Survey: Global Pay Programs Follow Increased Globalization

March 9, 2005 ( - Nearly all the firms that do business around the world are putting in place global compensation programs, according to a new survey.

A Mercer Human Resource Consulting news release said that 85% of responding global employers have such an international pay system already in place, with 42% having put in the global program less than four years ago, and 43% doing so more than four years ago. A scant 15% confessed to not having a global pay strategy but all say they plan one within 36 months.

“Pay strategies play an important role in the success of multinational organizations,” said Mark Edelsten, a London-based Mercer international consultant, in the news release. “Increasingly, pay is being managed from a global perspective – to facilitate global expansion efforts, better manage labor costs, create internal equity, or ensure effective governance. In addition, these strategies typically apply to all employees, not just a select group, such as executives.”

The survey respondents indicated that their global compensation strategies focus strongly on four areas:

  • the positioning of pay relative to the market (72%)
  • short-term incentive design (72%)
  • long-term incentive design (68%)
  • consistent methodologies for job grading/leveling (64%).

After that are strategy elements related to desired pay mix, benefits, and consistent methodologies for salary structures (each cited by 45%). Elements not typically found in global reward strategies include work/life programs, perquisites, training and development, recognition programs, and career programs, according to the survey findings.

Devil in the Details

According to the news release, respondents indicated that their global compensation strategies are fairly detailed and specific, with most including either fixed guidelines (52%), detailed policies for all employees (22%), or detailed policies for senior employees only (16%).

Despite the prevalence of global pay strategies, Mercer’s survey suggests that monitoring these strategies can still be a challenge. “Only half of the respondents said that the local HR function has a direct reporting relationship to corporate HR,” said Corinne Carlson, a Chicago-based Mercer international consultant, in the news release. “This can make it extremely difficult to monitor pay strategies on a global basis to ensure their implementation and effectiveness. As a next step in the evolution of global compensation programs, we expect to see employers devoting more time and attention to these governance issues over the next few years.”

Some respondents indicated that monitoring of global compensation programs is achieved primarily through the annual budgeting process (42%), global HR information systems (41%), and regular audits of country and business practices (34%).

Other findings include:

  • Survey respondents listed the following as their most pressing global rewards-related issues: attracting and retaining key staff; using rewards to deliver performance, and strategic alignment of rewards with business strategy.
  • For board members and other roles with global authority, pay decisions are made primarily at the global level. However, decisionmaking authority begins to migrate toward regional and local control concurrent with a decrease in the global responsibility of the employee segment.
  • The majority of respondents indicated that pay mix for board-level employees is the most aggressive, split 50/50 between base pay and bonus. For global, regional, and country manager roles, most respondents indicated a base/bonus pay mix of 80/20 or 70/30. For local country employees, the most prevalent pay mix is 95/5.

Mercer’s survey, conducted in August 2004, includes responses from nearly 90 firms based primarily in the US and Europe. Three-quarters (75%) of the respondents have annual revenues of US$1 billion or more and all are multinational.

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