Leveling Pay on a Global Scale

Multinationals are increasingly trying to use global leveling to standardize pay and facilitate talent-management strategies throughout the world. But, experts warn, it's easy for such levels to become overly cumbersome as well as bump up against some cultural issues.

Monday, October 10, 2011
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An increasing number of multinational companies are using "global leveling" to not only figure out how to properly compensate employees, but also to develop effective talent-management strategies across borders.

That's according to New York-based Mercer's 2011 Global Leveling Survey, which polled 380 organizations across all industries throughout the United States and Canada.

Global leveling -- the process of systematically establishing the relative value of different jobs within an organization -- has been utilized for years by companies doing business in multiple countries to gauge compensation levels for their top-level employees, says Darrell Cira, a partner with Mercer's human capital consulting business.

But now, the survey shows that 85 percent of organizations report just as many grade structures for managers and non-sales professionals as they do for their executives, Cira says.

The reason: to create a more equitable system of compensation and career pathing for employees who may be tapped for promotions for jobs in other parts of the world, he says.

"Organizations have been restructuring around global functions and global lines of business, and so executives responsible for these functions or lines of business need to look across the globe for talent within their workforce," he says. "But if they are in 50 countries that all have their own structure, they have no basis for doing that."

According to the survey, the use of global leveling varies:

* 68 percent of the multinationals use it to support career pathing and employee development;

* 65 percent, to facilitate implementation of global pay or rewards programs;

* 50 percent, to facilitate talent mobility;

* 48 percent, to reinforce common organizational culture and values;

* 28 percent, to support and/or incent cross-country business collaboration;

* 24 percent, to manage costs; and

* 13 percent, to get greater value from their global HRIS or ERP systems.

The biggest obstacles organizations face with employing a global grade structure is resources and time, according to nearly two-thirds (63 percent) of the responding organizations. Other challenges are the absence of a global HRIS (40 percent) and resistance of leadership at the local or line of business level (38 percent).

Global leveling isn't for every multinational company, Cira says.

"If you're still organized by region or by country and if your lines of business don't really move talent across regions, then the business case for global leveling is not going be as strong, because you may not get as much value out of it," he says.

Brett Harsen, vice president of Radford, a San Jose, Calif.-based benchmarking and consulting company, says that multinationals that use global leveling must balance how they internally value their job positions and how the external market in each country may value those positions.

Take the differing external compensation levels for human resource professionals and engineers across countries, for example.

"In the U.S., generally HR people at a similar level of experience are paid less than an engineering person, but in places like China, there are very few HR people and a lot of engineers and that pay relationship may be reversed," Harsen says. "So in these countries, HR people might be paid better than engineers."

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Companies can create different pay ranges within levels -- they don't have to pay the same for a grade-5 engineer and a grade-5 HR professional, he says. Companies can have sub-levels of grade-5 in each country, to respond to the realities of the real world.

However, grade structures created by global leveling can easily become overly cumbersome.

"While a primary reason companies are moving to a global leveling system is to have consistency and clarity to make administration of HR programs simpler," Harsen says, "the devil is in the details -- you can't just impose your own internal system across the globe unilaterally; you have to start reconciling local labor forces and strike a balance.

"If you start with something very simple and allow it to develop into something convoluted as you respond to local market forces, it may eventually collapse under its own weight," he says.

Instead, companies should make sure their global-leveling process is designed upfront with enough flexibility to accommodate challenges as they arise in different markets, he says.

Charles Csizmar, president of CMC Compensation Group in Orlando, Fla., says it is useful to consider job descriptions instead of job titles when developing an effective global-leveling process.

"In the U.S., an HR executive is an important job, but in some other countries, it's a clerical job, but their title may still be 'HR executive,' " Csizmar says. "Also, in a lot of cultures, someone with a title of 'director' may really only be a manager. But for them, the title of 'director' has stature within their culture."

Companies should make sure they don't standardize titles across countries, such as 'Clerk 1, Clerk 2 or Clerk 3,' or else it could lower morale in many cultures, he says.

"The advantages of global leveling is succession planning, career counseling and equitable treatment," Csizmar says. "There's a potential of lowered disengagement if employees feel that they are not being treated fairly. And it's not just about just pay -- it's about recognition."

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