus about the best way to do something and then to attribute

successes and failures to the overall system, which includes everyone.
This would argue for an egalitarian distribution of rewards.
Hypotheses About the Impact of Culture

on Reward Management
The aforementioned contrasts between polar cultures can be
compressed into testable hypotheses, which are related to the
research of Trompenaars and Hofstede.
Hypothesis Number 1
Measuring individual performance and basing rewards on the
appraisal will be more acceptable in cultures that are individualistic
than in cultures that are collectivist. Employees from countries such
as the U.S., the United Kingdom, Canada, Denmark, the Netherlands
and Australia tend to be more individualistic in their orientation
than employees from Egypt, Mexico, India, Japan, France and
Venezuela, who will be more likely to prefer performance be
measured and rewarded at an aggregated level, as they believe
results require collective effort.
Hypothesis Number 2
Rewarding the individual for meeting performance standards will be
more acceptable in cultures that believe in internal control than in
cultures that believe in external control. Employees from countries
with can do mind-sets, such as the U.S., the U.K., France and
the Netherlands, will more readily accept personal responsibility
for results than will employees from countries such as Venezuela,
China, Russia, Kuwait, Egypt, Saudi Arabia and India, who will be
more likely to believe outcomes are due to forces at least partially
outside their control.
Hypothesis Number 3
Rewarding individuals based on what they accomplish rather than who
they are will be more acceptable in cultures that are achievement-
oriented than in cultures that are ascription-oriented. Employees
from countries such as the U.S., Australia, Canada, the U.K. and the
226 Global Rewards
Netherlands will tend to accept rewards based on what people have

accomplished more than will employees from countries such as Egypt,
Japan, China, Russia, Mexico and France, who will be more likely to
believe the individuals status/qualifications should be considered.
Hypothesis Number 4
Employees from universalistic cultures will believe that the same
policies, methods, processes and standards should apply to rewarding
all employees, as opposed to those from particularistic cultures.
Employees from countries such as Canada, the U.S., Sweden, the
U.K., Australia, the Netherlands and Germany will tend to believe
in one set of rules applying to everyone under all circumstances
more than employees from Venezuela, Russia, China, India, Japan
and France, who accept that the persons identity and the circum-
stances should be considered.
Hypothesis Number 5
Employees from countries with low power-difference cultures will
expect to participate in setting performance standards, determining
results achieved and agreeing on an appropriate reward with the
supervisor. Those from high power-difference cultures will be less
willing to accept this approach. Employees from Germany, the
Netherlands, the U.K., Australia, Canada and the U.S. are more apt
to be active in the process and challenge the supervisor when there
is disagreement on performance or rewards than will employees
from countries such as Mexico, Venezuela, France and China.
These hypotheses, if supported, should be a consideration for
human-resources practitioners when designing reward-management
systems for use across diverse cultures. Knowing how employees are
likely to react when they are evaluated and rewarded in particular
ways is valuable and enables HR to consider what to do to, if
anything, to accommodate cultural differences.
One Global Rewards Strategy or Many?

A global organization can adopt one global-rewards strategy and
set of programs, use different strategies/programs for each locale/
country/region or agree on a set of global guiding principles and
then allow some latitude for local customization as long as the

principles are adhered to. The more universal the strategy, the
easier it is to align all employees and units with organizational
values and objectives. The more locally specific the strategies,
the easier it is to conform to local laws, culture and competitive
practices. Organizations attempting to use reward vehicles such as
stock options for all employees globally find that many obstacles
are presented by local realities: laws prohibiting ownership in
foreign corporations, dramatically different pay levels that make
the value of the options enormous or insignificant, data privacy
laws blocking access to the information necessary to administer
the program, established local practices causing employees to view
the options differently, etc.
A global organization with a strong universal culture may wish
to adhere to the values and principles that guide behavior for all
employees. However, the factors just discussed can weigh in to force
some relaxation of consistency and to make local accommodations.
Such an organization can rely more heavily on expatriates to fill critical
slots throughout all operations globally if it wishes to ensure things
are done according to corporate policy. The use of a global cadre
that is fully socialized can set the tone for operations everywhere,
even when they only occupy key management roles and work with
workforces dominated by local nationals. Although this practice
has been used by MNEs headquartered in developed countries,
particularly the U.S., Britain and Japan, more developing countries
are adopting legal limitations on the use of foreigners and/or are
applying considerable social pressure to more quickly fill key slots
with local nationals. In October 2006, a government mandate was
issued requiring all HR directors in a major Middle Eastern country
to be nationals within a relatively short period of time, which
sent employers scrambling to find qualified people or to invest in
high-speed training. A decision like this influences reward strategy,
as expatriate remuneration packages can be largely homogeneous,
with focused variations relating to different living costs and tax
structures to keep expatriates whole wherever they are assigned.
The homogenization becomes more difficult when local nationals
and third-country nationals replace expatriates.
228 Global Rewards
For a global organization concerned about the high cost of using

expatriates and/or the negative reaction to a globally homogeneous
strategy in some countries, options exist. Research shows that the
use of expatriates is generally declining, replaced by more short-term
project assignments and extended business commuting. Growth
in the use of inpatriate assignments allows local nationals to be
brought into headquarters for extended periods. The purpose of
these inpatriate assignments may be to socialize future managers to
the organizations culture, provide them with management training
and/or have them educate corporate personnel about their home
countries and how to successfully do business there. Infosys recently
won an award for its program that assigns graduates hired in
the U.S. to India for a six-month tour to acquaint them with the
companys way of operating and to socialize them into the Infosys
culture before sending them back to work in the U.S.
No matter which approach is used, it is inevitable that treating
people differently with respect to their reward packages will create
challenges. How dramatic the differences are and how long they
will persist will impact the reactions of incumbents. Everyone is
subject to the grass is greener syndrome when someone else is
treated differently. However, by understanding the potential legal,
economic and cultural conflicts that may arise, an organization
can craft reward strategies that minimize negative reactions or
uneconomic practices. When the plant manager in one country wants
to distribute an incentive pool in an egalitarian fashion and the plant
manager in a neighboring country chooses to differentiate between
individuals/units, it is wise to understand why they would choose to
do this differently before mandating consistency. There may be much
more gained in the form of employee acceptance and motivation
by allowing differences than by insisting on similarity.
The increased use of global teams consisting of members
from different occupations/functions, different countries and
different organizational levels raises additional issues relating
to reward strategy. Some team members may be co-located
while others are in different countries and time zones, causing them
to interact asynchronously. Although it would seem those working
shoulder to shoulder would be more concerned about reward
consistency than those who are separated, any differences in how

and how much members are rewarded can be divisive. If a Chinese
engineer receives a $1,000 USD cash incentive award while an
American colleague receives $4,000 USD for a similar contribution,
it may make little difference that the award is the same percentage of
base salary for both. If they shop together in San Francisco to celebrate
the projects success, the difference in award size will be apparent.
And if the team leader awards some individuals more because their
contribution is thought to be greater, the cooperative fabric of the team
could unravel. Such differentiation is apt to be viewed as inappropriate
by members from collectivist cultures, even though they acknowledge
the value of the contributions of those rewarded more richly.
Evaluating the Effectiveness of Reward Strategies

Evaluation of strategies and programs is typically done as an after
the fact exercise, often when things have deteriorated to an intoler-
able level. This is unfortunate, as it is often too late to do anything
but damage control. It is possible to perform evaluations of why
strategies and programs seem to work in some contexts and whether
other contexts are sufficiently similar to project success in those
locations. This enables the organization to anticipate problems
in transferring practices across locations and cultures before they
become a reality. For example, Lincoln Electric prospered for decades
in the U.S. with a reward strategy that consisted of output-based
rewards (a.k.a., piecework) for individuals and a gainsharing plan
that rewarded everyone for overall success. This highly successful
strategy worked reasonably well when it was implemented in the
companys new operations in England and Mexico, but failed to
gain acceptance in parts of Europe and in Japan. The failure was
largely due to cultural conflicts, which seemingly could have been
anticipated if in-depth research on the characteristics of each culture
had been done before attempting implementation.
Conclusion
Managing rewards globally requires an understanding of context,
especially cultural context. A strategy or program producing
outstanding results in one place may be ineffective somewhere
230 Global Rewards
else due to cultural differences. Every organization should attempt

to recognize, respect and reconcile those differences. By analyzing
the cultural diversity within its workforce, an organization can
anticipate potential problems and decide how to formulate strategy
and solutions.
References
Hall, Edward T. 1976. Beyond Culture. New York: Anchor
Books.
Hofstede, Geert. 1990. Cultures and Organizations. New York:
McGraw-Hill.
Trompenaars, Fons and Charles Hambden-Turner. 1998. Riding
The Waves of Culture: Understanding Diversity in Global Business.
2d Ed., Nicholas Brealy. New York: McGraw-Hill.
Trompenaars, Fons and Charles Hambden-Turner. 2004. Managing
People Across Cultures. Hoboken, N.J.: John Wiley & Sons.
231
Appendix:
Country Specific
232 Global Rewards
The Australian Way of Compensation:

Today and Tomorrow
Mariana Uzcategui | Fermin Diez, CCP
The first explorers arriving in Australia found a land filled with things
they had never seen: hopping kangaroos, cuddly koalas and strange-
looking platypi. These animals seemed normal to the locals, but
were definitely different to the newcomers. It is, in a way, symbolic,
as the same can be said for total rewards professionals who face
Australian HR and compensation practices for the first time. For the
new, or even the experienced compensation and benefits practitioner
whose company operates in Australia, and for those whose company
is looking to expand down under, or for those who are simply
curious or personally interested, superannuation, salary sacrifice
and salary packaging are alien to the outside world.
As the world becomes increasingly flat, it is ever-more important
that the global-compensation executives better understand the
different compensation approaches in various countries.
The tremendous growth that the Asian tiger economies (India,
China, South Korea) have experienced during the last decade has
no parallel in history. This growth outpaced any companys capacity
to quickly assimilate the changes occurring in the environment, and
their ability to respond to these changes adequately. The Asia-Pacific
region (specifically Australia) has not escaped from this effect; however,
the effect has been at a slower pace. Australia is a major presence
in the Asia-Pacific region and multinational companies continue to
expand there. Therefore, it is appropriate to examine the Australian
case separately, to evaluate its unique circumstances.
When examining compensation in the Asia-Pacific Region, the
distinction is clear between the approaches taken in Australia and
those of the rest of the countries in the region. A remarkable difference
also exists between how compensation is understood and treated in
the United States and the Australian way of treating remuneration.
234 Global Rewards
A Holistic View
It is important to understand talent-management issues within
the context of the overall country. Understanding the core factors
affecting companies in any given environment is a key in the
successful implementation of human-capital strategy. The following
paragraphs offer a holistic view aimed at facilitating the understanding
of how the Australian business context shapes the management of
HR issues and challenges.
The model in Figure 1 indicates that the drivers for compensation
are country- and company-based. The model assumes that the
interaction and combination of external factors (country-related),
including the economy, the countrys social culture and politics
impact a companys business. It also assumes that the interaction
between the external and internal factors (company-related)
ultimately explain what is driving the existence and the value of
each compensation element in the country.
The Reconquering of the West

Australia is one of the few industrialized countries in the world
that has enjoyed more than 10 years of continued growth. The
economy is mainly driven by natural resources, and growth is
still expected for the coming years, although at a moderate rate
(between 3 percent and 4 percent annually). Interestingly enough,
FIGURE 1
The Drivers for Compensation Are Country- and Company-Based

Drivers
Drivers
Country Company
Economy
Organizational Organizational
Socio Culture Challenges
Politics
Culture
Factors Factors
Compensation
Australian Compensation and Reward Definitions
Five definitions are used in this paper that the reader should know.
ANZUS pact is a security treaty including Australia, New Zealand and the
United States.
ASEAN pact is an economic agreement with the acronym standing for As-
sociation of South-East Asian Nations.
Salary sacrifice is an arrangement in which the employee agrees to forego
part of his or her future salary or wages in return for his or her employer
providing benefits of a similar value. The contractual agreement between
employer and employee to alter the salary package (by exchanging part
of the employees future salary or wages for another benefit) is a salary
sacrifice arrangement.
Salary packaging is the process whereby an employee elects to prospec-
tively forego some salary to obtain an employer-provided fringe benefit. The
employees pre-tax salary pays for the benefits thereby reducing the taxable
salary. Salary packaging is prospective, i.e., for the year ahead and not ret-
rospective, i.e., for the year behind. As salary packaging is prospective, the
employee must plan in advance.
Superannuation is an Australian pension plan (or schemes as plans are
known in Australia and some other countries outside of the United States).
Superannuation has a compulsory element requiring employers by law to
pay a proportion of the employees salary and wages into a superannuation
fund, which can be accessed when the employee retires. (Currently, em-
ployers pay 9 percent of wages and salaries into the fund.)
this growth will not be uniform in all states. Of the six Australian
states and one territory, two of them, Western Australia and South
Australia, are pulling the countrys resources to expand further
west and south. The rest of the states are expected to remain
either stable or in a close-to-mature stage. Within this scenario,
demand for skilled labor continues to rise, placing unemployment
at a record low of 4.8 percent (as of August 2006). However, labor
supply is also not uniform throughout Australia and the govern-
ment has started to create incentives for local nationals to move
to the Australias west and south.
With a population of only around 20 million people, Australia
is still a country that is attractive to immigrants, especially those
from Asian countries. But the governments formal migration
policies tightened recently, becoming more restrictive around
the specific skills and age required. Internal and external labor
sourcing initiatives are aimed at filling the workforce gap and
236 Global Rewards
generating the expected growth domestic product (GDP) growth.

For example, the government has made it easier for immigrants
to obtain working papers as long as they move to the west and
south states primarily.
Australia has had a stable currency for several years and a
reasonably healthy economic outlook. However, higher inflation,
rising interest rates and increased production costs have been recently
steaming up the economy, adding pressure in the governments
budget and companies profits.
Although Australia has historically been receptive to investment
from outside the country, the country struggles to compete with the
cost savings that China or India offers to multinational companies.
Unable to compete on this scene, Australia has become increasingly
confident on the competitive advantage of its primary products.
Most future income is expected to come from the mining sector
(production and exports are currently 8 percent of GDP). Currently,
the manufacturing and services sectors account for 10 percent and
71 percent of GDP respectively.
However, existing and entering multinational companies in
Australia find it increasingly difficult to find and keep skilled
labor to satisfy their business commitments. As in other developed
countries, Australia is experiencing a demographic shift toward more
retirees and fewer people of working age. Fierce competition for
specific skills, along with the aging population, has been forcing
employers to look at alternative approaches to retain talent. One
of those talent-management approaches that is increasingly gaining
popularity is salary packaging.
Under this approach, employees have the opportunity to structure
their own remuneration package around a selection of cash and
benefits. Different to most other countries, Australias total fixed
remuneration includes the value of cash, benefits and taxes. The
typical components of total fixed remuneration are: base salary,
statutory and nonstatutory benefits components (i.e., superannuation,
salary, car, insurance) and fringe benefits tax (FBT), wherever
applicable, all combined into one figure also called total employee
cost (TEC). Fringe benefits tax (FBT) is a tax on benefits provided
to an employee by the employer that would otherwise be provided
as a cash component. Packaging is, therefore, the flexibility given

to the employee to select the cash and benefits portions of his
or her compensation. In other words, the employee foregoes part
of the salary he or she would have received, in return for other
benefits. Therefore, the employees income tax and tax deduction
installments are based on a reduced salary, and the employer
would typically transfer the FBT for which it is liable, into the
employees package. Therefore, the employee is taxed on the
benefits as though the benefits were cash income.
In practice, this approach to remuneration management is typically
cost effective for employee and employer. It is also easier, from
the employer point of view, to forecast and calculate the effect of
salary increases on the total cost of payroll, if the total employment
cost (TEC) 0 is used as the basis for calculations. It also allows
for greater flexibility in terms of meeting employees needs. For
example, older employees may choose to salary sacrifice an increase
in their superannuation (retirement) contribution.
In other words, the meaning of total cash or total fixed cash
in Australia is quite different than the base salary + incentives
concept used elsewhere.
The True Sense of Mateship

During recent decades, Australias foreign relations have been
driven by a close association with the United States and, through
the ANZUS pact, by a desire to develop relationships with Asia and
the Pacific, particularly in ASEAN and the Pacific Islands Forum.
Australias relations with its Asian neighbors have been influenced
by this approach from the government.
Moreover, it has been recognized during the past few years that Australia
greatly has enhanced the regions stability and prosperity. Therefore,
the government is constantly seeking closer engagements.
Nevertheless, Australia is distant from Asia in terms of culture,
people and development. Perhaps its remote geographical location
has given the country and its people a uniqueness.
In quality of living, Australia ranked third in the United Nations
2005 and 2006 Human Development Index (HDI) published by the
United Nations Development. Furthermore, according to the 2006
238 Global Rewards
Mercer Quality of Living Report, Sydney, Melbourne and Perth

ranked among the top 20 cities in terms of best quality of living
in the world, making Australia the only country in the world with
three cities in the top list.
With a per capita income of $30,700 (also among the highest in
the world), Australia is a country where wealth is perceived to be
fairly distributed. The economic difference among social classes is
less evident than in other Asia-Pacific countries. A look at salary
differences between organizational levels, reveals a seemingly
natural difference between operational and professional jobs with a
bigger leap between managers and senior-executives salaries.
The typical Australian employee is first attracted by the type of
work he or she will be doing and by the workplace. Receiving regular
feedback on his or her quality of work keeps them committed.
Quality of work is achieved by teamwork. Australians also ardently
value the quality of workplace relationships.
This is perhaps a direct influence of the national feeling of
mateship, which is a unique sense of camaraderie expressed by
loyalty and commitment to a group. This group might be family,
co-workers, friends, etc. It is invariably found in any life aspect
of a true Australian citizen.
Another important aspect of this gregarious nature is that
Australian employees feel the need to be treated fairly by the
organization and also be communicated to with honestly. Therefore,
ensuring that employees recognize that they are being treated
fairly can have a large positive effect in engaging them.
The second most-valued element by a typical-Australian employee
is work-life balance. According to the Mercer Whats Working
Survey, conducted regarding employee engagement, three of
10 of respondents working between 40 to 50 hours per week
(considered long hours), mentioned that the amount of work they
are asked to do is unreasonable, not well-allocated and therefore
they would be willing to leave their employer.
In the same survey, perceived importance of benefits was also
tested among respondents. Australians rated holidays and annual
leave as their most-important benefit (80 percent of respondents),
followed by superannuation (78 percent) and f lexible work
arrangements (66percent). It is unsurprising then, that Australia is

one country where part-time employment is widely used, especially
for working women. Approximately 80 percent of companies offer
flexible work patterns to employees, becoming a must-have
policy for multinationals.
In terms of noncash benefits, the company car was rated
important by 20 percent of respondents. However, the level of
importance tends to vary by employee level. Generally speaking,
sales representatives would ask for a car as part of the job offer. In
this case, company car is treated as a job facility and therefore
not part of the TEC or package previously mentioned. A company
car for an executive is typically termed a benefits vehicle and
it is provided in 77 percent of organizations. This benefit is
often included in their remuneration package offer and incurs
FBT. As opposed to other countries, where cars have some tax
advantages, in Australia, it only represents a tax benefit to higher
bracket employees due to a recent change in the FBT Legislation.
Typically, car financing is through novated leases (45 percent of
organizations). Under this arrangement, the employee enters into
a finance/operating lease with a finance company, whereby the
rights and obligations under the lease agreement are transferred
to the employer while the employee packages the value of the
car in his or her total-remuneration amount. The employer makes
the lease payments and meets the cost of insurance, registration,
maintenance and operation. These costs are deductible as a
business expense and the vehicle is treated as an employee fringe
benefit. All costs of the vehicle (including FBT), are either met by
the employer or deducted from the employees total-remuneration
package by salary sacrifice.
The Freedom to Negotiate More Lessons on Flexibility

