Although multinational organizations are striving to globalize their compensation practices, less than half have predominantly global programs, according to Mercer’s Global Compensation Strategy and Administration Survey. Just 45% of participating organizations take an almost exclusively global approach to compensation design while the majority continue to take a local approach (39%) or regional approach (16%).
According to Mercer, the development of global compensation programs starts with an overall global compensation strategy. While the vast majority of responding organizations (84%) have established a global compensation strategy for their executive-level employees, much fewer have done the same for other employer groups, continuing to define their compensation strategies at the local or regional level. Slightly more than half of the organizations (53%) have specific global compensation strategies in place for their managers while just less than a third (30%) have global strategies for professionals and slightly more than a quarter (26%) for sales employees.
Mercer’s Global Compensation Strategy and Administration Survey includes responses from 168 multinational companies based primarily in the United States and Europe. Spanning a variety of industries, these companies have an average of 20,000 employees and revenues between $1 billion and $5 billion.
“While the majority of global compensation programs are for executives and defined at the corporate level, strategies for other employee groups are often determined regionally or locally,” said Darrell Cira, principal with Mercer’s human capital consulting business in Philadelphia and global leader of the study. “However, this trend is changing rapidly, especially among U.S. multinationals. As these employers continue to focus on facilitating talent mobility and reinforcing common organizational cultures and values over the next two years, they will need to globalize pay programs for their management and professionals.”
According to the survey, more than half of all participating companies have global strategies for managers, however nearly a third more U.S. companies have them than European ones.
“It’s clear that the biggest difference between U.S. and European organizations with regard to global pay programs is at the management level,” said Philip van Elsdingen, principal with Mercer’s human capital consulting business in Amsterdam and European leader of the study. “European companies are less likely than U.S. companies to develop global strategies below the executive level because of a greater sensitivity to the potential barriers associated with implementing a common approach.”
Global compensation continuum
Defining a global compensation strategy is just the first step in developing an effective global compensation program. The next step involves restructuring the human resource function so that the compensation programs can be administered in a more centralized way. Mercer’s survey shows just 36% of responding organizations have centralized administration of their global compensation programs.
The survey also shows that many multinational organizations are not following the best practice for designing a global compensation strategy. “Many are implementing global incentive plan and performance management system programs before implementing key elements of the compensation infrastructure,” said Mr. Cira. “U.S. companies in particular seem to be pushing global programs further down in the organization without questioning the need or value to do so. Ideally, organizations should put the infrastructure in place before pay delivery in order to make sound and transparent decisions about compensation.”