Wolfangs balancing act:

Rewarding Healthcare executives in a dispersed yet integrated firm

L/O/G/O

Whos Wolfgang?
Masters degree in International Management from University of Hamburg (Specialized in Human Resource management and Compensation Strategies) Executive MBA Program with a transnational orientation

Whos Wolfgang?
Worked in the HR department of a mediumsized German Technical company Have been HR manager of Healthcare for one year and been in charge of Global Compensation Polices His project: Reviewing existing Global Compensation Polices and practices in Healthcare Companys requirement: Recommendation on coordination of Global pay system in Healthcare

Whichs Healthcare?
One of the largest European pharmaceutical companies A successful global player in the pharmaceutical market (with 200 subsidiaries and 30,000 employees all over the word) Key markets: Europe, US/Canada, Latin America, Asia Pacific

Healthcares Finance (in 2005)

Table 1: Key data

Chart 1: Net sales by region (2005)

5%

11%

6% 42%

Europe

USA/Canada

Asia Pacific

35%

Latin America

Other

Healthcares Personnel
Chart 2: Employee by region (2005)
35,000 30,000

25,000

20,000 2005 15,000 2004

10,000

5,000

0 Headquaters Europe USA/Canada Asia Pacific Latin America Other Total

Chart 3: Personnel costs of Healthcare

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Wages and Salary Social security and Support Payments 2005 Pensions Total 2004

Healthcares leadership competence

Business related competencies

People related competencies

Personal competencies

Healthcares leadership competence

Achievement Orientation
Business related competencies

Innovation and change Decision Making

Healthcares leadership competence

Team leadership
People related competencies

Capability Development Relationship Building Impact and Influence

Healthcares leadership competence

Business understanding
Personal competencies

Analytical thinking Self-development

Healthcares HR policies
HR area Recruitment of key talents Management development Transfer/ mobility Executive compensation Pension system Organization development Policy direction Good recruitment practices Strategic workforce planning Corporate management development system base on corporate leadership competency set Enhanced cross-functional mobility Well-balanced cross-regional mobility Attractive and competitive compensation Aligned bonus system Move to define contribution systems Clear structures, efficient processes Corporate announcements on managerial and structural changes Balanced goal setting Measuring performance Clear feedback Linkage to variable pay

HR

Performance management

The global performance system of Healthcare

1. Goal setting and appraisal The individual Performance management 2. Leadership feedback 3. Link to the compensation policy Long-term incentives Short-term incentives

1. Individual component The bonus of managers 2. My unit component 3. Broader Context component

www.themegallery.com

Whats the trouble in the road to international coordination at Healthcare?

Figure 1: Healthcares cross-border strategy

Whats the trouble in the road to international coordination at Healthcare? Standardizing the new compensate system: 65% fixed income + 35% variable income depending on individual performance The new system was opposed by employees in France, Germany

What did Wolfgang do?

1st step: contact with the HR representative in Japan and USA and visit others subsidiaries.
Realize the difference in culture between Japan and USA (the Uncertainty avoidance) Visit some of Healthcares subsidiaries and talk with HR managers

What did Wolfgang do?

2nd step: Present the right mixture of standardization and flexibility
Figure 2: Balancing global integration and local responsiveness in Healthcares compensation strategy

Impact of a transnational strategy on Pay strategies and underlying basic pay decisions

Variable/fixed pay
Country specific
 Employees in USA,

Utterance avoidance
 Risk taking managers

Japan, Taiwan, Mexico & Latin America prefer variable pay incentives  Australia & Japan moderately emphasize this kind of pay

accept large incentive payments Risk averse not accept a high income variability

Individual performance-based pay and group performance-based pay

1. Company specific features

- Individual achievements for motivation

1 2

- Group performance-based pay: nature of work demands close corporation

2. Cultural aspects: individualism/collectivism

- High individualism: tend to value personal accomplishment, selfishness, independence, individual attributes, internal locus of control - Low individualism: team accomplishment, sacrifice for others, dependence on the social units

Short-term and long-term incentives

Short-term

Frequent reward: tied to desired behaviors such as bonus system

Share options

Long-term

More appropriate in countries with high individualism, low UAI, PDI

The global performance system of Healthcare

 The individual performance management 1. Goal setting and appraisal 2. Leadership feedback  Compensation policy 1. Long term incentives: grant share options to its managers 2. Short term incentives

The bonus of managers at Healthcare

25% 50% 25%

Individual component My unit Broad context

Local adaption & exception

 Lie in the cultural and institutional environment Legal requirements: Firm do not have a choice whether to adapt to the local conditions or not  Fringe benefits: determined to a large extent by the legal environment  Ranges for calculating the bonus potential: Cultural preferences High uncertainty avoidance: bonus potential would not be fully used while in countries Low uncertainty avoidance: contrary  Currency rules Do not follow the pattern of firm external determinants: for the markets in the US and Japan

QUESTION 2

Should he add or delete some existing practices from the T account?

Our solutions

 No

add or delete factors from the T account

Basic of cultural and institutional determinants Integration of political influences of different network units in the analysis of transnational pay practices

1 Strategically important function-specific skills

2 Control of an important market size

3 Success in a highly competitive market

4 Strategically important management skills

Question 1
Should he move some of the existing pay elements across the T account, shifting them from globally standardized to locally customized?
Global Standardization

Localization

Driving Factors
Change in Environment Costs increasing Pressure on Price

Standardized HR Policy

Question 1

Transnational Compensation

Framework explaining transnational compensation strategies

Question 3
Should he change the weights or emphases (percentages) of existing elements of the pay system?

Pay System Changes

Option 1 2 Condition > High UAI > Low UAI Fixed ( 70% 75%) =/ (60% - 65%) Variable (25% - 30%) =/ (35% - 40%)

Impact
More safety Discouraging performance-based incentives scheme

Thank You!

L/O/G/O
www.themegallery.com