Australia has a sovereign, central government (democratically
elected) that enables the country to act as an independent nation
within the British Commonwealth. Three political parties dominate
the center of the Australian political spectrum: The Liberal Party,
nominally representing the urban business-related groups; the
Nationals, nominally representing rural interest; and the Australian
240 Global Rewards
Labour Party, nominally representing the trade unions and liberal

groups. Many feel that the Liberal Party traditionally has been
moderately socialist in its policies and approaches to social issues.
Political groups are tied down by traditional domestic welfare
policies that have kept Australia in the forefront of societies
offering extensive social-welfare programs. Consequently, benefits
like medical and life insurance are not commonly part of the
employer offering, since they are provided to local nationals by
the government, through the Medicare system, which is funded
through a fixed-percentage contribution scheme in addition to
normal personal tax.
Union strength varies by industry (construction being among
the strongest) and most of them negotiate specific employment
conditions. However, federal laws generally include basic rules
of the games for companies. Minimum wage, for example, is set
and increased by federal law decrees.
Guaranteed superannuation, the Australian form of mandatory
pension system, is another example of federal ruling. Superannuation
is a compulsory defined-contribution pension fund that stands
out as innovative and efficient if compared with other countries
systems. It is privately run, and firms and their employees choose
which investment company or companies will administer the
fund. Superannuation requires employers, by law, to contribute
a minimum of 9 percent of each employees salary into that
employees superannuation account. Employees can choose to make
contributions and with recent legislation, employees can choose
the funds in which they want their money to be invested.
Enterprise agreements (also called awards) cover employment
terms and conditions for at least part of the staff in most companies
(59 percent). Collective agreements negotiated with unions are the
most-common form of agreements in federal and state jurisdictions.
However, individual agreements (Australia Workplace Agreements
or AWA) are becoming more prevalent during the past six years.
This allows employees to negotiate directly with the employer,
but also makes it more cumbersome for companies to administer.
Labor relations in Australia have the same flexibility mindset
found in various fronts of society.
A recently enacted federal law titled WorkChoices has

the mission to streamline, simplify and make less costly the
agreement-making process. It prescribes matters that should be
included in the enterprise agreements (e.g., review of wages and
classification structure) and excludes those covered by other
legislation (e.g., superannuation, long-service leave, notice, etc.).
Uncertainties exist around how companies must comply with
the WorkChoices legislation, how their brand is protected and
how the law fits into their overall HR strategy, (among other
concerns). Companies have had to adjust some HR practices to
comply with the new legislation, however, interpretation of the
law is changing as court challenges and decisions are upheld.
Political uncertainty around these laws, and a possible change
in government, adds to company concerns.
Ultimately, the federal governments intent is to introduce a
plan to create a modern workplace-relations system providing
Australia a flexible labor market and allowing economic growth
and employment opportunities.
Organizational Challenges
This scenario, existing in Australias work environment, creates
numerous challenges for companies in the country, as follows:
Budget restraints given the current economic context (rising

inflation and interest rates)
Balancing act between skills shortages and profit generation
Fitting the companies values and culture into the Australian

cultural context
Predicting and reacting to exposure to talent competition in

core-business areas not only within the companys own sector
but also from other sectors
Strengthening employment value proposition while protecting

consumer brand
242 Global Rewards
Remaining profitable while flexible
Driving desired behaviors and business outcomes.
There is no single answer to how companies should respond to

these challenges. They can be perceived as barriers or opportunities
depending on how the response strategy is articulated. What remains
invariable is the need to identify, understand and incorporate
them into the companys strategy to enable its success.
A Compensation Snapshot 2003 to 2005

This section focuses on the trends these factors have created in
the market during the past three years.
Base Salary
Salary movements in Australia have not changed drastically in the
past three years (increases have remained between 4 percent and 5
percent); however, in technical areas like medical research, project
management and engineering, where skills shortages are present,
salaries grew at a faster rate (more than 6.5 percent).
However, as shown in Figure 2, base salaries have experienced
greater growth at the management and senior-executive levels.
FIGURE 2
Base Salary Growth

$250,000
$225,000
2003
$200,000 2004
$175,000 2005
Base Salary ($AUD)
$150,000
$125,000
$100,000
$75,000
$50,000
$25,000
$0
Staff Supervisors Managers Senior
Executives
Total-Employment Cost
According to Figure 3 on page 64, the picture for total-employment
cost (TEC) is not much different from that for base salary. TEC
includes superannuation, value of noncash benefits and FBT. Overall,
it has not had drastic changes during the past three years. The
superannuation and noncash benefits component remained stable
for staff and supervisors, but has risen for managers and senior
executives since 2003.
Short-term Incentives in Australia

If short-term incentives in 2003 are compared to those in 2005,
the greatest change was the increase in eligibility for professional
nonsales and staff levels. Target short-term incentives have been
higher than pay-out during the past three years. However, bonus
differentiations across levels show that remuneration is more
leveraged as a worker ascends the organizational ladder. Actual
short-term incentives for staff represent 3 percent to 5 percent of
base salary, whereas for senior executives, it represents 23 percent
to 27 percent of base salary.
FIGURE 3
Total Employment Cost Median Trend, 2003 to 2005
$300,000
$275,000 2003
2004
$250,000
2005
$225,000
$200,000
Base Salary ($AUD)
$175,000
$150,000
$125,000
$100,000
$75,000
$50,000
$25,000
$0
Staff Supervisors Managers Senior
Executives
244 Global Rewards
This is conservative compared to other countries; yet it is possible

to note major differences from year to year. For example, in 2004
bonus payout for senior-executive roles doubled the payout in 2003,
but then was halved in 2005. The year 2004 was, in general, a good
year for most companies in Australia. Salary increases were slightly
more generous. Various reorganizations and mergers took place and
companies acted quickly to retain talent. From these variations, the
authors conclude that Australian companies have a strong linkage
between employee remuneration and companies financial results.
The Compensation Mix in Australia

Although Figure 4 shows the overall compensation mix in the
country for all industry, total cash mix varies by job and by level
within a sector/industry. For example, the incentive portion for
sales roles is typically higher than professionals or even some
management positions. On average, the base salary in Australia as
a percentage of total employee reward (Total Employment Cost +
Incentives) represents around 70 percent, ranging from 85 percent
to 42 percent for senior executives. Although not covered by this
analysis, approximately 57 percent of companies in Australia provide
some type of long-term incentives.
FIGURE 4
Compensation Mix, 2005

0% 20% 40% 60% 80% 100%
Staff
Supervisors
Level
Managers
Executives
Base Salary Noncash Benefits Incentives
In summary, variable compensation remains more of a retention

tool than an attraction tool. A balanced employment offer comprised
of competitive total fixed packages, flexibility and quality of work
seems to be the formula to win the talent war in Australia.
References
Mercer Human Resource Consulting. 2005. Whats Working
Survey.
Mercer Human Resource Consulting. 2006. Quality of Living
Report.
United Nations Human Development Programme. 2005. Human
Development Report 2005, Country Fact Sheets Australia.
United Nations Human Development Programme. 2006. Human
Development Report 2006, Country Fact Sheets Australia.
246 Global Rewards
China and Total Rewards: A Look at Workforce Issues and Business Strategy 247
China and Total Rewards:

A Look at Workforce Issues
and Business Strategy
Pengpeng Zhou
With the global economy and demographics changing, total rewards

professionals are facing new challenges including how to leverage
labor supply and demand globally, and how to design reward
systems that are aligned with their organizations business strate-
gies and vision yet flexible enough to adapt locally.
To meet the staffing issues that many organizations will face with
an aging workforce and the resulting possible labor shortage, China
could be a primary alternative choice for businesses striving to meet
their talent-management challenge. China has growing business
relationships with the rest of the world, and it can provide a large
workforce; it has large economic development potential, and it has
a low cost of production. Businesses with their home offices outside
China are already are inside China but, in some cases, struggle with
human-resource issues that were previously unencountered in other
locations. According to the Global Relation Trends 2003/04 Survey
Report, (GMAC Global Relation Services, National Foreign Trade Council,
SHRM Global Forum (2004), China is one of the most frequent and
primary destinations for international expatriates, but it does present
challenges for expatriates and administrators.
The key to being better prepared to conduct business in China
is to establish a total rewards system that is consistent with an
organizations business strategy and that can be adapted to various
emerging conditions. Many multinationals follow this tactic (not only
in China but worldwide) and it was discussed in a paper in this
publication by Robert J. Greene (2008), who wrote:
A global organization can adopt one global rewards strategy
and set of programs, use different strategies/programs for
each locale/country/region or agree on a set of global guiding
248 Global Rewards
principles and then allow some latitude for local customization

as long as the principles are adhered to. The more universal
the strategy, the easier it is to align all employees and units
with organizational values and objectives. The more locally
specific the strategies, the easier it is to conform to local
laws, culture and competitive practices.
Chinas Tight Labor Market

Two basic, and usually misleading, factors influence the development
of a total rewards program in China: (1) a low labor cost and (2) a large
population, which many feel translates to a large workforce.
Low Labor Cost (But How is the Quality?)

The cost of labor is generally low in China. While benefits are at least
partially handled by the state and training is not a large expense, it
is the low wages that attract many companies. To cite an example
in the compensation area, the Jan. 28, 2008, BusinessWeek reported
(based on information from Mercer) that the salary of a data-entry
operator in the country is $4,034. In contrast, that position will earn
close to $31,000 in Japan and $35,400 in the United States. Similarly,
the head of sales and marketing in China will expect to earn $92,402.
In Japan, that position would secure more than $163,000 and in the
United States, the positions salary would exceed $220,000 (McGregor
2008). The low cost of labor attracts companies to China, as the
manufacturing sector in China pays its workers between 2 percent
and 3 percent of the U.S. level on average. But two hidden factors
behind the low cost should be considered.
First, the low wages provide much lower productivity (The
Conference Board 2006). The lower-cost labor productivity is at 12
percent to 13 percent of U.S. labor, although Chinas labor makes
it one of the most competitive manufacturing nations among the
nations with similar labor costs. An unfortunate result of the low
productivity, the low wages and the low level of training can be
the low quality. The lack of skills training for Chinese workers
plays a major role in causing the quality concerns. Organizations
in China invest minimally to train their employees. In addition,
organizations dont train and develop their employees in China,
as the retention issue looms large in the Chinese labor market.

This applies to skilled and unskilled labor.
Second, while studies show that global salaries increased by an
average of 5.9 percent in 2007, Chinas gross salary increase rate
is 7.2 percent (Mercer Human Resource Consulting 2006), and
the large salary increases are part of what some have referred to
as a pay bubble in the region. The high salary increases are a
reflection of the low base wages and are a part of the retention
issue. Hay Groups Roland Ruiz put the description of the rapidly
increasing wages best when he wrote (2007):
In China, when Chinese employees are lured away from
their current jobs, they pocket at least 40 percent more
in base salary, on top of a promotion (both in job scope
and title). This compares with an average base salary
increase of 24 percent in Singapore and 21 percent in
Hong Kong. However, are companies in China seeing
a 40 percent return on their pay investment in terms of
productivity, revenue or profitability? How long before
this pay bubble bursts?
Large Workforce (But Becoming Smaller)

China has the worlds largest population, but a large population
doesnt translate to a large workforce. China will experience a
dramatic population aging during the next 40 years.
According to United Nations Population Projection (1998), China
will have about 630 million people who are age 50 and older in
2050; with 529 million ages 20-49, and only 324 million under age
20 in 2050. The projection is, by the year 2025, only 30 percent of
the population will be in the workforce. In comparison, 50 percent
of the population was in the workforce in a period beginning in
1950 and until 2010.
The one child per family policy in China brought a declining
birthrate and contributed to an aging population, with this projected
long-term worker shortage (Xin and Sankar 2007).
The Route to Success

Xin and Sankar (2007a) also noted:
250 Global Rewards
In a 2006 Mercer survey of business leaders in China

the highest-ranked concerns were building leadership
capabilities (87 percent), acquiring key talent (66 percent)
and retaining key talent (64 percent) . Chinas CEOs
are asking human resources to play a critical and
accountable role in addressing these concerns.
So the HR issues of attraction, motivation and retention, which
are important in many countries, are also significant in China.
Attraction
According to ONeal and Chai (2007), Employment advertisements,
campus hires and job fairs are the key recruitment channels
for entr y-level and junior employees. The Internet also has
become popular for recruiting junior and midlevel employees,
especially among multinationals and in private enterprise. There
is an increasing use of headhunters for senior openings and
a recognition that the correct balance of rewards is essential
to recruit, retain and engage the workforce that will ensure
Chinas future.
One way to attract Chinese talent is by borrowing Best Buys
China marketing strategy; that is, use the brand name to its
fullest advantage.
Unlike in many countries (including the United States and
Canada), Best Buy store employees in China lay out store shelves
by brand name rather than product category. This strategy attracts
consumers, as the mass media in the past 15 years has convinced
the population that a recognizable brand name is connected
to social status. This is the case for Chinese of all ages. The
better the organization brand name and the more attractive
the corporate culture, the more effective a company will be in
attracting talent in China. There is a saying in China that it is
better to sweep Microsofts f loor than become the CEO in an
unknown company.
However, keep in mind that a strong brand name in the parent
country doesnt always translate to the correct reputation in China.
For example, some Chinese believe that Accenture is a golf-ball
manufacturer, as its advertisements feature Tiger Woods.
Motivation (and Engagement)

Two primary motivators for a Chinese worker are to be perceived
as working hard and to accumulate wealth. So recognition
programs in China (some attached to local customs) are appreciated
by the workers. Wealth accumulation is primarily accomplished
through a paycheck.
A 2006 study reveals that only 2 percent of Chinese workers
attitude is reflected in the phrase Never think of yourself, give
in service to society, whereas 26 percent of workers agreed
with the statement that translated to Dont think of money/
fame; live a life that suits my own tastes. (McEwen, Fang, Zhang
and Burkholder 2006). This seems surprising considering the
Communist Party of China (CPC) directed the country under a
single-party system since the states establishment in 1949, when
the population was encouraged to give in service to society.
However, beginning in late 1978, the leadership in China began
reforming the economy from a centrally planned program to
a more market-oriented economy. Some describe this as going
from socialism with Chinese characteristics to capitalism with
Chinese characteristics. So the trend is: Instead of worrying
about basic food or living needs, more Chinese workers are
concerned about the gaining a better taste of their own life.
Many organizations perceive Chinese workers as highly
dedicated to their work. But one sur vey indicates that 68
percent of employees dont feel engaged, and 88 percent of
employees were not interested in their jobs (Gallup 2004). A
Towers Perrin survey (ONeal and Gebauer 2006) a year later
defined engagement as the willingness and ability to contribute
to the organizations success and went on to report that only 8
percent of the surveyed workers in China were highly engaged.
In the United States, that number was 21 percent. In Canada,
it was 17 percent. Further, 25 percent indicated that they were
disengaged. By comparison, that number was 16 percent in
the U.S. and 17 percent in Canada.
ONeal and Chai (2007a) indicate that engagement is dependent
on a broad mix of reward elements, including teamwork and
fair criteria for pay.
252 Global Rewards
It is difficult to engage the worker in this country, partially because

many opportunities and alternatives (especially for top talent) exist.
This raises the issue of employee retention in China.
Retention
The Hay Groups data shows that many companies, especially
foreign multinational companies, struggle to keep an employee in
the same job for more than two years, and local Chinese managers
are, on average, five years younger than their counterparts in
Asia. Companies in China find that they must strike a fine balance
between readiness and retention. Otherwise, their competitors will
promote and reward their employees for them (Ruiz 2007a).
Leveraging the compensation portion and career-development
opportunities associated with a total rewards program may be the
most important step to retaining talent. For skilled employees, provide
various forms of benefits and involve cash payment as a strategy to
prevent competitors from stealing talent. For nonskilled employees,
higher base pay is the key to retention (Wang 2007).
A Watson Wyatt Worldwide survey in 2005 found Chinese employees
stay with companies for:
Good career opportunity: 30 percent
Good compensation package: 29 percent
Good training and personal development opportunities:

29 percent.
Total rewards professionals should consider strategies that make their

company different to the local workers. For example, a China Youth
Daily-Sina.com survey found that 73 percent of the 74,379 respondents
said they never enjoyed any paid vacation. A paid vacation could
make the total rewards program a real standout.
A BusinessWeek report (2008) seems to indicate that businesses
should be prepared to operate a benefits program with some
features not found in the typical North American company. The
publication reported:
Companies operating in China are required by the

government to chip into a housing fund thats available
to their Chinese employees, who also make contributions.
When employees are ready to buy a home, they can draw
from the funds to help. About 20 percent of multinationals
currently chip in more to the housing fund than required,
according to Mercer.
Multinationals further need to recognize the local labor markets
conceptions of the various elements of the total rewards packages.
In such a large country, many different subcultures exist, and
compensation-package designers should pay particular attention
to those subcultures. For example, married managers must give
a red envelope with different amounts of cash to unmarried
employees during the Chinese Lunar New Year. But this is popular
only in southern China.
Different geographic locations require different salary levels.
In the first-tier cities including Beijing, Shanghai, Shenzhen and
Guangzhou, salary could be doubled the salaries in second-tier
cities including Chongqing, Hangzhou and Chendu. But it might
be a mistake to move from first-tier cities to second-tier cities. In
2005, the first-tier cities salary increase rate was 8.7 percent, while
the second-tier cities rate was 11.4 percent (Hewitt Associates
2005). Xin and Sankar (2007) also explain:
Moving people from city to city is complicated in part
because social security and pension payments made in
one city cannot be transferred to another. Social and
cultural factors can also limit mobility, while the wealth
of jobs available in the great coastal cities means there
is little incentive for workers to move.
In considering product development, there are transportation
concerns in the second-tier cities that could delay delivery time
and increase costs.
The Advent of a New Labor Law

