Central Comp Programs All the Rage

October 4, 2004 (PLANSPONSOR.com) - Having a centralized compensation structure is becoming increasingly common among multinational companies and those that took that step reported higher effectiveness, according to a new study.

The Watson Wyatt/WorldatWork Global Compensation Survey found nearly six out of ten companies (59%) with decentralized compensation structures expect to centralize their structures in the next two years. Not only that, nearly a quarter (23%) of companies with centralized compensation structures plan to go even farther in that direction in the near future. Just under half of the respondents – 49% – now have centralized compensation structures.

The Watson Wyatt/WorldatWork Global Compensation Survey focused on three key areas of global compensation practices: structure and strategy, tools and systems, and compensation targets and vehicles.

“Companies that want to use compensation to their strategic advantage need to look at the big picture,” Anne Ruddy, executive director at WorldatWork, said in a news release. “Having the most competitive compensation practices in a given country or region does not guarantee success. The good news is that more companies are making these practices part of a larger, global strategy.”

Employers most often explained that their interest in a centralized compensation structure was at least in part to maintain a consistent link between rewards and results. Maintaining the organization’s position in the marketplace and promoting internal equity among employees ranked second and third, respectively.

The survey also found that companies with centralized systems report that their compensation programs ran pretty well. Of those with centralized compensation in place, nearly six in 10 (58%) rated their payment structures as “very” or “mostly” effective, while relatively few companies (36%) with decentralized structures expressing similar confidence.

Over half (55%) of respondents reported that, regionally, Asia presents the most challenges in developing a global compensation system, followed by Western Europe (33%) and South America (24%). . Organizations with a centralized global compensation approach are twice as likely to have a global approach to sales compensation as organizations that are decentralized in their compensation management structure (44% vs. 22%). However, only 34% of all respondents have a global approach to sales compensation.

Among organizations using equity compensation vehicles, stock options are the most commonly implemented globally (90%). The second most common (55%) are employee stock purchase plans, followed by restricted stock.

A total of 230 companies with operations outside of the United States participated.

For a copy, go to http://www.watsonwyatt.com/research/resrender.asp?id=ONL014&page=1 .