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Global Compensation Considerations

The dismal worldwide economy is affecting compensation decisions, although there are some "hot spots," such as Brazil, Singapore, China and South Africa. Employers continue to focus on pay-for-performance and workforce segmentation in their rewards strategies.

Monday, January 23, 2012
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Employers around the world are focused on attracting, retaining and motivating key talent, but, according to experts, the complexities of varied cultures and global economies means many employers are struggling with the details.

According to compensation specialist Catherine Hartmann, a principal based in Mercer's Los Angeles office, the toughest challenge for global employers is deciding whether to focus more on base pay or to weight compensation more heavily toward incentives?

And, she says, employers also question whether they should invest more in training and career planning to help employees succeed.

"Last year, few business leaders and economists envisioned a 2011 with debt downgrades, natural disasters and a stumble in the global economic recovery," Hartmann says. "While the future is unpredictable, we expect 2012 to continue down the path of economic recovery, but with periodic bumps and continuing cost constraints."

Employers can weather the rough patches, she says, by focusing on talent, pay for performance, communication, workforce segmentation and engagement.

Kerry Chou, senior practice leader for compensation at WorldatWork, the Scottsdale, Ariz.-based not-for-profit organization that provides education, conferences and research focused on global HR issues, generally echoes Hartmann. He says that what he has been seeing in the last two years is very cautious growth.

"In terms of salary increase budgets, we're going to see a slight increase. It might even hit 3 percent, on average, in 2012," Chou says. "Employers are being very cautious. They have not been investing and adding staff [and are] taking a wait-and-see approach."

Instead, he says, global employers are looking to limit the fixed cost in terms of base-salary increases, and put more in the pot, so to speak, for variable pay. So, if the employer does well, it will offer incrementally better payouts in terms of bonuses and incentives.

"But fears of ongoing natural disasters and the European financial crisis is still a major concern," he says. "I would say employers in most geographic areas are inching their way forward, no one is jumping too fast when it comes to compensation."

Chou says the global economy has had a significant impact on compensation levels. Prior to 2008, 3.5 percent to 4 percent increases were common. Then, in 2008, that rate dropped to about 2 percent, increasing ever since, but at a very slow rate.

"No one is jumping back in," he says. "One of the big problems is when we get some good economic news it seems some form of bad news quickly follows, and pretty soon people don't know what's going to happen, and uncertainty remains."

In general, Mercer's Hartmann recommends that in 2012, organizations:

* Continue to align reward programs with business strategy.

* Look beyond tight compensation budgets for other creative ways to engage workers.

* Consider career development, work/life balance and benefits when designing rewards to retain their best talent.

* Consider the changing generational make-up of the workforce -- and the wants and needs of different segments as young people enter the workforce and more baby boomers look to exit.

"There is still uncertainty, but we are seeing more optimism, especially in the U.S.," Hartmann says. "People are feeling better, with the stock-market performance and improving employment figures in sectors we didn't expect, including manufacturing and healthcare."

Hartmann adds that employers, to their benefit, have been managing expectations extremely well.

"In the past, people expected a quick rebound and, today, people more realistic -- and that means both employer and employee," she says.

On the global compensation front, the few "hot spots," Hartmann says, are mainly countries with emerging markets.

At the top of the list is booming Brazil, where pay-for-performance is already a reward trend, and companies are using this to differentiate, retain and motivate high performers.

"Due to the struggle for talent in Brazil, hiring bonuses are back and will continue to be used in 2012," she says. "Employees will continue to switch companies in order to advance their careers and get higher pay."

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Singapore is another active location when it comes to compensation, she says.

"In Singapore, and China, in general, employers are looking at average pay increases of 10 percent versus 3 percent in the U.S.," she says. "Talent issues in China are extremely interesting. Companies in China have aggressive growth plans."

Because of those plans and the ever-increasing talent competition, organizations in China tend to take a more holistic approach toward reward strategies. More organizations will look to attract and retain talent by targeting total reward elements, such as careers, work/life balance and benefits, to segments of their workforce instead of an across-the-board solution.

Hartmann contrasts China's situation with that of India, which is now among the "maturing" talent markets.

In India, the reward strategies for entry-level professionals and Gen Y workers in 2012 will focus on a combination of market-competitive cash compensation and investment in skill-building and career development.

At the executive level, she adds, the focus is likely to be on retention and, therefore, performance-based short- and long-term variable pay will become prominent.

"For example, companies in India with diverse employee age groups are likely to consider changes to medical programs given steep year-over-year increases in medical insurance costs," she says.

Another interesting growth area is South Africa, where more and more global clients are looking at expansion. The security and political volatility issues that have dogged South Africa have been improving, and South Africa-based call centers, for example, are on the upswing, she says.

"What we are seeing across the board for 2012 is more of a focus on incentive pay and performance metrics, and employees getting a better understanding how to achieve those measures," Hartmann says. "Also, as the economy continues to stabilize and optimism grows, Mercer clients are more concerned with top performers, especially in jobs where employees are difficult to recruit and retain."

On home shores, Hartmann says employers are focusing on top-performing employees as competitive weapons, and are doing their best to reward them. She also notes that the gap in pay between high- and lower-performing employees is widening significantly.

"In 2012, more U.S. organizations will develop and implement a segmented rewards strategy by identifying employee performance drivers across job families, job levels, business units, geographies and performance groups to determine where to place limited compensation dollars," she says.

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