China is in the midst of its biggest modernization of labor laws
and labor-market regulation, which began Jan. 1. The labor
reforms grant the individual worker more employment protection
254 Global Rewards
rights enforceable by law and mean more legal certainty for

foreign employers.
We regard the planned Chinese labor-law reforms as a breakthrough
and big leap toward international labor-market standards. Collective
wage agreements, employment rights that are enforceable by law,
and dismissal protection no longer remain taboos in China. The
new labor laws have unmistakable German and British flavors. It is
a good example of Chinas increasing openness to adopt foreign best
practices, said Wolfgang Clement, chairman of the Adecco Institute
and former German minister for Economics and Labor. Chinas labor
reforms focus on individual employment protection, emphasizing written
labor contracts, employment promotion, labor dispute conciliation
and arbitration, equal pay and long-term job security.
While the new laws may contribute to raising unit labor costs
over time in China, for example through salary raises, there will also
be significant benefits to foreign firms, giving corporate leadership
more clarity and certainty about the future direction of Chinese
labor regulations, said Peter Siderman, managing director of the
Adecco Institute.
The new laws provide a strategic road map for the next 10 to 15
years. They will slow the rapid rate of workforce turnover and bring
more procedural transparency to labor-dispute resolution. They provide
better protection for trade secrets and incentives for employers to
invest in vocational training for workers. They also permit new forms
of flexible work and third-party labor placement.
Perhaps most importantly, the Chinese government will enforce
new labor laws across all provinces in a more effective way than until
now. This would be one of the most spectacular, confidence-building
reforms in new China, Siderman said (Adecco Institute 2007).
But not everyone is wholly optimistic about the new law, admitting
that challenges lie ahead. In January, Donald Straszheim, the vice
chairman of Roth Capital Partners in Los Angeles and the former global
chief economist at Merrill Lynch, wrote on the Forbes Web site:
The thrust of this is somewhere between scary and
encouraging. Working conditions in China are just awful
for literally tens of millions of workers, as they are in most
emerging economies. China is certainly still an emerging
economy despite the skyscrapers, trade growth and the

upcoming Olympic Games. But I believe the new law goes
too far, giving more protection than is healthy for an economy
as dynamic and fast-changing as China. The ability for
businesses to adjust to changes is crucial. While there are
many pluses in the new law, hiring and firing flexibility
is sharply curtailed, hiking labor costs and potentially
becoming a drag on innovation and productivity. The law
dramatically shifts the employer-employee balance of power
to the employee.
So many challenges are ahead.
References
Adecco Institute. 2007. China prepares for historic labor law
reforms more rights and better protection for workers mark
shift towards global standards. Press release (Dec. 5). http://www.
adeccoinstitute.com/Adecco_Institute_Press_Release_China_Labor_
Market_English_Dec_5_2007.pdf. Viewed: June 25, 2008.
The Conference Board. 2006. Low Wages Not Always Key
Success Factor for Overseas Investment. Oct. 4.
Gallup. 2004. Living to Work Chinese Employee Survey.
GM AC Global Relocation Ser vices, National Foreign Trade
Council, SHRM Global Forum. 2004. Global Relocation Trends
2003/04 Survey Report. May.
Greene, Robert J. 2008. Rewards Management In Multinational
Enterprises. WorldatWork Journal. Third Quarter: 51.
Hewitt Associates. 2005. Survey Average Salary Increase by
City, China 2005.
McEwen, William, Xiaoguang Fang, Chuanping Zhang and
Richard Burkholder. 2006. Inside the Mind of the Chinese
Consumer. Harvard Business Review. March.
McGregor, Jane. 2008. The Right Perks. BusinessWeek. Jan.
28: 43.
Mercer Human Resource Consulting. 2006. A Global Perspective
on 2007 Compensation Planning. September.
ONeal, Sandra and Eric Mingang Chai. 20 07. workspan.
November: 105.
256 Global Rewards
ONeal, Sandra and Eric Mingang Chai. 2007a. workspan.

November: 102.
ONeal, Sandra and Julie Gebauer. 2006. WorldatWork Journal.
First Quarter: 13.
Ruiz, Roland. 2007. Asian Pay Bubble: A View from the Ground.
workspan. November: 90.
Ruiz, Roland. 2007a. Asian Pay Bubble: A View from the Ground.
workspan. November: 91.
Straszheim, Donald. 2008. China:Tangled New Labor Law. http://
www.forbes.com/opinions/2008/01/11/straszheim-china-labor-
oped-cx_dhs_0114straszheim.html. ( Jan. 13) Viewed: Aug. 5.
United Nations Population Division. 1998. : 1990 World Population
Prospects, 1998 Edition.
Wang, Yijang. 2007. International Human Resource Management
workshop, Carlson School of Management, Spring.
Watson Wyatt Worldwide. 2005. Why Employees Stay, China
Survey 2005.
Xin, Guo and Ramamurthy Sankar. 2007. China and India
Demographic Change, HR Challenge. workspan. November: 96.
Xin, Guo and Ramamurthy Sankar. 2007a. China and India
Demographic Change, HR Challenge. workspan. November: 97.
China & India:

Demographic Change, HR Challenge
Guo Xin | Ramamurthy Sankar
Global organizations may view the expanding markets of China

and India as engines of long-term profit fueled by low-cost
workforces and, indeed, vast amounts of capital will keep flowing
into them. Double-digit growth is likely to continue. But the human-
capital challenges facing these economies are considerable. They will
prove costly to businesses in China and India unless these countries
embrace a strategic, sustainable approach to developing the talent
needed for long-term success.
Obviously, this is a crucial issue for organizations, as demographic
changes complicate the hiring and retaining of skilled employees.
In China, for example, the declining birth rates brought about by
the one-child-per-family policy contributed to an aging population,
with a projected long-term shortage of labor. More immediately,
rising costs in the so-called tier one coastal cities of Beijing,
Shanghai, Guangzhou and Shenzhen are forcing companies to
consider relocating or establishing new operations further inland,
in tier two or even tertiary cities, where they inevitably encounter
shortages of needed professionals. During the next five years, the
most critical shortages are likely to be of global managers, followed
by sales and engineering professionals.
Meanwhile, as more firms increase their presence in India,
the annual output of quality graduates and engineers is falling
further below demand. In contrast to China, India has a youthful
population, with 54 percent (or 247 million) under the age of 25
one-quarter of the worlds youth. Out of Indias approximately
3million college graduates annually, some 350,000 are engineering
graduates five times as many as in the United States but
only about 25percent of those engineers are considered employ-
able by multinational companies, according to a 2005 McKinsey
Global Institute study. By 2010, there will be an expected shortfall
258 Global Rewards
of 500,000 qualified employees, McKinsey predicts. This demand/

supply gap has adversely affected businesses, making it difficult for
them to find talent, contain labor costs and compete for top-level
managers and executives.
While these challenges represent the downside of demographics,
rampant capital investment and market growth, the potential upside
for businesses in China and India remains significant provided
that human resources plays an active role in creating innovative
programs that reward performance, optimize limited resources
and successfully attract, train and retain workers.
Chinas Changes
In China, much has changed for the better in recent decades. There
have been improvements in education, for example, and yet despite
these improvements, multinationals in China still face critical staff
shortages, particularly in terms of sales professionals, engineers and
people with international-management experience. In particular,
the lack of internal mobility is a major issue, compounding the
challenge of moving businesses from the tier-one to tier-two cities.
Indeed, moving people from city to city is complicated in part
because social security and pension payments made in one city
cannot be transferred to another. Social and cultural factors can
also limit mobility, while the wealth of jobs available in the great
coastal cities means there is little incentive for workers to move.
As a result, some organizations are poaching employees from
other companies to overcome skills shortages, but that is hardly a
long-term solution. HR leaders need to introduce more sustainable
initiatives, especially in-house leadership-development programs.
At the same time, an emphasis on more competitive employee
benefits will also become a defining factor for organizations seeking
to improve the attraction and retention of high-caliber workers
within Chinas markets.
For example, the enterprise annuity is a way of providing a
supplementary pension to retired workers in China. It is highly
publicized and has obvious appeal to Chinas aging workforce,
and many employers are beginning to think of ways to move
toward it. In addition, China is gradually fine-tuning or changing
benefits regulations, including new legislation regarding long-term

care and disability regulations. More recently, Chinas legislature
addressed issues of long-term job security by passing a law, taking
effect in 2008, requiring employers to provide written contracts to
workers, restrict the use of temporary labor, and enhance union
and collective-bargaining action for wages and benefits. And many
companies are beginning to deploy different kinds of stock-venture
programs as a way to retain their people or to make an employ-
ment offer more attractive.
Unsurprisingly, in a 2006 Mercer survey of business leaders in
China, respondents ranked HR issues as their top concerns, due
mostly to the dilemma of the widening gap between labor supply
and demand. The highest-ranked concerns were building leader-
ship capabilities (87 percent), acquiring key talent (66 percent) and
retaining key talent (64 percent). Statistics bear out these concerns:
during the next 10 years, it is projected that Chinas companies will
need 75,000 managers who can work effectively in global environ-
ments; today, there are estimated to be only 3,000 to 5,000 who
qualify, according to the McKinsey Global Institutes 2005 report.
Chinas CEOs are asking human resources to play a critical
and accountable role in addressing these concerns. According to
Mercers 2006 China Attraction and Retention (A&R) survey, the
top drivers for hiring are an attractive salary and compensation
package, opportunities for career advancement and development,
and meaningful and creative work. When employees are asked
what factors are most likely to keep them in their current posi-
tions, their reasons differ slightly. The top drivers for retention in
China are opportunities for career advancement and development,
followed by attractive salary and compensation packages and a
work-life balance in a unique, organizational culture.
What can HR do to attract, motivate and retain key talent in Chinas
workers market? According to the survey, the five most effective
talent-retention vehicles are individualized career development
plans, competitive pay, overseas assignments, training programs
and improved communication between manager and employee.
Increasingly, Chinese companies are adopting the types of HR
strategies familiar to U.S. organizations, as well as beginning to
260 Global Rewards
tie pay to performance and to reward top producers in critical

positions with additional incentives. Benefits also have become a
determining factor for retaining top talent. As a result, management
should consider these specific strategies:
Using bonuses for targeted, critical populations
Putting more pay at risk by differentiating performance
Using equity for certain key positions
Including flexible benefits, flex time and an enhanced work-life

balance
Paying attention to careers as a critical part of the talent equation.
As Chinas economy continues to grow, the search for talent is

expected to intensify. Established companies with a clear, stra-
tegic, long-range HR plan including training, total rewards and
pay-for-performance programs will enjoy a competitive advantage,
develop an employee brand and obtain a leadership position in
this economic boom.
Indias Challenge
Indias economy, much like Chinas, is enjoying remarkable growth.
Second only to China in terms of population, India is experiencing
a demographically driven youth movement, a fast-growing consumer
middle class and an increasing pool of educated workers. This is
in contrast to the United States, where the demographic pattern
is toward an older population of aging baby boomers. But Indias
remarkable surge also has led to growing pains.
Today, India is straining to keep up with the demand for new
and improved roads, bridges, ports and power to help fuel this
high-level growth. And as mentioned at the beginning of this
article, businesses are feeling the results of insufficient investment
in higher education as the annual supply of qualified graduates
falls far below demand levels.
This demand/supply gap adversely affected businesses, making

it difficult to find talent, contain labor costs and compete for top-
level managers and leaders. Once an employers market, todays
managers and leaders are calling the shots and are enjoying 13
percent to 14 percent annual pay increases, according to a recent
Mercer Compensation Outlook Survey.
Traditionally, workers competed for a limited number of posi-
tions, and companies had little need for HR involvement, except
to handle personnel administration, compliance and regulations.
Today, economic growth and labor woes have helped thrust the
HR function into the spotlight. To help their companies compete
in this tight labor market, HR managers are becoming more inno-
vative in performance management and recruitment, a change
comparable to the strategic rise of human resources in the U.S. and
other Western markets. The strategic organization that creatively
attracts and retains the right workers will enjoy an HR dividend
that can have tremendous impact on the bottom line.
In recruiting talent, innovative companies are reaching out beyond
the urban centers and are looking for workers in second- and third-
tier institutions and in rural and suburban communities. Talent from
such sources tends to be less expensive and more loyal, but this new
labor source also brings various challenges, such as a lack of social
and communication skills and inconsistent quality. Much of this can
be overcome by a heavy investment in training and development.
Many companies also are beginning to find dedicated talent
in a once-untapped source: Indias traditionally disadvantaged
classes, or castes. Today, 15 percent to 27 percent of the seats in
government, positions in the public workforce and admissions to
universities are reserved for lower-caste people once excluded from
these jobs and education opportunities. In the future, this system
of reservation (similar to affirmative action in the United States)
is expected to be extended to the private sector and to premier
engineering, technical and business institutes.
In India today, human resources must attract and retain the
right talent, manage attrition, strike the right balance between
youth and experience, manage workforce expectations regarding
pay and careers in a cost-effective manner and engage a growing
262 Global Rewards
cross-cultural workforce. Effective compensation programs must

be flexible and robust and can include a strong variable pay
component; enhanced cash-in-hand; lifestyle benefits, such as
food coupons, restaurant and pub vouchers and free admission to
clubs and theaters; enhanced medical, life and accident coverage;
out pricing, or paying key personnel above market; and signing
bonuses to attract certain key employees.
As wage inflation nears 15 percent, companies cannot afford to pay
all workers at a premium, but strategic performance-management
systems can identify the best performers and link their success to
pay and bonuses. Todays younger Indian workers are becoming
more receptive to this pay-for-performance approach because of
its potential upside.
Tapping the Potential

The emerging markets of China and India offer many opportunities
for companies to grow through affordable labor and access to a
surging population of new consumers. Talent issues will remain
at the forefront as more businesses enter these lucrative markets.
Successful firms will know how to harness the right talent at the
right time by creating long-term total rewards programs that include
innovative training approaches and by rewarding top talent with an
array of variable pay, bonuses, career enhancement and lifestyle
benefits. This is a new and exciting era, and it presents a golden
opportunity for human resources to move front and center and
make a major contribution to business results.
Growth of Expatriate Assignments in the Middle East 263
Growth of Expatriate Assignments

in the Middle East
Geoffrey W. Latta | Siobhan Cummins
As economies of the countries in the Middle East continue to

grow at an unprecedented pace, the need for local and expatriate
talent has become an increasingly important issue for employers
in the region. During the past few years, this brought about an
interesting trend in the international mobility area with the Middle
Easts emergence as a hot destination for assignees. Considering the
regions political violence and uncertainty, this growth may seem
counterintuitive but solid business reasons underpin the trend.
To put some parameters around the phenomenon, ORC Worldwide
surveys companies on a wide range of expatriate issues. The
Worldwide Survey of International Assignment Policies and Practices,
conducted every two years, attracted 894 participants from all parts
of the world in 2006. When the results are compared with the
same survey conducted in 2000, the percentage of the worldwide
assignee population being sent to the Middle East almost doubled
from 5.1 percent of the total to 9.8 percent. (Note: this paper is
also based on information from ORC Worldwides 2006 Location-
Specific Survey of International Assignment Policies and Practices
[Dubai], and the 2006 Location-Specific Survey of International
Assignment Policies and Practices [Riyadh]).
The Region
Any discussion of the Middle East must start with the fact that there
is no agreed definition of which countries fall within the region.
The term was a primarily British geopolitical designation from the
late-19th century and has been fluidly interpreted since. However,
clearly a core group of countries are recognized as being within
the region. The major group of countries in which inward invest-
ment has been concentrated in recent years are those belonging
264 Global Rewards
to the Cooperation Council for the Arab States of the Gulf, usually
known as the Gulf Cooperation Council (GCC). The GCC consists
of Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Kuwait,
Oman and Qatar.
The six countries of the GCC have a significantly higher level of
gross domestic product (GDP) per capita than most other Middle
Eastern countries (only Israel has a comparable level), with their
relative prosperity based heavily on oil and gas. Other countries
that are within the Middle East, such as Jordan, Iran, Lebanon,
Egypt, Syria, the Palestinian territories and Yemen have significantly
lower levels of development and lower levels of inward investment.
Iraq is an exception, with investment driven by security and war-
related activities and the need to rebuild infrastructure. A few other
countries sometimes appear listed in the Middle East, including
Libya (which also has per capita GDP similar to the GCC), Turkey
and Sudan but for the purposes of this paper, they will not be
defined as part of the Middle East.
Expatriates
Economic development and the relative lack of locally avail-
able skills drive the basic need for expatriates in the region. In
2005, foreign direct investment (FDI) into Saudi Arabia, Oman,
Iraq and Kuwait more than doubled compared to 2004 and for
the UAE, the growth was 43.6 percent. The only countries in
the region where investment fell were Iran and Yemen. The six
GCC countries, if taken as a group, have a population slightly
exceeding 30 million but total GDP that is exceeded by only 15
or 16 individual countries. However, continuing dependence on
the oil sector leaves the GCC vulnerable to volatility in oil prices
and major diversification efforts are seriously underway. These
diversification efforts in themselves provide much of the impetus
for the additional demand for skilled workers in industries beyond
the traditional energy sector.
Significant disparities still exist in the region with some coun-
tries proving more successful than others in attracting expatriates.
The UAE, and in particular Dubai, appear to be the most-popular
destination despite rising living and housing costs.
The region continues to attract experienced professionals from

across the globe. However, the drivers of mobility appear to be
changing with many of the new expatriates being attracted by inter-
esting career opportunities with short-term financial considerations
playing a slightly less-dominant part than in past years. There
are, of course, those companies that have experienced demands
for increases in assignment allowances from their expatriates to
compensate for the increased living costs. In some cases, companies
relocated to other less-expensive areas within the Gulf.
Industry Analysis
What industries are driving this growth? The industries with the
highest level of assignees into the region are in the engineering
and construction, oil and other energy companies. In the 2006 ORC
survey, 60.4 percent of assignees into the region were from the
oil and other extractive industries, with the second-largest group
coming from construction (9.4 percent) followed by aerospace and
defense (6.3 percent).
Obviously, the oil industry has been a feature of the region for
many years but numbers have still grown in the last few years.
With soaring oil prices, many companies have invested in expan-
sion efforts in oil production. With two-thirds of the worlds oil
reserves within the region, this phenomenon is likely to continue,
unless prices fall dramatically. In other parts of the region, such
as Qatar, the expansion is based in natural gas production.
Engineering and construction appears to have grown for several
reasons. First, the reconstruction in Iraq has led companies to move
assignees there or, in some cases, to neighboring Kuwait. Infrastructure
development in other parts of the region, particularly the Gulf States,
has meant an expansion of project work there. Dubai particularly
has seen great expansion. The expansion has even led to urban
myths regarding the percentage of the worlds construction cranes
that are in Dubai, which, the story goes, rivals the numbers of the
building-boom of Shanghai five to 10 years ago.
Other industries too have been attracted into the region with
many sectors such as telecommunications and financial services
undergoing deregulation and opening competition while new sectors
266 Global Rewards
are emerging for the first time including investment banking

and private equity.
The opening of the Dubai International Financial Center (DIFC)
in 2004 was designed to position the Emirate as a major world
financial hub. Major European banks such as HSBC, ABN-Amro
and Deutsche Bank have expanded in Dubai in recent years. Since
Dubais workforce is almost entirely expatriate (more than 80
percent of the labor force), growth inevitably means more assign-
ments into the region. Other states, such as Qatar, are also seeking
to emulate Dubai.
This activity has increased the need for expatriate talent and
expertise and this dependence on foreign labor is expected to
continue for the foreseeable future.
Regional Headquarters
There also has been a trend toward companies locating regional
headquarters in Dubai. In some cases, these are new headquarters
specifically for the region, where, in the past, companies may
have operated under an EMEA (Europe, Middle East and Africa)
umbrella with headquarters in Western Europe.
An extreme example of this trend was the decision announced
by Halliburton in March 2007 to move its headquarters from Texas
to Dubai. This reflects the extensive operations that the company
has in the region, particularly in Saudi Arabia and Iraq.
Source of Assignees
The region has a long history of employing high numbers of foreign
employees including low-wage blue-collar workers as well as
experienced professionals and senior managers. An estimated 31
percent of the GCCs total population and 56 percent of the work-
force consists of expatriates. Despite an increasing demand for
skilled jobs among the local workforce and plans for emiratisa-
tion (localization) in many of the GCC countries the demand for
expatriates is still high and is likely to continue. Companies do
need to pay particular attention to the localization plans in UAE,
Saudi Arabia and Bahrain as this is likely to impact the future
number of expatriates they bring into these countries.
ORCs 2006 survey indicates that the majority of assignees into

the Middle East come from either Western Europe or North America
(65.7 percent). Asia-Pacific represents another 22 percent, although
only a small minority of these are from Japan, reflecting the fact
that Japan is not a major worldwide player in the oil, construction or
energy industries. Only a small minority of assignees (6.6 percent)
are transferred from other countries within the region.
The survey, of course, relates to those being transferred by
their companies as expatriates. Numerous nationals of countries,
like Egypt and Jordan, work elsewhere in the Middle East. The
workforce in Saudi Arabia alone is generally estimated to be in
the range of 60 percent to 70 percent foreign with a significantly
higher percentage for the private sector alone. While some are on
expatriate packages, many are from Asia or other Middle Eastern
countries and are not on traditional expatriate packages. It is
estimated, for example, that approximately 1 million Egyptians
are in Saudi Arabia and a similar number of Yemenis.
An interesting trend that is emerging is that increasing living costs
and the high cost of housing and education are making the region
less attractive for lower-skilled expatriates from traditional locations
like India and Jordan as these countries have been experiencing
rapid economic growth of their own.
Compensation Design Issues

Traditional western expatriates into the region are typically paid
on a home- or headquarters-based balance-sheet approach. The
main variables within the region relate to housing and hardship
payments. Housing is a cost and availability issue for companies
and assignees. In Dubai and Abu Dhabi, rents have escalated and
there is limited availability of traditional expatriate housing at an
affordable level. The movement of rental costs in these two loca-
tions has ranged from approximately 20 percent to 40 percent in
the last year.
The other design issue is assessing the relative level of hardship.
The situation in Iraq defies typical hardship rating systems and
most companies pay a very substantial premium to get people
to relocate there sometimes equal to 100 percent of base pay.
268 Global Rewards
Besides Iraq, the high-hardship locations are Saudi Arabia and

Yemen, where typical hardship recommendations would be in the
range of 30 percent of pay. For Saudi Arabia, the terrorist threat is
a major factor but also the severe limitations on normal western
lifestyle and freedom of movement, thought and behavior. In Yemen,
there is also a risk of terrorist activity but, in addition, there are
substantial issues in terms of the underdeveloped infrastructure and
medical facilities as well as more-limited external transport links.
For instance, there are very few nonstop international flights from
Yemen to Western Europe and none to North America. Those that
do operate are mainly on local or regional airlines where safety
and schedule reliability may be an issue.
At the other end of the hardship spectrum is the UAE, where
only the lowest level of hardship premiums are required. Locations
like Bahrain and Oman generally attract a slightly higher payment
than the UAE but are still not close to the high levels of Saudi
Arabia or Yemen.
Since many companies link rest and recreation (R&R) leave
to hardship levels, such leave is often provided for locations in
Saudi but less commonly for the UAE, where only approximately
25 percent of companies grant R&R leave. When given for UAE
assignees, R&R is usually only once a year whereas from Saudi,
twice a year is more common. R&R locations depend in part on the
expatriates nationality but Western Europe is the most-common
location. Iraq again is an extreme case as companies do not typi-
cally allow families to accompany assignees, so the compensation
package needs to include provisions for rotating employees out and
for family reunion visits either in the home location or elsewhere
in the region (e.g. Kuwait) if that is where the family located.
While most companies transfer expatriates into the region on a
typical balance-sheet approach, in numerous situations a company
may hire an expatriate who already works in the region for another
employer. Often, such employees may be offered a standard expa-
triate package, if that is what they previously received. However,
in others, there may be some scope for bargaining on this.
As previously discussed, there are also significant numbers of
other foreign nationals either from within the region or from parts
of Asia such as the Indian subcontinent or the Philippines. In terms

of pay levels, the regional employees ( Jordanians, Palestinians, etc.)
are typically more highly paid than the Asian employees, although
both are often paid below the level of local nationals and below
the level of western expatriates.
Firms face a major challenge deciding competitive pay packages
for the different employee groups. Unlike many countries with their
local national pay structure and a separate structure for incoming
expatriates, in the Middle East these two structures are joined
by locally hired western expatriates and by incoming or locally
hired employees from elsewhere in the region or from Asia. Thus,
traditional pay analysis is much more complex and survey data,
where it exists, is much more difficult to interpret. There are several
overlapping labor markets and rapid growth has compounded the
problem by creating shortages for certain types of employee. Even
within the true local national group, there may be differentiation
between those with external experience and education and those
with entirely local experience.
Assignee Issues and Concerns

Some parts of the region do not pose significant security issues.
Dubai and Abu Dhabi, for instance, have low crime rates and have
experienced almost no terrorist activity or violence. An assignment
into these locations is relatively straightforward for the employee
and accompanying family. Indeed, the biggest single issue, particu-
larly in Dubai, is the spiraling cost of expatriate housing as the
economy has boomed. Lifestyle is relatively relaxed with western
supermarket chains and with the ability for foreigners to purchase
and consume alcohol.
Other locations pose greater problems in terms of physical danger,
lifestyle or both. Qatar for example, while generally safe, experienced
a car bombing attack in Doha in 2005 that killed a British resident
and injured a number of others. Qatars religious restrictions are
also more stringent than the UAE. For example, alcohol can be
purchased by foreigners, but only one outlet is approved and other
significant conditions that limit purchases. Bahrain is socially more
liberal than Qatar but has a higher risk of terrorist violence.
270 Global Rewards
Jordan experienced terrorist attacks in November 2005 when

simultaneous suicide bombings at three western hotels in Amman
killed 60 people and injured more than 120. On the other hand,
Jordan is socially liberal and has few restrictions on behavior.
Egypt and Syria also fall into a similar category from the point of
view of expatriate lifestyle. Other areas in the Middle East are well
known for being volatile locations with security issues of prime
concern to expatriates and their companies.
Saudi Arabia represents a major challenge with several significant
terrorist attacks on western targets in the last few years including
the attack in Al Khobar in May 2004 when 22 died, and the country
has an extremely restrictive interpretation of Islam that severely
limits the role of women. Anecdotal evidence suggests a recent
softening of this hard line with a relaxation of the restrictions
around the employment of local women who are receiving more
encouragement to enter the workforce. However, restrictions in
the Kingdom remain with women not being allowed to drive and
with strong societal pressures in terms of dress and behavior. Most
public recreational facilities practice sex segregation with separate
hours for men and women and for families (those with children).
Alcohol is forbidden and several westerners have been imprisoned
for attempts either to smuggle alcohol into Saudi Arabia or to
produce illicit alcoholic drinks.
Historically, most companies expected to send an assignees
family along with them on an assignment unless the host country
was considered a war zone. In the last few years, that stance has
shifted. A number of companies now send assignees on a single-
status basis into Saudi Arabia and some other countries, which
are not classic war-zones but where the terrorist threat is high.
This requires some changes to the expatriate terms and conditions,
particularly in the provision of additional home leave. In single-
status situations, some companies have turned assignments into
rotational ones where the assignee may work three weeks at the
work site and then have a weeks leave at home or two weeks on
and two weeks off. Especially for assignees from Western Europe,
this is logistically quite feasible. The oil and construction indus-
tries have long experience of such rotational assignment patterns
given the remote or inhospitable locations where oil exploration

or production may occur, but in parts of the region this practice
has begun to spread to other industries.
Iraq is the extreme end of this spectrum. Almost no company
sending employees into Iraq allows the family to accompany the
employee. The assignees usually live in guarded camp-style facilities
with a regular rotation out either to home or a safer, third location.
High levels of incentive premiums are also needed.
The Future
Clearly, future expatriate usage in the Middle East will be heavily
influenced by political and economic factors. If the region stabilizes
politically and if the violence in Iraq subsides and the tensions
related to Iran lessen, the potential for significant growth in inward
investment exists. In particular, the potential market in Iran could
be significant given the size and level of economic development
of the country. However, there is no guarantee that the political
situation will improve and it could decline further.
In the economic sphere, the high price of oil is likely to continue
to provide an incentive for investment in the region. Many ques-
tion whether the UAE can maintain its rapid growth rate and
high level of inward investment and predict that the economic
boom in the region will slow down. However, the future for the
region still looks bright. Dubai recently announced a strategic
plan that will apparently produce an 11-percent annual growth in
GDP to $108billion (USD) and bring total employment numbers
to 1.73million by 2015.
The continuation of the economic diversification efforts that are
already seriously underway in all the GCC countries is also likely
to continue to fuel the need for skilled expatiate labor, certainly
for the immediate future.
272 Global Rewards
Total Rewards in Singapore

Hesan A. Quazi, Ph.D.
Singapore is the home for 26,000 international companies, and

more than 4,000 foreign multi-national corporations have regional
activities in this country. Singapore is one of the highly devel-
oped and successful free-market economies, enjoying an open
and corruption-free environment and stable prices. Maintaining
international competitiveness has been a fundamental tenet of
Singapores economic philosophy. It has consistently ranked high
against the worlds most competitive nations on a number of
counts, such as most cost-competitive place for business, worlds
easiest place to do business, best labor force, perceptions of
corporate governance standards and the best place to live for
Asian expatriates, among others. To maintain these reputations
and keep and attract the right type of foreign investments is an
ongoing challenge for the Singapore government. Understanding
the total rewards philosophy and practices of the host country is
one of the key requirements for any foreign company deciding
whether to invest in that country.
In 1972, the Singapore government established the National
Wages Council (NWC) to deal the various wage-related issues.
The NWC is a forum with representation from the employers
federations, trade unions and the government. As a government
advisory body, the council recommends annual wage increases
for the entire economy; ensures orderly wage development so
as to promote economic and social progress; and assists in the
development of incentive programs to improve national produc-
tivity. Although the wage guidelines are not mandatory, they
are followed by the public sector and widely implemented in
the private sector. These recommendations are, however, not
applicable to private-sector professionals and managerial workers,
whose wages were determined primarily by international forces.
274 Global Rewards
Compensation, benefits, work-life balance, and employee training

and development are the four pillars of Singapores Total Rewards
Model, and are discussed in this article.
The article provides readers across the globe a view of the
structure of total reward programs in Singapore. Such informa-
tion is a key to those who are or will be conducting business in
Singapore by opening their facilities in the country. These foreign
company managers will find the information in this article useful
to understand the national culture as well as the government and
other stakeholders role and influence in shaping the rewards-
management practices of the country.
Compensation
Introduced in 1986, a flexible wage system is the hallmark of
Singapores present total rewards model. A 1998 World Scientific
article by C.Y. Lim and R. Chew titled Wages and Wages Policies:
Tripartism in Singapore defines the term flexible wages system
as a system whereby pay will increase or decrease with economic
growth/decline, company profitability and productivity. Such flex-
ibility is expected to increase the viability and competitiveness
of the company during economic downturns. According to the
Ministry of Manpower (MOM) in 2003, this requires a balance
between income stability with a fixed component for the workers
and a variable component large enough for companies to make
quick adjustments in response to changes in business condi-
tions. The other objective of this flexible system is to ensure
minimum layoff of employees during economic downturn and/
or poor company performance.
The NWC recommends that the variable component of the wage
payment should be worked up to 30 percent, comprised of a
monthly variable component (MVC) of 10 percent and an annual
variable component (AVC) of 20 percent of the wage bill of each
company. The council also considers individual performance as
a part of the equation in the flexible wages system. The NWC
does not, however, intend to interfere in this area, as it feels that
rewarding individuals for their performance is the prerogative of
management. As reported in the iHR News (December 2003), MOM
provided a guideline on the proportion of various components

of pay for different ranks of employees.
The NWC stresses that as executive and senior-management
compensation are linked more closely to the performance of
companies, the proportion of variable components in their wages
should be higher, and it also suggests that the AVC and MVC
should be tied to the companies key performance indicators
(KPIs). The KPIs are to be set by the employers, in consultation
with employees or unions, as measurement of company and
individual performance.
Benefits
In the government sector, mandatory employee benefits are covered
under the Employment Act and the Workmens Compensation Act.
However, in the private sector, workers enjoy a range of job-related
benefits as provided in their individual employment contracts,
collective agreements or the Employment Act. In addition to the
mandatory benefits stipulated by the Employment Act, employers
of private firms use other types of benefits to differentiate them-
selves from their competitors as a way to attract, motivate and
retain workers, and these types vary from company to company
and between industries.
In addition, there is the Central Provident Fund (CPF) scheme,
a comprehensive social security savings plan that is available
to Singapore citizens and permanent residents. The scope and
benefits of CPF includes: retirement, health care, homeownership,
family protection and asset enhancement.
In early 2000, the government introduced a new, portable
employm ent-benefits scheme for the employees, which includes
the Portable Medical Benefits Scheme (PMBS) and the Transferable
Medical Insurance Scheme (TMIS). According to the December
2002 Economic Review Committee (ERC) report, under the PMBS,
in lieu of the inpatient benefits that employers used to provide,
employees would make an additional contribution to the employee
CPF account (called the Medisave account, which is specifically
targeted for meeting part of health care- related expenses). This
additional Medisave contribution should be used by employees
276 Global Rewards
to purchase medical insurance to meet their inpatient expenses.

Such insurance provides coverage during employment, in between
employment and during retirement, so long as the individual
continues to pay the premium. On the other hand, the TIMS
scheme is an enhancement of the existing employer-sponsored
group medical insurance, which ensures medical coverage when
employees move from one employer to another or are retrenched.
(The 2002 ERC report is titled: Report of Wages Working Group,
Sub-Committee on Policies related to Taxation, the CPF System,
Wages & Land. Economic Review Committee.)
In 2004, the Singapore government had extended the statu-
tory maternity-leave benefit from eight weeks to 12 weeks. The
extended four weeks (i.e., ninth to 12th week) of maternity leave
can be taken flexibly during a six-month period after the childs
birth. For the first and second child, the government funds the
last four weeks leave. However, for the third and fourth child,
the government funds the entire 12 weeks leave.
Work-Life Balance
Work-life benefits are relatively new in Singapore. A tripartite
committee on work-life strategy was set up in September 2000
to help establish buy-in from stakeholders and increase aware-
ness and promotion of work-life harmony among Singapore
companies. The committee comprises more than 10 member
organizations from government, union, employer, employee and
business-association representatives. To encourage and recog-
nize employers who are committed to helping their employees
harmonize work and personal commitments, a work-life excel-
lence award is given by the tripartite committee on work-life
strategy. In 2006, the award was conferred to 70 organizations
for their commitment to and excellence in implementing work-
life strategies. In 2004, the Ministry of Manpower introduced
the Work-life Works fund to encourage employers to introduce
work-life initiatives at the workplace, with a focus on work-life
arrangements. Under this program, the government will co-fund
the costs incurred for approved projects, up to a maximum of
$10,000 per project per organization.
Employee Training and Development

Training and development is also an important pillar of Singapores
total rewards model. Back in the late 1970s, the NWC recom-
mended the introduction of a lev y system on all employers
to pay a percentage of wages to the Skills Development Fund
(SDF). Since that time, the SDF has provided financial incentives
for training those in the workforce, those preparing to join the
workforce and those re-entering the workforce. Incentives are
offered based on a cost-sharing principle, and the training must
be relevant to the economic development of Singapore. The
number of incentives that a company can obtain is, however,
not tied to the levy contribution. To encourage companies to
create a training and development culture, the SDF requires
those companies seeking a training subsidy to adopt a total
and systematic approach to training involving all levels of staff.
In addition, the companies are also required to have a proper
system to evaluate the benefits of training.
278 Global Rewards
How Legal & Cultural Environment Impacts

Reward Practices in Switzerland
Agnes Blust, GRP
The reward landscape in Switzerland has evolved toward more

flexibility during the last few years. This evolution can be explained
partly by the increased mobility and globalization of the work-
force but also by local factors such as demographics, culture and
legal environment.
Role of Demographics
The source of these demographic statistics is the Swiss Federal
Statistical Office, Swiss Labour Force Survey (SLFS). In 2005,
Switzerland had 7.5 million inhabitants residing in four linguistic
regions: German, French, Italian and Rtoromanisch. Approximately
4 million belong to the economically active population, of which
20 percent are natives to other countries, (most from the European
Union (EU)-25 or European Free Trade Association (EFTA) member
states). The growth rate during the second half of the last century
could not have been sustained without a workforce immigrating
into Switzerland. This resulted in a mix of different cultures,
especially in the cities. The number of industrial jobs decreased
in most-recent years, while the services sector has been growing
quickly, resulting in two-thirds of the economically active population
working in services and one-third in industry. The unemployment
rate in Switzerland is approximately 3 percent (Survey of the State
Secretariat for Economic Affairs SECO, April 2007). Historically,
this rate is relatively low compared to other European countries.
Figure 1 on page 280 presents unemployment rates in Europe in
2006 as developed by SLFS and Eurostat.
According to UBS, Price and Earnings 2006 report, since the
Second World War, average earnings have tripled, resulting in a
high standard of living in comparison with other countries around
280 Global Rewards
FIGURE 1
Unemployment Rates in Switzerland and Europe, Second Quarter of

2005. (Statistics from SLFS and EUROSTAT).
20%
15.9%
14.4%
15%
9.7%
10%
8.9%
8.7%
8.5%
8.5%
8.3%
8.3%
8.2%
8.0%
7.8%
7.6%
7.6%
7.3%
7.3%
7.3%
6.6%
6.1%
5.5%
5.2%
5.0%
4.9%
4.6%
4.4%
4.3%
4.0%
5%
3.9%
3.7%
3.5%
0%
Norway
Denmark
Netherlands
Switzerland
Ireland
Austria
Luxembourg
Estonia
Cyprus
United Kingdom*
Lithuania
Slovenia
Romania
Portugal
Italy*
Czech Republic
Hungary
Sweden*
Latvia
EU25
Belgium
France
Spain
Germany
Malta
Bulgaria
Finland
Greece*
Slovakia
* As of March 2006 Poland
Comparable data for Iceland is not available.
the world (highest per head net income worldwide). Furthermore,

the inflation rate is low and oscillates around 1 percent.
The Impact of Cultural Aspects on the

Reward Landscape
Despite its small size, Switzerland is segmented in several linguistic
regions, each strongly influenced by the neighboring countries.
Not an EU member despite being located centrally in Europe,
Switzerland is in a unique situation.
Looking at the position of Switzerland on four cultural dimensions
helps to understand how cultural aspects influenced and continue
to influence the reward landscape. In the 1984 book Cultures
Consequences: International Differences in Work-Related Values,
author Geert Hofstede defined the four cultural dimensions as:
Power distance
How Legal & Cultural Environments Impact Reward Practices in Switzerland 281
Uncertainty avoidance
Individualism versus collectivism
Masculinity versus femininity.
Power Distance
Power distance is the dimension measuring the extent that people
accept unequal distribution of power and authority. Switzerland
appears to be on the Low Power Distance end of the scale with
rank 45 of 53 countries, and is characterized by low centraliza-
tion. The 26 cantons have their own regulations and authorities,
f lat hierarchies, small wage differentials and a highly skilled
workforce throughout the population.
The inf luence on reward is that little distinction exists for
perquisites among employees, and pay for performance prevails
rather than pay for hierarchical rank or position.
Uncertainty Avoidance
This dimension examines how threatened people feel about
uncertainty and ambiguity. Switzerland is ranked 33rd of 53
countries. This feeling may be because the country has histori-
cally been very safe (famous principle of neutrality), resulting
in no strong need to avoid uncertainty. However, Swiss people
are generally seen as looking for security, safety and structure
and as having a rather low tolerance to risk.
The influence on reward: solid governmental social security,
strong demand for a multitude of insurance products, defined-
benefit retirement plans although a recent trend moves toward
defined contribution plans.
Individualism versus Collectivism

This dimension measures whether people see themselves as indi-
viduals or as members of a group. Switzerland is strongly on the
individualism side of the scale with the 14th rank out of 53.
Employees are expected to defend their own interest and do not
expect their employer to look after them on a personal level.
282 Global Rewards
The influence on reward is a prevalent use of individual incentives.

Employee assistance programs are not common.
Masculinity versus Femininity

This dimension measures whether value is placed on material success,
power, assertiveness or more on relationships, caring and nurturing.
With the fourth rank, Switzerland appears to be very much masculine
with an emphasis on performance, success, material aspects (money,
things), independence and ambition.
This strongly influences rewards. Financial rewards are prevalent as
opposed to nonmonetary rewards; high value is placed on status and
titles with high incentive levels and tax avoidance/tax optimization of
reward programs. It can also be observed that work-life balance and
diversity issues are still relatively immature in the Swiss market.
Legal Environment
Switzerland can be described as a country with a low level of govern-
mental intervention in terms of regulations and restrictions. Generally,
employees are neither unionized nor organized in powerful works
councils being able to influence business decisions. They are rather
organized in employee representation bodies with informative rights
and in some few situations co-decision rights.
Levels of personal taxation are also low compared with most
European neighbors.
Consequently, companies are relatively free in terms of reward
programs design and delivery and tend to orient themselves at market
trends, particularly for job-evaluation methods and salary levels rather
than looking at internal factors. The exceptions to this are retirement,
social security and other insurances where a high level of coverage
is ensured by statute.
The environment and these cultural tendencies have contributed
to the current reward landscape and will influence future trends as
described in the following sections.
Recent Developments and Trends in Reward

In the area of work arrangement, demographic changes such
as workforce aging and women re-entering the workforce has
presented a need for flexible working arrangements. Between 1995

and 2005, the part-time workers population, 80 percent being women,
increased by 23.1 percent according to the Swiss Federal Statistical
Office, Swiss Labour Force Survey (SLFS). Simultaneously, job sharing
and teleworking have become more common, these forms of contracts
being offered in majority by multinational companies.
In the area of compensation, there is a strong trend toward pay
for performance as opposed to seniority-pay or hierarchy related
pay in Switzerland. Also, individual incentives are preferred over
team incentives (prevalence of individualism).
However, remuneration structures widely differ by industries with
more emphasis on base salary in the industrial and technological
environments, with corporate profit sharing, and more accents
on performance-based variable pay in the services sector. It is
worth noting that formula-based incentive plans, while common for
sales functions, are not so frequent otherwise. The discretionary
component in the decision-making process is still strong in the
distribution of bonus to individuals. Culturally, the tendency often
is toward rewarding effort rather than pure results.
Services companies also offer some form of deferred compensa-
tion in the form of equities, mainly restricted shares and/or stock
options. Equity-based compensation often is used to meet retention
objectives and, at the same time, to achieve tax optimization.
In recent years, interesting debates emerged in the Swiss press
about executive compensation. Many large multinationals head-
quartered in Switzerland particularly in financial services and
in the pharmaceutical businesses have been heavily criticized
about the compensation of executives. Partly driven by an increased
transparency in board compensation, widespread public and political
opposition exists to what are seen as excessive pay levels.
In the area of benefits, most company sponsored programs are still
based on the assumption of the traditional family model with one
parent working and the other staying home to raise the children. The
governmental support for families, in terms of providing child-care
facilities for example, is low compared to the other European countries.
Although there would be a strong need for child-care benefits, most
companies do not provide them or provide them at a basic level.
284 Global Rewards
In terms of perquisites, the common offering in Switzerland includes

company car/car allowance, transportation benefits, representation
allowances, mobile phones, and professional and sport club member-
ships, depending on the job level. Concierge services, at times offered
in the United States, are not market practice in Switzerland.
The delivery of benefits is rather standardized with little or few
choices for the employees. Cafeteria systems offering a wide choice on
benefits, levels of coverage, or even on investment decisions are basi-
cally unknown with benefits delivery still rather paternalistic.
In Switzerland, governmental social security is solid and offers a
high level coverage for the risks associated with aging and retire-
ment with the three pillar system consisting of:
1. Mandatory state benefits
2. Mandatory company-sponsored pension benefits for a large part

of the working population
3. Voluntary retirement savings plans.
While defined-benefits (DB) plans were preferred several years ago,

there is a shift toward defined-contribution (DC) plans. Employers
offered DB schemes as it appeared to be appropriate in terms of
insurance level and the social responsibility of employer to ensure
employees are well insured. However due to the volatility of stock
market, demographics changes and increasing cost, companies start
to switch to DC, even in Switzerland This shift can be explained
when considering an aging workforce, the declining ratio of active
employees to beneficiaries, and therefore the rising costs of pension
funds, and the lower performing Swiss government bonds (much
beloved by Swiss DB schemes in the past). As a consequence,
employers aim to shift the risk on the employees by converting
their DB plans into DC plans.
Swiss people are, in international comparison, high consumers
of insurance products. A commonly used explanation relates to the
fact that Swiss appear to have a strong security need and appear
to be willing to insure almost everything. As a consequence and
How Legal & Cultural Environments Impacts Reward Practices in Switzerland 285
beside the high level of pension benefits, companies often offer

additional insurance coverage to employees for accident and daily
sickness benefits. Most employers can obtain collective agreements
with insurances where employees can take advantage of lower
premiums at no cost for the employer (collective medical plans).
Some firms also contribute toward the insurance coverage of their
employees and their family members by paying part or the entire
premium, but this is rather the exception than the rule.
Figure 2 shows a typical remuneration mix for a senior professional/
middle-management level in Switzerland, based on the authors
personal experience:
Conclusion
The Swiss reward landscape evolved as a consequence of the
countrys unique and rather protected position within Europe.
In a world with a globally based and mobile workforce, external
influences will inevitably change practices. On issues such as
work-life balance, for instance, it can already be observed that
global organizations are implementing what is considered to be
global best practice, eroding regional differences. Approaches to
other reward and related topics are likely to follow suit.
Employers will continue to rely on attracting workers to the
country. Even if Switzerland remains outside the EU, employers will
FIGURE 2
Renumeration Mix Senior Professional/Middle Management Level
10%
n 65% Base Salary
10% n 10% Equity Compensation
5% n5
% Benefits
65% (pension/insurance)
10% n 10% Bonus

n 10% Perquisites
286 Global Rewards
continue to be watchful of developments in neighboring countries

and farther a field to minimize barriers to workforce mobility.
What can be expected is something of a struggle as employers
seek to implement practices with their origins elsewhere. Pure copy,
paste reward practices imported from other countries, are, however,
unlikely to be successful in a culturally, socially and economically
different environment. Likely, Swiss adaptations of imported reward
practices and unique, home-spun solutions will emerge. It has often
been said that the Swiss are the masters of compromise!
287
WorldatWork Survey
Results
Creating a Sustainable Rewards and Talent Management

Model: Results of the 2010 Global Talent Management
and Rewards Study
http://www.worldatwork.org/waw/adimLink?id=42295&nonav=yes
288 Global Rewards
Creating a Sustainable Rewards and Talent Management Model 289
Creating a Sustainable Rewards

and Talent Management Model:
Results of the 2010 Global Talent Management
and Rewards Survey Report
Towers Watson
Executive Summary
Reward and talent management programs at most organizations share
common objectives: to attract, retain, motivate and develop employees,
and to create alignment between employee actions and the behaviors
required to support the employers business strategy. In periods of
relatively stable business growth, organizations typically rely on minor,
adaptive changes to their reward and talent management programs in
order to better meet these objectives. But the recent financial crisis and
subsequent recession have forced organizations out of their business
as usual mode, both from a strategic perspective and in the way they
design and manage their reward and talent management programs.
Companies were faced with a number of challenges during the
economic crisis and needed to:
Cut costs and manage any subsequent cost increases
Reduce the rate of increase in the value of total rewards, often to

levels where the real or absolute value of total rewards declined
for many employees
Reevaluate their business strategies
Now, as we emerge from the recession, companies face additional

challenges and need to:
Develop new leadership competencies for their executives
Respond to increasing demands by employees for security, stability

and opportunity that are difficult to satisfy
290 Global Rewards
Confront the complexities caused by a lack of career advancement

opportunities for top talent and employees with critical skills
Going forward, in order to attract, retain and engage their employees,

organizations need to think about developing a sustainable employee
value proposition one that is flexible enough to be vital throughout
the economic cycle. Employers can take many specific steps to
improve their reward and talent management programs by:
Differentiating rewards between top performers and average

performers
Developing a formal employee value proposition and communicating

it to employees
Figure 1
Economic Conditions Vary Dramatically Around the Globe*
Representative list of countries in our survey
Annual Economic Growth

Country 2010P 2011F Unemployment Rate
China 9.9% 8.3% 9.6%
India 7.9% 8.1% 10.7%
Japan 3.1% 1.7% 5.2%
Singapore 8.4% 4.5% 2.2%
U.K. 1.2% 1.8% 7.9%
Germany 1.9% 1.6% 7.7%
Ireland -0.4% 1.2% 13.7%
Spain -0.5% 0.4% 19.9%
Brazil 6.3% 4.5% 7.5%
Canada 3.5% 2.9% 8.1%
U.S. 3.1% 2.9% 9.5%

*Source: The Economist
P = Projected
F = Forecast
Introducing organization-wide consistency in reward and talent

management programs
Developing business-centered leadership competencies that support

their strategy
Increasing their emphasis on performance management, leadership,

and employee learning and development
The Business Context
Global and Regional Economic Conditions

Following the global financial crisis of 20072008 and the ensuing
recession that occurred in many countries, we may be at a point of
inflection. China, India and Brazil are experiencing strong economic
growth, while Spain and Ireland continue to suffer through economic
contractions with double-digit unemployment rates. Still, other countries
and regions, such as the U.S., most of Europe, Canada and Japan,
are somewhere in between growing in the first half of 2010, but
facing uneven growth and a slow, uncertain economic recovery.
Cost Cutting and Cost Management as a Reaction to the

Global Recession
Organizations immediate reaction to the financial crisis and
subsequent recession was to freeze or reduce labor costs through
hiring and salary freezes, layoffs, reduced bonuses and restrictions
on overtime. However, there were regional differences in the
nature and extent of these actions. In Europe and the U.S., where
the recession was the deepest, companies were more aggressive,
with over 60% of U.S. companies taking four or more cost-cutting
actions. In China and India, which saw economic slowdowns but
not outright recessions, organizations faced less cost pressure and
consequently were much less likely to cut costs, freeze salaries or
lay off employees.
Companies forward-looking business and human resource strategies
show a similar picture. Almost one-quarter of respondents globally
report that workforce reductions will be an element of their strategy
292 Global Rewards
over the next three years reflecting their concern over future
economic conditions. European organizations are most likely to
make workforce reductions (35% of respondents), but in China and
India, where attraction and retention pressures remain high, only
6% of respondents expect layoffs. This uneven economic recovery
will require global organizations to establish targeted, flexible talent
and reward strategies.
The Impact on Global and Local Labor Markets

and Employee Expectations
The business climate affects the supply and demand of talent along
with employers ability to attract and retain employees. Globally, only
25% of firms are having difficulty attracting employees generally,
but four out of five respondents in Asia and Brazil and one
of every two in the U.S., Spain and Ireland report difficulty
attracting critical-skill employees. Even in relatively soft economies,
top talent is in short supply.
Organizations in most regions report having less difficulty retaining
employees than they do attracting them. This may reflect employee
reluctance to leave their current employer in uncertain business
conditions. In Towers Watsons 2010 Global Workforce Study, nearly half
of employees indicated they either have no plans to leave their current
employer or plan to stay with their employer until they retire.
Economic conditions also drive changes in the value of total rewards.
In Asia and Brazil, almost 70% of organizations report that the real
value of cash compensation and total rewards has increased for
managers and hourly employees alike over both the past five-year
and 10-year periods. These organizations have increased the real
value of their rewards in order to remain competitive in rapidly
growing economies with tight labor markets. In Europe, roughly
70% of organizations report that the real value of cash and total
rewards has increased for managers over the past 10 years, but fewer
European organizations report real increases in rewards over the
past five years reflecting the economic reversal in 20082009 and
current economic uncertainty. The experience in Canada indicates
a much smaller change, perhaps as a result of Canadas relatively
healthy financial services and natural resources industries.
FIGURE 2
Companies in Different Regions Took Different Approaches to Cost Cutting and Cost Management During the Recession
Management level (IPE 58): Standard
Other Other
Global China/India Asia Pacific Ireland/Spain Europe Brazil Canada U.S.
Hiring freezes 64% 45% 60% 80% 72% 77% 61% 66%
Salary freezes 55% 28% 53% 67% 60% 58% 54% 61%
Layoffs, redundancies, reductions in force, etc. 51% 12% 32% 57% 56% 47% 57% 74%
Creating a Sustainable Rewards and Talent Management Model

Reduced bonuses 36% 42% 46% 31% 36% 17% 23% 41%
Restrictions on overtime 33% 14% 26% 27% 41% 52% 26% 44%
Total number of actions taken (mean) 3.6 2.5 3.2 3.6 4.0 3.2 3.4 4.5
% of respondents taking at least four actions 44% 22% 34% 47% 52% 37% 40% 61%
% of respondents expecting to undertake work-

23% 6% 21% 38% 33% 14% 21% 24%
force reductions over the next three years
293
294
Global Rewards
FIGURE 3
Attraction and Retention Difficulties Vary Significantly By Region
Other Other
Global China/India Asia Pacific Ireland/Spain Europe Brazil Canada U.S.
Critical-skill employees
65% 84% 78% 49% 62% 81% 61% 52%
problems attracting
problems retaining 49% 81% 69% 29% 44% 65% 35% 31%
Top-performing employees
61% 76% 71% 52% 67% 69% 57% 45%
problems attracting
High-potential employees
56% 68% 70% 47% 58% 67% 54% 40%
problems attracting
All employees
25% 36% 41% 22% 19% 30% 22% 15%
problems attracting
FIGURE 4
Fewer Organizations Report the Real Value of Rewards Has Increased Over the Past Five Years Than Over the Past 10 Years
Managers Hourly Employees

Total Cash Total Rewards Total Cash Total Rewards
Past 10 years Past five years Past 10 years Past five years Past 10 years Past five years Past 10 years Past five years
All 63%* 55% 68% 58% 58% 48% 62% 53%

China/India 71% 68 % 72% 67% 69% 64% 70% 64%
Other Asia 69% 69% 72% 72% 66% 63% 66% 66%

Ireland/Spain 73% 52% 76% 59% 71% 48% 74% 55%
Other Europe 68% 52% 73% 55% 52% 38% 57% 44%
Brazil 59% 62% 64% 70% 59% 61% 61% 64%
Canada 65% 58% 72% 64% 59% 49% 66% 58%
U.S. 51% 38% 56% 41% 43% 32% 49% 35%
* The percentage of organizations where the real, inflation-adjusted value of total cash (salary plus bonus) or total rewards (total cash plus total value of employer-provided benefits) has increased
from 2000 or 2005 to 2010.
295
296 Global Rewards
Coming Back From Layoffs
This organization engineered a series of layoffs in early 2009. Since then,

financial results have improved; however, next years projections are
uncertain. If the economy slows, and demand for its services decreases,
the company plans to undertake additional layoffs.
Predictably, previous cost-cutting actions have increased the remaining
employees workloads. Staffs are stretched thin; if business improves, the
organization will need to hire more staff.
Managers are especially concerned about retaining top-performing and
high-potential employees because there have been fewer advancement
opportunities since the layoffs. Meanwhile, other organizations have been
actively recruiting these employees, and a few top performers have already
left, citing the potential opportunities and increased security and stability
elsewhere. Still, resources remain tight, so any actions the company takes
will have to pay for themselves.
To address these issues, Towers Watson recommended the following
actions:
Review this years merit increases and bonus payouts, reducing payouts
to those employees who only partially meet expectations in order
to increase the available pool for top performers and high potential
employees.
Provide financial recognition awards to employees who identify new
ways to improve processes, cross-sell products to existing customers,
save money, develop new products or otherwise contribute to the
organizations bottom line. Leverage nonfinancial recognition broadly to
drive employee engagement.
Review opportunities to implement a retention bonus program with a
multiyear time horizon for selected high-potential and top-performing
employees. Payout would be contingent on business and employee
performance, ensuring that the program effectively pays for itself.
Re-recruit high-potential employees by communicating how they are
viewed by senior leadership and holding career development discussions.
Emphasize on-the-job experiences and identify at least two or three possible
opportunities for developmental rotations or other stretch assignments that
align with the employees interests and career aspirations.
Given the companys lean staffing model, assess whether the organizations
best and brightest talent is aligned with its most strategic and pivotal roles.
Consider rotating high-potential employees out of businesses with low growth
to those expected to grow more this year or to those where turnaround efforts
will provide significant growth opportunities. Create a process to ensure
successful transition of employees who rotate into new roles.
The numbers in the U.S. are stark by comparison: Only 40% of all
U.S. organizations report an increase in the real value of rewards
for managers over the past five years. The real value of wages and
rewards at most U.S. firms has been flat or declined. Trends for
hourly employees reflect the same underlying phenomena as those
for professional/managerial employees, but hourly employees are
even less likely to have experienced an increase in the real value
of their total rewards.
The more cost-cutting actions employers have taken, the more
likely they are to recognize the impact of those cuts on employee
engagement levels and other indicators of employee well-being.
Nevertheless, while declines in employee engagement often have
an adverse business impact, respondents in our survey do not
believe their cost-cutting actions have adversely affected quality,
Figure 5
Employers Recognize Some of the Adverse Impacts

of Cost Cutting
# of cost-cutting actions taken

All 12 3-4 5 or more
Employers actions actions actions
Increased workloads for 61%* 45% 67% 79%

employees
Employees ability to
manage their levels of work- 53% 36% 57% 72%
related stress
Overall employee 50% 35% 52% 70%
engagement
Employees ability to have
a healthy balance between 50% 37% 54% 65%
work and their personal lives
Productivity 28% 16% 29% 45%
Willingness to take risks/try 25% 16% 28% 35%

new things
Quality/customer service 22% 12% 21% 37%
Institutional knowledge
(of core processes, prior 20% 9% 19% 34%
business cycles, etc.)
*The percentages of respondents who indicate that their cost-cutting actions have had an adverse impact
in that area
298 Global Rewards
customer service, employee productivity or willingness to take risks,

regardless of how many cost-cutting actions they have taken.
Cost-cutting actions may have affected the drivers of employee
attraction and retention. Organizations recognize the importance
of base pay, challenging work, career advancement opportunities
and their reputation in attracting employees. The cost-cutting
and cost management actions employers have taken have had
significant negative impacts in each of these areas. While employers
acknowledged the impact of their actions on employee well-being,
they have not made the connection between well-being related
items such as a convenient work location, flexible scheduling
and time off and an employees decision to join a firm.
Employers and employees agree that compensation and advancement
opportunities are important factors in both attracting and retaining
employees. However, employers underestimate the importance of
employee security both now and in retirement and well-being
when employees evaluate whether or not to leave their current
organization. With many employees feeling more responsible for
managing their careers and retirement, they are increasingly likely
Figure 6
Employers Fail to Recognize the Impact of Changes to

Employee Well-Being on Their Ability to Attract Employees
Ranking* Employers View Employee View

1 Competitive base pay Competitive base pay
Reputation of the organization Challenging work

2 as a great place to work
3 Challenging work Convenient work location
The business/industry of the Opportunities for career

4 organization advancement
Opportunities to learn new Vacation/holiday/paid time off

5 skills
Opportunities for career Reputation of the organization

6 advancement as a great place to work
7 Organizations financial health Flexible schedule

* Ranking represents the frequency the item was selected as one of the top five reasons an employee would join
their firm, from a list of 26 items. Employee data come from the 2010 Towers Watson Global Workforce Study.
to be influenced by job offers that include a (better) pension,

greater job security, better work/life balance or more flexible
work arrangements.
Cost cutting and other changes have created a gap between the
employee value proposition (EVP) companies offer and the EVP
employees are seeking. Employees are looking for job security
and stability, opportunities to earn substantially higher levels of
compensation, and opportunities for development and advancement,
which they feel are unavailable in their current organization. Many
employers confirm that these intrinsic and extrinsic rewards are
unavailable. Wide gaps between what employees want and what
they believe is attainable can lead to disenchantment with their
current employer, an unwillingness to give discretionary effort on
the job and retention risk.
In growing economies with tight labor markets (e.g., Brazil and
much of Asia), the attraction/retention impact of these EVP gaps
threatens companies ability to realize both immediate and long-
term growth opportunities. Organizations in the U.S., Europe and
Canada face similar EVP gaps, but continuing economic uncertainty
in these markets means that these EVP gaps pose greater short-term
business risks through their negative impact on employee engagement
levels, performance and willingness to exert discretionary effort,
rather than through their impact on attraction and retention. In the
long term, however, these EVP gaps will have a similar impact on
these companies ability to attract, retain and develop key talent,
and deliver sustained business performance. Although companies
everywhere face similar EVP gaps, organizations in faster-growing
economies such as Brazil, China and India are more likely to devote
additional resources to close these gaps because of their greater
urgency than organizations in Europe, Canada and the U.S.
The economic crisis dramatically changed the business environment,
causing organizations to focus on short-term cost-cutting actions
that resulted in EVP gaps. As economic and business conditions
improve, employers are restoring some of the losses in reward
programs and addressing their EVP. They are also rethinking their
long-term business, talent and reward strategies, developing greater
integration and consistency within and between programs, and
300
FIGURE 7
Global Rewards
Employers Underestimate the Impact of Pensions, Job Security and More Flexible Work Arrangements on Employees
Decisions Whether or Not to Leave Their Organization
Improved Greater career
Increased Availability of/ Greater job work/life advancement More flexible
compensation better pension security balance opportunity work hours
Employee 91% 86% 86% 85% 84% 82%
All Employer 88% 30% 43% 66% 87% 48%
Gap 2% 56% 42% 20% 3% 34%
Employee 91% 89% 90% 88% 88% 86%
Asia Employer 94% 28% 47% 61% 90% 43%
Gap 3% 61% 43% 27% 2% 43%
Employee 90% 86% 84% 87% 89% 83%
Brazil Employer 93% 31% 44% 66% 89% 36%
Gap 3% 55% 40% 21% 0% 47%
Employee 91% 88% 82% 84% 82% 81%
Canada Employer 85% 23% 35% 59% 83% 50%
Gap 6% 65% 47% 25% 1% 31%
The percentage of employees or
Employee 89% 83% 82% 82% 81% 78%
employers responding to a moderate or
Europe Employer 87% 26% 38% 69% 88% 49% great extent: How would receiving each
of the following from a new employer
Gap 2% 57% 44% 13% 7% 29%
influence your/your employees decision
Employee 94% 86% 87% 86% 81% 80% to leave your current organization?
U.S. Employer 83% 37% 48% 70% 83% 56% Gaps are the difference between
employee and employer percentages,
Gap 10% 49% 39% 15% 2% 24%
and may not add up due to rounding.
FIGURE 8
Employees Perceive a Significant Gap Between What is Important to Them in Their Job and What is Available in Their
Current Organization
Substantially Opportunity to rapidly A wide range of Opportunity to develop
A secure and higher levels of develop my skills and jobs and work innovative products/
stable position compensation abilities experiences services
Important* 76% 72% 68% 60% 51%
Achievable** 51% 31% 39% 39% 29%
All
Gap 26% 41% 29% 21% 21%
Employer View*** 54% 26% 44% 45% 42%
Important 69% 73% 74% 71% 60%
Achievable 48% 37% 44% 45% 36%

Asia
Gap 21% 37% 31% 25% 24%
Employer View 60% 37% 49% 50% 41%
Important 74% 74% 75% 47% 65%
Achievable 59% 50% 57% 41% 48%
Brazil
Gap 15% 25% 19% 6% 17%
Employer View 23% 20% 38% 24% 48% * The percentage of employees
responding favorably to item: To what
Important 87% 76% 66% 63% 43%
extent is each of the following important
Achievable 59% 27% 37% 41% 22% to you in your most-preferred work
Canada
Gap 28% 49% 29% 22% 21% situation?
Employer View 57% 20% 43% 49% 34%
** The percentage of employees
Important 76% 68% 65% 54% 47% responding favorably to item: To
Achievable 49% 27% 37% 32% 26% what extent is each of the following
Europe
Gap 27% 41% 29% 21% 20% achievable within your current
organization?
Employer View 56% 22% 54% 46% 51%
Important 87% 74% 62% 55% 39% *** The percentage of employers
Achievable 53% 22% 33% 37% 18% responding favorably to item: To what
U.S. extent is each of the following available
Gap 34% 51% 29% 19% 21%
to professional/managerial employees
Employer View 54% 23% 33% 42% 39% at your organization?
301
302 Global Rewards
Case Study
Outgrowing a Decentralized Approach to HR Management
This company has grown rapidly over the past 10 years, developing new
products and expanding geographically. Regional leaders have operated with
autonomy as long as they delivered strong revenue growth. But recent results
in Asia have been below expectations. And high-performing managers, who
were promoted quickly, have struggled to adjust to their new responsibilities
even as the company has been challenged to backfill their positions.
Managing talent globally is being hindered by a variety of factors. Transferring
people from one region to another has been difficult; managers are reluctant to
release key employees, and the workers themselves do not see any connection
between the proposed rotations and advancement (in their view, advancement
means moving up the hierarchy for greater pay). There is a clear lack of global
talent management infrastructure and technology. In addition, leadership
expectations, cultural norms and performance expectations are not consistent
across countries or business units. Furthermore, the high starting salaries and
large salary increases necessary to attract and retain talent in fast-growing
markets have created internal equity and governance issues.
Moving from a decentralized to a centralized approach, which represents a
major undertaking, is critical for this organizations future success. Towers
Watson suggested that the SVP of HR plan a series of change initiatives,
starting with the organizations employee value proposition (EVP) and
proceeding through design, implementation and ongoing measurement.
Over time, most of the following recommendations could or should be
implemented:
Obtain the support and involvement of the CEO and executive team
as sponsors for what will represent a significant change in the way the
organization manages its human capital.
prioritizing their investments. These changes are reflected in the

current landscape of talent and reward programs.
The Current Landscape of Rewards

and Talent Management
Formalizing and Communicating the Employee
Value Proposition
Regardless of how it is developed or defined, and whether it is
articulated explicitly or remains implicit, every organization has
an EVP, and some develop several EVPs that are inconsistent
with each other. Only 34% of organizations report having an EVP
that they have articulated, documented and communicated. The
other two-thirds say theirs is implicit and has evolved over time.
Create a global team to develop a formal, organization-wide EVP and

total rewards and talent management strategy that align reward and talent
programs with the companys business drivers and human capital strategy.
Inventory all reward and talent programs (by region, business unit, etc.),
evaluate their effectiveness, and identify any required improvements or
new programs. Map the change initiatives across a multiyear plan to ensure
focus and prioritization of resources.
Identify talent groups most critical to the organizations continued success.
Assess the drivers of engagement for these key talent segments, and ensure
the human capital strategy and EVP are credible, distinctive and compelling
in the markets where this organization competes for talent.
Review the job-leveling models used across the firm and establish a single,
globally consistent leveling protocol. This protocol should be used to level
all jobs, with the resulting framework serving as a foundation for all reward
and talent management designs.
Conduct competitive market analyses and develop locally competitive
salary ranges for each level to help ensure pay is equitable and sufficient,
but not overly competitive with the external market. Establish a calendar for
a recurring review of competitive market practices and pay levels.
Build an organization-wide core competency model that translates
the companys mission and values into behavioral expectations for all
employees. Embed the competencies and behaviors throughout the
organizations talent programs and practices.
Adopt a global performance management process and compensation
administration guidelines, establishing policies for delivering pay on
the basis of performance, market competitiveness, internal equity and
development of required competencies.
Organizations in Asia and Brazil, where attraction and retention

challenges are greatest, and top-performing companies in general
are the most likely to have a formal EVP
The EVP can be a powerful tool for attracting, retaining and
engaging employees. Organizations are also using the EVP to improve
the alignment within HR programs and between HR programs and
the organizations business and its brand. Better alignment between
the EVP and the brand can lead to improved employee line of sight,
encouraging employees to adopt those behaviors that will deliver
on the brand promise, including superior customer service.
The EVP is a powerful management tool when it is used and
communicated effectively. Among organizations that offer competitive
rewards, improving communication of those rewards can have
304 Global Rewards
a greater impact on employee satisfaction and at far lower

cost than additional investments in making the rewards richer.
Companies that have a formal EVP are nearly four times as likely to
communicate their existing EVP effectively and are twice as likely
to align their EVP with what they stand for in the marketplace.
When an organization formalizes its EVP, that EVP is more likely
to become a stable, unifying experience within the company.
While it is often necessary to modify the EVP for use in different
locations or for different employee segments, it is better to do so within
a stable, common framework that is aligned with the organizations
strategy and has been effectively communicated. Organizations with
a formal EVP are less likely to have changed their EVP recently or
to expect to change it over the next three years.
Rewards
Base pay is the foundation for attracting and retaining employees.
However, in many organizations, the real value of base pay has been
flat for the past five years. Many organizations have also reduced
bonuses and instituted salary freezes in the past two years to cut or
manage costs. Moving forward, it will be critical for organizations
to align employer and employee interests in order to attract and
retain employees with required skills in a cost-effective way.
Figure 9
High-Performing Organizations are More Likely to Have a Formal EVP
Have a Formed EVP

All 34%
Asia 39%
Brazil 53%
Canada 25%
Europe 35%
U.S. 25%
High-performing organizations 42%
Average-performing organizations 32%
Organizations performing below their peers 28%

Merit
There are significant differences in both the size of merit increase
budgets as well as individual salary increases by region. Employees
who met performance expectations received an average base pay
increase of 8.8% in China and India, but only 1.6% in Ireland
and Spain. Similarly, there are differences in the merit increases
companies provide to employees who far exceed expectations top
performers versus average performers. The greatest percentage
differentiation is found in Europe and Brazil. In Europe, organizations
with lower to average merit increase budgets are making it a
priority to give significantly larger increases to top performers,
reflecting their difficulties attracting or retaining top performers.
In Brazil, where labor markets are tighter and salary increase
budgets are larger, organizations are limiting merit increases for
average performers in order to give top performers increases that
are more than three times as large. Differentiation is lower in
Figure 10
Organizations Formalize Their EVP in Order To Promote

Effective Alignment
All Asia Brazil Canada Europe U.S.
To improve alignment
of HR processes,
programs and
81% 78% 90% 84% 82% 79%
administration with
business objectives,
brand and each other
To establish employer
brand for talent/ 73% 73% 60% 81% 75% 76%
attraction
To set and
manage employee 65% 63% 48% 65% 72% 73%
expectations
To support/drive
59% 59% 58% 38% 67% 63%
change management
To facilitate
communication
50% 48% 44% 59% 47% 55%
with prospective
employees
306 Global Rewards
Asia and North America, where organizations give top performers

merit increases that are twice as large as the increases for average
performers. Low-performing companies are not differentiating merit
increases to a significantly greater extent than top-performing
companies, awarding comparable merit increases to employees
who only partially meet expectations.
Short-Term Incentives
Amid increasing profits and shareholder returns, the average
projected short-term incentive (STI) funding level in most regions
for the current year is approximately the same percentage as for
the most recently completed year, as many organizations have
increased performance targets. The two exceptions are Canada,
where payouts are expected to decrease by 12 percentage points,
Figure 11
Organizations With a Formal EVP Communicate it More

Effectively, and Achieve Better Stability and Alignment
EVP
Informal Formal
Organization does a good job communicating

19% 74%
its existing EVP*
Organizations EVP is clearly aligned with

37% 81%
what we stand for in the marketplace
Organization has significantly changed its

20% 28%
EVP in light of the recent economic changes
Organization is going to change its EVP

38% 23%
significantly over the next three years
Organization varies EVP by:**
Location 34% 14%
Business Unit 35% 19%
Job Level 46% 29%
Top Performers 46% 28%
High Potentials 43% 27%

*The percentage of respondents who have an informal/formal EVP who agree with the statement
**The percentage of respondents who have an informal/formal EVP who vary that EVP by location, business unit, etc.
FIGURE 12
European and Brazilian Companies Report Greatest Merit Differentiation

No Differences in Differentiation by Firm Performance
Employee Rating
Did not meet Partially met Met Exceeded Far exceeded Differentiation
expectations expectations expectations expectations expectations ratio*
China/India 0.7% 3.5% 8.8% 12.6% 17.7% 202%
Other Asian Countries 0.4% 1.6% 4.0% 5.8% 8.0% 202%
Ireland/Spain 0.2% 0.7% 1.6% 3.0% 5.1% 317%

Other European Countries 0.1% 0.8% 2.7% 4.5% 7.0% 261%
Brazil 0.7% 1.3% 4.1% 7.6% 10.9% 264%
Canada 0.2% 1.1% 2.8% 4.0% 5.6% 197%
U.S. 0.1% 0.9% 2.5% 3.6% 5.0% 199%
Top-Performing Companies 0.4% 1.5% 3.7% 5.6% 8.1% 217%
Average-Performing Companies 0.3% 1.3% 3.7% 5.6% 8.0% 216%
Low-Performing Companies 0.3% 1.7% 3.7% 5.6% 8.2% 219%
Differentiation ratio is the ratio of the increase in merit pay for employees who far exceeded expectations divided by the increase for employees who met expectations.
307
308 Global Rewards
and the U.S., where payouts are expected to increase by nine

percentage points. Companies that have outperformed their peers
are increasing their performance targets for this year, while poor
performers are decreasing theirs. As a result, high-performing
companies have lower expected payouts this year than last, while
low performers expect their payouts to increase.
Companies have maintained significant levels of differentiation
between top-performing employees and average employees. The
average difference is approximately 1.5 times greater. There is
no significant difference between high-performing companies
and low-performing companies in the ratio of STI payouts to
top performers relative to average performers. Poorly performing
companies are providing the same relative differentiation as high-
performing companies rather than allocating a larger share of their
relatively scarce resources to top performers and less to others.
Talent Management Strategy and Emphasis

Organizations have focused on risk management and cost
reductions over the past two years. But as economic and business
Figure 13
STI Funding is Holding Steady in Most Regions
Most Recently
Current Year
Completed Year*
China/India 89% 85%
Other Asian Countries 82% 82%
Ireland/Spain 72% 73%
Other European Countries 76% 80%
Brazil 77% 88%
Canada 102% 90%
U.S. 83% 92%
Top-Performing Companies 98% 91%
Average-Performing Companies 83% 86%
Low-Performing Companies 59% 72%

*Percentages are the actual payouts of STI relative to targeted levels at beginning of the year.
Very Little Differentiation of STI Across Regions, Financial Performance Groups
Employee Rating
FIGURE 14
Did not meet Partially met Met Exceeded Far exceeded Differentiation
expectations expectations expectations expectations expectations ratio*
China/India 16% 52% 97% 123% 151% 155%
Other Asian Countries 18% 52% 97% 126% 155% 161%
Ireland/Spain 10% 47% 82% 101% 125% 154%
Other European Countries 13% 54% 96% 120% 146% 153%
Brazil 19% 56% 99% 120% 141% 143%
Canada 13% 58% 99% 118% 141% 143%
U.S. 15% 54% 97% 115% 134% 139%
Top-Performing Companies 20% 57% 102% 122% 142% 140%
Average-Performing Companies 15% 55% 95% 118% 144% 151%
Low-Performing Companies 8% 43% 84% 112% 137% 163%
* Differentiation Ratio is the ratio of the STI payout as a percentage of target for employees who far exceeded expectations divided by the STI payout as a percentage of
target for employees who met expectations
309
310 Global Rewards
Integration Following a Merger
These two organizations merged shortly before the 2008 financial crisis.
Each targeted customers in different market segments and different stages
in the value chain, and each had been highly profitable. To maintain focus
with minimal disruption in a rapidly changing marketplace, the merged
organizations CEO decided to allow each legacy entity to continue operating
as a relatively independent business unit rather than pursue an aggressive
integration plan.
However, the global recession brought two years of poor performance for both
organizations, and in early 2010, the incumbent CEO retired. The incoming
CEOs mandate was to deliver the synergies that had been promised at the
time of the merger, including cross-selling the companys entire portfolio of
products and leveraging economies of scale across the combined entity.
Given the new organizational mandate, the two SVPs of HR started to outline
the needs and potential challenges of integrating the legacy businesses.
The two companies cultures were very different; one was hierarchical and
structured, the other informal and flat. And their reward and talent management
philosophies were also very different. Not surprisingly, there was a great deal
of anxiety among employees about the upcoming changes, as employees
had become accustomed to business as usual during the years immediately
following the merger. The SVPs were particularly concerned about retention
risks among those high-potential employees needed to help the company
return to growth.
To overcome these challenges, Towers Watson suggested the organization
establish task forces with the following accountabilities:
Assess the two cultures to understand differences in expectations and
day-to-day operating assumptions between the two. Using these insights,
conditions improve, employers have begun to restore some of

the previous cuts in rewards and to address gaps in their EVP.
They are also addressing the long-term impact of the changing
conditions by modifying their business and talent management
strategies, and adjusting their talent programs accordingly. Like
the economic and business conditions that made these changes
necessary, these adjustments vary significantly by region.
Asia Growth and Innovation

Organizations in Asia plan to grow by expanding into new markets
and introducing new products and services. These organizations
report that creativity and innovation is a key competency for
executives to be successful. Expansion into new markets requires
additional talent at all levels. Since labor markets are tight,
plan and execute a top team alignment session to define new values and
guiding principles for the combined entity.
Conduct a series of pulse surveys to identify, monitor and manage em-
ployee engagement issues throughout the integration process. Segment
and analyze the data for key employee populations, and leverage the data
to start building the employee value proposition.
Review the career framework, job leveling, compensation and benefits,
and corporate titling programs of both business units, and recommend
new designs for the integrated organization. Ensure these recommenda-
tions align with the employee engagement findings, articulate a vision
of the desired-state employee experience and establish a road map for
achieving it.
Formalize a high-potential employee program that meets the needs of the
integrated organization. Communicate to managers expectations for en-
gaging and retaining high potential employees.
Review the companys incentive and recognition programs, and ensure
that the metrics and rewarded behaviors support the organizations busi-
ness and cultural objectives (e.g., working across the two legacy busi-
nesses and cross-selling).
Create organizational and functional competency profiles for the combined
organization. Embed these profiles in all talent processes to ensure that
they are fully operational.
Select and monitor business and employee engagement metrics to track
progress toward the desired-state culture, business results and employee
experience.
organizations place a premium on developing people requiring

executives to promote employee development, investing in the
internal talent pipeline and talent acquisition, and emphasizing
developing new leaders with new competencies.
Brazil New Markets and New Skills

Organizations in Brazil plan to grow by expanding into new markets,
requiring new leaders with different competencies. Brazilian
organizations expect executives to help develop talent with these new
skills, but due to the urgency, emphasize buying talent over investing
in building their internal pipeline. Nevertheless, organizations in
Brazil indicate that going forward they are more likely to increase
their emphasis on leadership development, employee learning and
succession management in order to sustain this push.
312 Global Rewards
Canada Emphasizing Efficiency

Organizations in Canada are more likely to stress improving
efficiency of operations. Executives are required to be results-
oriented first and visionaries second. Since efficient operations
often require a highly experienced workforce with deep expertise
in the organizations methods, Canadian organizations emphasize
long-term career development and advancement through clearly
defined career paths to support this strategy.
Europe Continued Emphasis on Cost Reductions and Value

European organizations emphasize strategic cost reductions, but
they are also shifting their competitive strategy to emphasize
innovation and customer service. Given the importance of cost
reduction among European organizations, managing the talent
supply chain is critical to their success.
Although they are less likely to increase their investment in
the internal pipeline, they still need to create movement and
rotation in order to develop leaders who know the business.
European organizations also expect executives to inspire and
motivate employees perhaps as a way to spur innovation and
customer service.
U.S. Growth Through Innovation and M&As

Organizations in the U.S. plan to grow, but they are more likely
than organizations in other regions to accomplish this through
merger and acquisition (M&A) activity. Successful mergers require
executives to have a deep expertise and knowledge of their business.
In the U.S., ensuring the readiness of critical talent is the number
one talent management priority. Organizations are emphasizing
leadership development, career paths and succession management,
but not by creating movement or talent rotations. This may reflect
the relative importance of developing deep technical expertise
rather than broader experience in organizations in the U.S.
In addition to implementing the right talent management strategies and
setting the right priorities, it is critical for companies to deliver programs
effectively. Effectiveness is often a function of effort emphasis
and investment and consistency or alignment.
Figure 15
Economic and Business Conditions Cause Organizations in
Different Regions to Emphasize Different Business and Talent
Management Strategies and Executive Competencies
Global Findings
Executive Strategic Talent
Business Strategy* Competencies** Management Priorities***
Focused primarily on Results orientation Ensuring readiness of
growth Strategic vision talent for critical roles
Shifting away from Change leadership Increasing the
competing based on investment in building
image or reputation the internal pipeline of
Shifting toward talent
competing by Creating more
developing innovative movement, rotation
products and services and development
opportunities for talent
Regional Variation From Global Findings
Executive Strategic Talent
Business Strategy Competencies Management Priorities
Asia Grow through product Creativity and Increase investment

and market expansion innovation in talent pipeline and
Compete by developing Knowing the acquiring new talent
innovative products business
and services Developing people
Europe More focus on Knowing the Creating movement/
expense reduction to business rotation for
supplement growth Inspiring and development without
Compete by developing motivating others increasing the
innovative products and investment in the
services and improving internal pipeline
customer service
Brazil Revenue growth Developing people Developing next
through market generation of leaders
expansion with new competencies
Acquisition of new
talent
Less emphasis on
investing in internal
pipeline/ensuring
readiness of existing
talent
Canada Less growth-focused Same as global Less emphasis on

than other regions, acquisition of new
increasing emphasis on talent
efficiency of operations
U.S. Supplementing growth Knowing the Emphasis on ensuring
with M&A activity business readiness of critical
Compete by developing talent
innovative products
and services
*Business strategy represents the organizations business strategy and the differentiating factors the organization has
traditionally competed on or expects to compete on.
**Executive competencies are the most frequently selected competencies that are necessary for executives to be
effective.
***Strategic talent management priorities are based on the percentage of firms that indicated this area was one of the
top three talent implications of their organizations strategic priorities.
314 Global Rewards
Promoting Effective Talent Management Through

Emphasis and Consistency
Although most organizations have increased their emphasis on
talent management over the past three years, they recognize that
they still need to improve their talent management programs.
Even those talent management programs that are considered most
effective specifically, employee learning and development, and
performance management are rated as very effective by less than
30% of organizations. Employers are significantly more likely to report
being more effective on a particular aspect of talent management
when they have increased their emphasis in that area.
On a global basis, organizations are most likely to increase their
emphasis in three areas over the next three years: leadership, succession
planning and career pathing. Given todays economic conditions, the
skills and competencies that leaders require have changed, reflecting
the new behaviors that are needed for organizations to compete
successfully. Organizations are addressing this need by investing
in leadership development programs, emphasizing new executive
competencies around creating a strategic vision, change leadership
skills to implement these new strategies and a results orientation
to deliver on them. Organizations are also working to develop new
leadership assessment tools around these executive competencies.
These tools will be used to assess the new leadership competencies
and to identify the development needs of leaders who, in some cases,
are required to make significant jumps in role complexity to meet
the changing needs of the business.
Employers and employees alike recognize the importance of career
pathing and succession management, but employers are less effective
in these areas. Effective succession management is a tool for reducing
human capital risks and loss of institutional knowledge associated
with employee turnover, and is vital to preparing leaders for significant
jumps in complexity as they move up the hierarchy. Developing career
paths and plans helps organizations direct employee development to
those areas that will prepare them for advancement opportunities and
build deeper skill sets. Together, career paths and plans and succession
management all help ensure the organization continues to develop
the top talent and critical-skill employees needed for success.
FIGURE 16
Organizations That Increase Their Emphasis on Aspects of Talent Management are More Likely To Find Them Very Effective
% very effective**
% increasing
emphasis Company emphasis over past three years
over past
three years* All Increased Decreased Ratio
Performance management 54% 28% 31% 17% 1.8
Leadership development 54% 24% 35% 2% 17.5

Employee learning and development 48% 29% 38% 9% 4.2
Leadership assessment 47% 23% 33% 6% 5.5 * Percentage of companies that indi-
Succession management 46% 17% 24% 3% 8.0 cated they increased their emphasis on
this area of talent management over
Coaching and mentoring 45% 15% 22% 3% 7.3 the past three years.
** Percentage of respondents that
Competency models and architecture 43% 16% 24% 4% 6.0 indicated that their organizations
Career pathing and planning 42% 10% 15% 0% n.a. increased or decreased their emphasis
in this area of talent management over
Manager performance 41% 16% 25% 0% n.a. the past three years who rated their
organizations as very effective in this
Critical role identification 39% 21% 32% 4% 8.0 area. Gap equals the differences in
Onboarding/induction into new roles 38% 17% 28% 7% 4.0 effectiveness between the organiza-
tions that increased or decreased their
Talent movement/rotations 34% 12% 23% 3% 7.7 emphasis in that area.
Workforce planning 33% 14% 25% 8% 3.1
Team effectiveness and development 29% 14% 26% 5% 5.2
315
316 Global Rewards
Global Consistency
Todays increasingly global organizations are balancing the need
for local variation in reward and talent management practices with
the benefits of global consistency. The key business drivers behind
the decision to establish global consistency in reward and talent
management programs are:
Alignment. Competing globally requires a cascade from organizational

business imperatives, to the EVP and total rewards strategy, and
ultimately to rewards and talent management program design.
Governance. Regulation and increasing complexity require

organizations to improve their risk management, decision-making
and knowledge sharing abilities.
Cost Management. Globalization, competition and economic

conditions are placing pressure on margins, increasing the need
to manage human capital costs.
Efficiency. Globally consistent programs are easier to administer,

facilitate quick and accurate reporting and analysis, and allow
companies to leverage investments in technology.
Quality. Global scale allows for the development of compensation

and talent management centers of excellence.
Talent Mobility. Leveraging a global workforce helps to get the

right people to the right places at the right time.
Complexity. Managing the employees of a global organization

requires a more sophisticated infrastructure (e.g., technology).
Becoming Globally Consistent Where to Start

Multinational organizations are more likely to develop consistent
programs for top management, particularly in the areas of performance
management, succession planning, leadership development and
incentive programs. These companies also have globally consistent
performance management and STI programs for other employees,

but not succession management programs. Instead, they develop
globally consistent competency models, job leveling or job evaluation
(hereafter, job leveling), and base pay programs. These programs are
foundational, enabling organizations to develop global consistency
in other talent management and reward areas.
Organization-Wide Job Evaluation and Job Leveling

Nearly 70% of all organizations report having an organization-
wide job-leveling program; among those that do not, most plan to
implement one over the next two years. In light of the recent changes
at organizations, over one-third of those that have a consistent
job-leveling program plan to review it this year, mostly for talent
management reasons. Organizations with consistent job-leveling
programs are more consistent in other areas as well. There is a
strong connection between globally consistent job leveling and
consistency in career pathing, the way work gets done, how work
is evaluated and how employees are rewarded (Figure 18).
Although organizations give low ratings to the effectiveness of
their talent management programs, organizations with globally
consistent programs are more effective. There is a strong rela-
tionship between global consistency and effectiveness in talent
Figure 17
The Pattern of Global Consistency Varies by Job Level
Global Firms*
Top management Other employees
Long-term incentives 84% 50%
Performance management 76% 70%
Succession management 75% 38%
Short-term incentives 72% 61%
Leadership development 69% 42%
Competency models/architecture 66% 59%
Job leveling or job evaluation 66% 58%
Base pay 61% 56%
Workforce planning 58% 47%
Career pathing and planning 57% 42%
* Percentage of firms where this program exists in two or more countries that indicate the program design is globally
consistent
318
Global Rewards
FIGURE 18
Organization-Wide Job Leveling Programs Make Establishing Other Globally Consistent Programs Move Likely
Have Globally Consisted Do Not Have Globally Consisted
Broad-Based Job Leveling Broad-Based Job Leveling
Top Management Other Employees Top Management Other Employees

Long-term incentives 93% 58% 73% 43%
Performance management 93% 93% 60% 52%
Succession management 88% 53% 71% 28%
Short-term incentives 88% 79% 61% 51%
Competency models and competency architecture 88% 88% 48% 38%
Leadership development 86% 60% 58% 24%
Base pay 84% 83% 46% 43%
Job design 78% 80% 25% 19%
Workforce planning 78% 78% 39% 26%
Employee learning and development 75% 77% 38% 33%
Career pathing and planning 75% 68% 32% 26%
Recruiting/selection 74% 78% 36% 33%
Recognition programs 59% 74% 24% 32%
Sales compensation 49% 71% 24% 35%
* Percentage of companies that have/dont have a globally consistent job-leveling or job evaluation program for employees other than top management that say their other programs are globally consistent for top management/other
employees
rotations, career development and advancement. When compa-

nies have a globally consistent job leveling system in place, it
provides a framework and starting point for greater alignment and
integration of talent management programs in general, leading
to improved effectiveness (Figure 19).
Organizations need to develop a reward and talent management
strategy that is agile enough to support robust growth, but is sustain-
able and scalable in a downturn. Some programs such as salary
increase and training budgets are flexible, and organizations
can readily adjust their spending based on economic and busi-
ness conditions. Other programs are less flexible: Organizations
are unlikely to reverse trends on increasing health premiums for
employees or to change their retirement contributions, and they
are biased toward renewed hiring over layoffs (Figure 20).
Implications of the Current Landscape of Rewards and

Talent Management
Organizations need to focus on the basics, those elements of the
EVP that are attractive to all employee segments, including:
Competitive base pay

Figure 19
Global Consistency Helps Companies Become More Effective

in Their Other Programs
Do Not Have
Have Globally Globally
Consisted Consisted
Broad-Based Broad-Based
Job Leveling* Job Leveling Difference
Leadership assessment 34% 15% 19%
Leadership development 31% 18% 13%
Competency models/
23% 9% 14%
architecture
Employee learning and
36% 21% 15%
development
Workforce planning 20% 11% 9%
Talent movement/rotations 18% 10% 8%
Critical role identification 30% 16% 14%
Performance management 37% 25% 12%
*Numbers represent percentage of respondents who report their program being somewhat or very effective.
320 Global Rewards
Challenging work
Career advancement opportunities
Convenient work location
Vacation or paid time off
Employers need to be competitive in these areas in order to

attract, retain and engage employees. As market conditions improve,
organizations need to spend their resources more effectively
to improve their return on investment in rewards and talent
management. Companies can become more effective with reward
and talent management programs by:
Figure 20
Pay, Bonuses and Training Budgets are the Programs

Organizations are Most Likely to Change if Economic or
Business Conditions Change Substantially in Either Direction
Over the next 12 months, which actions is your organization most likely to
take if it has:
additional funds to spend on labor
to cut costs? costs?
Program Top 3 Program Top 3
Reduce pay increases 78% Increase salary budget 69%
Reduce budgets for training Hire more people
54% 54%
and development programs
Reduce or eliminate bonuses 57% Increase bonus opportunities 49%
Lay off employees 41% Increase budget for training 55%
and development programs
Increase health care premiums Increase investment in better
18% 27%
that employees pay equipment for employees
Reduce employee hours, e.g., Increase bonus eligibility
13% 14%
furloughs, reduced workweek
Reduce contribution to retire- Increase contributions to
8% 7%
ment programs retirement programs
Reduce number of days of paid 6% Reduce health care premiums
4%
time off or vacation that employees pay
Increase number of days of
2%
paid time off or vacation
Formalizing and communicating a sustainable EVP. Companies

that anticipate ongoing volatility in the economy and labor
markets should develop and communicate an EVP that will be
effective in any economic environment. The EVP should be
sustainable in terms of company investment in rewards and talent
management programs, and address the elements of the deal that
are most important to employees. Organizations that develop
an effective EVP and communicate it well are more successful.
The process provides insight into what employees value, rather
than trying to be all things to all people. Organizations need
to pick their spots, focusing on top performers, critical-skill
employees and high potentials, and designing and delivering
on what is important to them. Jettison things that dont matter
and that dont have an attractive ROI.
Developing global consistency across regions and levels

within a program. Organizations are becoming more globally
consistent in how they develop and manage talent and reward
programs. By doing this, organizations are discovering they
can be more successful in the overall effectiveness of these
programs.
Developing consistency between reward and talent management

programs through an integrated reward and talent management
framework. Global job-leveling programs create a common
framework for managing talent and rewards. For example,
creating career advancement opportunities through frequent
job rotations in order to help employees develop is effective
when employees and managers together have a clear vision
of career paths and job leveling through the process.
Differentiating rewards based on employees performance.

Most organizations differentiate merit increases and bonus
payouts, but financially poor-performing organizations need
to ensure that their top performers receive more fully funded
awards, even if it means that below-average performers do
not receive a bonus.
322 Global Rewards
Picking solutions that are right for the organization in its setting.
There are no silver bullets, but organizations are seeing results
in the places where they are focusing their efforts. Companies
that have increased their emphasis on aspects of reward and
talent management over the past three years report being more
effective in those areas. Organizations need to increase their
emphasis on areas that support achievement of their business
and talent management strategies.
About the Survey

In May and June of 2010, Towers Watson conducted a survey of 1,176
human resource professionals with responsibilities in compensation
and benefits or talent management. These participants completed a
survey questionnaire covering such topics as general business infor-
mation and strategy, reward program governance and design, cost
management and rewards, employee engagement, employee value
proposition, attraction and retention, and talent management. The
respondents come from a broad cross section geographically:
Distribution of Respondents by Region
28%
28% Asia
40% 24% Europe
8% Brazil
28%
24%
40% 8% 40% North America
24%
8% 28%
Respondents
40%
were predominantly international and global organizations (58%) rather than
domestic (42%):
Distribution
24% of Organizations by Type
8%
35%
42%
42% Domestic
35% 23%
42%
23% International
35% Global
23%
35%
42%
23% 31%
Respondents were of various sizes, ranging from less than 2,000 employees to well over
35%
20,000 employees:
Distribution of31%
Respondents by Firm Size
17%
35% 17%
17%
17%
31% 31% Over 10,000
35%
17% 5,000 10,000
17% 2,500 5,000
17%
17% 35% Less than 2,000
324 Global Rewards
Distribution of Respondents by Industry

Respondents came from a broad cross section of industries:
Industry Number % of total

Manufacturing 163 14%
Financial Services, Excluding Insurance 150 13%
High Technology 124 11%
Financial Services Insurance 91 8%
Professional and Business Services 90 8%
Communications 58 5%
Health Care, Excluding Pharmaceuticals 56 5%
Retail 52 4%
Food and Beverage 51 4%
Health Care Pharmaceuticals 51 4%
Energy 50 4%
Property and Construction 42 4%
Automobiles and Transportation Equipment 40 3%
Transportation 35 3%
Wholesale 30 3%
Natural Resources 22 2%
Utilities 18 2%
Tourism and Leisure 14 1%
Aerospace and Defense 13 1%
Education 13 1%
Government 10 1%
Charities and Nonprofit 3 0%
Key Terms
High-performing organizations: This report differentiates between fi-

nancially high- and low-performing companies based on self-report-
ed responses to the question, How well did your total organization
perform financially compared with other firms in your industry during
the past year? Respondents were given five choices, ranging from
substantially below peer group to substantially above peer group.
Companies that identified themselves as substantially above peer
group are high-performing organizations, while those that said their
performance was slightly above peer group or about the same as
peer group were considered average performing. Companies that said
their performance was below that of their peers were characterized as
low-performing organizations.
Critical-skill employees: Critical-skill employees are those who possess
the skills the organization needs most to compete effectively now.
Top-performing employees: Top-performing employees are those whose
performance was rated far exceeds expectations (i.e., in the top 10%)
by their supervisor in their most recent performance review.
Employee value proposition: The EVP articulates the array of pro-
grams, practices and work experiences that shape employee attitudes
and behaviors in the workplace. The intention of the EVP is to define
an employment experience that rallies employees around the organiza-
tions brand, mission and values. The EVP captures both the employer
and employee views.
Global firms: Global firms are companies that have significant operations
(majority of functions represented) on three or more continents.
International firms: International firms are companies that have multi-
function operations across an entire region or in several countries on
different continents.
Domestic firms: Domestic firms are companies that have the majority
of operations in their home country. They mainly supply the domestic
market and may have small operations
326 Global Rewards
For additional resources, visit the WorldatWork Survey Results:

http://www.worldatwork.org/research
HR Pay Practices Survey 2010 (U.K.)
http://www.worldatwork.org/waw/adimLink?id=48198
The Power of Integrated Reward and Talent Management 2008/2009
Global Compensation Practices 2008
327
WorldatWork Books
For additional resources, visit the WorldatWork Bookstore:
http://www.worldatwork.org/waw/bookstore
328 Global Rewards
WorldatWork Books
For additional resources,
visit the WorldatWork Bookstore
www.worldatwork.org/waw/bookstore
Compensating Globally Mobile

Employees
How-To Series for the HR Professional
When an organization decides to go global, one

of the first human resources challenges it faces is
how to select and compensate the first employee
it sends abroad from headquarters i.e., the first
expatriate. Atthis point in its development into a
global corporation, an organization will begin to make
decisions that affect the future configuration of its
expatriate compensation programs, not to mention
the success of the entire globalization process.
This booklet will help employers answer some key
questions such as whether to conduct or purchase
a survey of corporate practices, hire a consultant,
follow the competition, be creative in designing pay
strategies, negotiate with each expatriate candidate or
simply pay the second expatriate the way the first one
was paid, and so on. Author Calvin Reynolds delivers
approaches to developing expatriate pay strategies for
the evolving multinational corporation.
WorldatWork Books 329
Compensating North American

Expatriates
North American organizations operating abroad have

tried several different compensation approaches for
expatriates with varying degrees of success. This
booklet describes and compares the most common
methods of expatriate compensation: negotiation;
localization; the balance sheet; and lump-sum and
cafeteria approaches.
Developing International Talent

Management Strategies
As businesses continue expanding internationally,

and as geographic and social boundaries blur, the
global economy continually provides both challenges
and opportunities for employers and employees both
at home and abroad. Countries and governments
operate autonomously, and differences persist in legal
and social frameworks, working practices, corporate
governance and management practices. Labor laws,
tax regimes, social security structures, along with
compensation and benefits structures all remain unique
to each country.
In this new-world economy, the role of the HR

practitioner is becoming increasingly critical to help
ensure that organizational and people strategies and
programs fit local cultures and business conditions.
Talent management in its broadest sense is now
recognized as a key performance indicator for major
multinationals, and it requires tools and practice to be
successful. The development of talent management
strategies and the mechanics of how to manage them
for the best effect, is the subject of this book. It aims
to help international talent managers get the best
out of their international teams through a series of
integrated policies and approaches that will attract,
motivate and retain them in the local cultural and
business environment.
330 Global Rewards
Executive Compensation Practices

in the UK
A Guide to Governance, Taxation & Accounting
Executive compensation in the United Kingdom has

been controversial for years. In response to public
criticism over underserved high pay among executive
directors, UK market regulators issued a series of
regulations and best-practice guidelines to guide firm
practices in managerial compensation. Governance
codes provide recommendations on compensation,
and these recommendations are largely followed
among UK businesses. And, as the United States is in
the process of implementing say on pay, it has been
UK law since 2002.
In this book, the authors review compensation

practices in the United Kingdom as well as three
areas that have a large impact on those practices:
governance, taxation and accounting.
331
About the Authors

332 Global Rewards
Ken Abosch is the North American, broad-based compensation

consulting practice leader at Hewitt Associates and is based in
Lincolnshire, Ill.
Peter Acker is a principal and Global Rewards consultant at Hewitt

Associates in Lincolnshire, Ill.
Susan Allerow is an associate consultant in ORC Worldwides inter-

national compensation practice area and is based in New York.
Scott Barton is a managing principal of NewSigma LLC in the San

Francisco Bay area.
Richard Bednarek leads Hay Groups global executive compensa-

tion practice in Hay Group London.
Madeleine Berger is a senior consultant in Mercers global mobility

unit, information product solutions.
Agns Blust, GRP, is responsible for global rewards in the Europe,

the Middle East and Africa (EMEA) region at Unisys.
John M. Bremen is global practice director of the sales effective-

ness and compensation practice of Watson Wyatt Worldwide. He
is based in Chicago.
334 Global Rewards
Ted Briggs is national thought leader, sales effectiveness and

compensation, at Watson Wyatt Worldwide.
June Anne Burke is a partner in global equity services at Baker &

McKenzie and is based in New York.
Rajiv Burman, CCP, CHRP, SPHR, is the vice president of human

resources, North America, for Jubilant Organosys, which acquired
Hollister-Stier, Clinsys, Cadista and Draxis businesses in the United
States and Canada.
John Cummings, CCP, is a Global Rewards consultant at Hewitt

Associates in Chicago.
Siobhan Cummins is managing director of ORCs operations in

Europe and is an executive vice president of the firm.
Fermin Diez, CCP, is a Worldwide Partner at Mercer Human Resource

Consulting and is responsible for that firms market-development
activities in the Asia Pacific.
Susan Eandi is a partner at Baker & McKenzie LLP in Palo Alto,

Calif.
Jennifer George is a partner at Orrick, Herrington & Sutcliffe LLP

in San Francisco.
Dr. Frank Gillingham is medical director and has led HTH Worldwides
international business development efforts in Europe and Canada.
He is a board-certified internist and emergency medicine specialist
and is a private emergency physician in southern California.
Robert J. Greene, Ph.D., GRP, GPHR, CPHRC, is the CEO of Reward

$ystems Inc. in Glenview, Ill.
Pat Gurren, GRP, is an independent HR consultant specializing in

compensation and benefits.
Esther Hahm is a senior human capital partner with Ernst & Young
LLP in Toronto, Canada.
Serena Hubbell is a senior manager in Ernst & Young LLPs Human

Capital practice in New York.
Vadim Kostovski, an international compensation consultant for

ORC Worldwide, is based in New York.
Ute Krudewagen is a partner at Baker & McKenzie LLP in Palo

Alto, Calif.
Noam Lakser, based in New York, is a worldwide partner and leads

Mercers international retirement business in the Northeast.
Geoffrey W. Latta, executive vice president of ORC Worldwide,

specializes in international compensation and employee and labor
relations.
Bill Leisy, CCP, is a principal in Ernst & Young LLPs performance

and reward (P&R) practice in Atlanta, Ga., and is the practices
markets and services leader.
Tom McMullen is the U.S. Reward Practice Leader for Hay Group,
based in Chicago, Ill.
Carlos Mestre is the head of Mercers global mobility business

unit.
Jeff Miller is president of Mercers outsourcing business in Norwood,

Mass.
Marcus Minten leads Watson Wyatts sales effectiveness and compen-

sation practice in Europe.
Warren Mueller, CCP, GRP, CSCP, is the total rewards manager for
the Americas region at Diversey Inc. in Sturtevant, Wis.
336 Global Rewards
Carol Neumeister is a tax partner at PricewaterhouseCoopers in

Detroit, Mich.
E. Michael Norman is senior vice president in the Los Angeles

office and leader of the organization and talent practice of Sibson
Consulting.
Kevin OConnell is the managing partner of Accelerate Consulting

Group LLC, located in Philadelphia.
Matthew Pascual is a senior manager in Ernst & Young LLPs

Human Capital practice in New York.
Hesan A. Quazi, Ph.D., is an associate professor of management at

the Nanyang Business School, Nanyang Technological University,
Singapore.
N.S. Rajan is a partner in Ernst & Young LLPs Human Capital prac-
tice based in Gurgaon, India, and is also the global performance
and reward leader for HR Advisory.
Jon Randall leads Watson Wyatts sales effectiveness and compen-

sation practice in Asia-Pacific.
Adam Rosenberg, located in the United Kingdom, is an actuary

and senior consultant with Mercer.
Rebecca Rosenzwaig, CPA, is a senior consultant in ORC Worldwides

international compensation practice area and based in New York.
Anne Rossier-Renaud is a senior consultant in Mercers global

mobility unit, information product solutions.
Ramamurthy Sankar is zone leader and Human Capital Advisory

Services leader for Mercer in India and is based in New Delhi.
Jill Schermerhorn is a senior global rewards consultant at Hewitt

Associates and is based in Lincolnshire, Ill.
Thomas Shelton is the founder and CEO of HRToolbox Inc. in

Atlanta.
Cheryl Spielman is a partner in Ernst & Young LLPs Human Capital

practice in New York.
Mel Stark leads Hay Groups Reward Practice in its metro New
York office.
Ruxandria Stoian, GRP, is a partner at PricewaterhouseCoopers

in Bucharest, Romania.
Mariana Uzcategui is a Senior Associate and Team Leader with

Mercer Human Resource Consulting in the Human Capital Advisory
Service, based in the Sydney office.
Marc Wallace, CSCP, is a senior consultant with Hay Group and

is based in Chicago.
James Whitbeck is an associate consultant in the Los Angeles office

of Sibson Consulting.
Lori Wisper is a senior compensation consultant at Hewitt Associates

and is based in Lincolnshire, Ill.
Guo Xin is managing director of the greater China zone for Mercer
and a principal consultant in the firms human-capital business
and is based in Beijing.
Ramamurthy Sankar is zone leader and Human Capital Advisory

Services leader for Mercer in India and is based in New Delhi.
Pengpeng Zhou is a recent graduate from the University of Minnesota,

with a masters degree in human resources and industrial relations
and now works on global HR issues at Cargill European headquar-
ters in Belgium in August.
S ec on d
Global Rewards
E d iti on
Amid the current economic climate, todays best-performing global organizations are
exploring new opportunities to enhance their ability to succeed. The increased competition
for global talent means that multinational companies need to adopt a long-term outlook
and embrace total rewards solutions that are critical to human capital management.
However, the business need is tempered by the realities of cost and complexity.
In this collection of articles from WorldatWork, thought leaders address topics ranging
from rewarding expatriates to the role of global equity; from deciding whether to implement
single, broad global policies or to go local, with local policies at the local employer in
the local language; from HR in emerging countries to the decision whether to outsource
practices. Each topic addressed in this collection lends insights into the global economy
and changing demographic landscape, as well as how to design rewards systems that
align with organizational business strategies and visions.
Contributing Authors
Ken Abosch Robert J. Greene, Ph.D., Matthew Pascual
Peter Acker GRP,GPHR, CPHRC Hesan A. Quazi, Ph.D.
Susan Allerow Pat Gurren, GRP N. S. Rajan
Scott Barton Esther Hahm Jon Randall
Richard Bednarek Serena Hubbell Adam Rosenberg
Madeleine Berger Ute Krudenwagen Rebecca Rosenzwaig, CPA
Agnes Blust, GRP Vadim Kostovski Anne Rossier-Renaud
John Bremen Noam Lakser Ramamurthy Sankar
Ted Briggs Geoffrey W. Latta Jill Schermerhorn
June Anne Burke Bill Leisy, CCP Thomas Shelton
Rajiv Burman, CCP, Tom McMullen Cheryl Spielman
CHRP,SPHR Carlos Mestre Mel Stark
John Cummings, CCP Jeff Miller Ruxandria Stoian, GRP
Siobhan Cummins Marcus Minten Mariana Uzcategui
Fermin Diez, CCP Warren Mueller, CCP, Marc Wallace, CSCP
Susan Eandi CSCP,GRP
James Whitbeck
Jennifer George Carol Neumeister
Lori Wisper
Frank Gillingham, M.D. E. Michael Norman
Guo Xin
Kevin OConnell
Pengpeng Zhou
Business/Human Resources

www.worldatwork.org
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This book is published by WorldatWork Press. The interpretations, conclusions and

2011 WorldatWork Press

Publishing Manager: Andrea Ozias

Project Lead: Wendy Anderson, WLCP

Content Adviser: Adam Sorenson, GRP

Creative Services Manager: Rebecca Williams

Graphic Design: Hanna Norris www.worldatwork.org

Performance-Related Pay in the Context of the Global Crisis 17

Better Benchmarks for Global Mobility 23

Business as Unusual: Making Global Compensation Work for You 31

10 Ways to Shore Up Your Global Equity Plan 41

Trends in Global Employee Equity 47

Signs on the Road to Global Sales Compensation are in Local Language 53

Going Global? Get Local! Tips for Increasing Success 61

Using Consistency and Flexibility to Localize Global Sales 67

Creating a Sales Incentive Plan that Works Locally and Globally 77

What in the World is Happening with Long-Term Incentives? 85

Broad-based Variable Pay Goes Global 91

HR Practices | Recognition | Retirement

Communication Strategies for Effective International HR Management 109

Helping Expats Get Ready for a Healthy Assignment 119

Human Resources in Emerging Markets 129

HR Outsourcing and the Bottom Line 137

Retirement Abroad: Employer and Employee Considerations 159

Beyond Borders: Mastering Pension and Benefit Issues

Talent | Management | Strategy

Tackling Global Talent Management During a Recession 197

Repatriation Considerations in a Cost-Aware Economy 211

Reward Management in Multinational Enterprises: 219

Appendix: Country Specific

China and Total Rewards: A Look at Workforce Issues

China & India: Demographic Change, HR Challenge 257

The Growth of Expatriate Assignments into the Middle East 263

Total Rewards in Singapore 273

How Legal & Cultural Environment Impacts Reward 279

WorldatWork Survey Results 287

WorldatWork Books 328

About the Authors 333

Make the Most of Your Expatriate

For many years and a multitude of reasons, expatriates have been

Revalidating the value of expatriates roles in accomplishing

About the Survey

In 2009, Sibson Consulting and IBIS Advisors

Repackaging expatriates total compensation to ensure alignment

Repatriating expatriates and/or replacing them with local

The remainder of this article will explore the three Rs in more

Step One: Revalidating

Strong leadership and production technology expertise may not

How directly does the role affect the companys strategic

Organizations Current Use of Expatriates and Reasons Behind

Source: Sibson Consultings Expatriate Talent Market Trends Survey

If not for this role, which strategic objectives would be at risk?

Is local talent available to fulfill the requirements of the role?

How long would it take a new local candidate to become proficient

To what extent does the incumbent need intimate knowledge

Attaining a clear perspective on each of these questions on

Step Two: Repackaging

Source: Sibson Consultings Expatriate Talent Market Trends Survey

Investment in Local Talent as the Economy Improves

Source: Sibson Consultings Expatriate Talent Market Trends Survey

Local-plus or local expatriate packages are more widely used in the