#paypolicy

Alarm bells rang recently when I was in a meeting with the head of reward for a multinational chemicals company.

Talk turned to the firm’s global reward policies. She explained that her organization pays 5 per cent above the general market across all global divisions. When I asked how this was decided, she replied: “That’s the going rate here at home.”

Perturbed, I went back to the office and analyzed our PayNet database. The numbers spoke for themselves.

She was right, of course: the firm’s home market does indeed pay 5 per cent above the country’s overall jobs market. But in the US, the sector pays a 14 per cent premium. And this rises to 17 per cent in China and 19 per cent in Brazil. On the other side of the coin, the industry pays 16 and 14 per cent below market rates in the Czech Republic and Venezuela respectively.

As I’d suspected, it was time for my client to rethink international pay. Her company was missing out on attracting the best people in three markets, while significantly overpaying in two others.

Hidden dangers

I’ve seen this happen time and again. Multinationals commonly take their home market as a pay benchmark for the rest of the world.

But just how great are the pay differentials between nations in global industries? Our infographic compares pay in ‘typical’ home markets to countries around the world for multinationals in a range of sectors.

The findings are eye-opening. Here are a couple of examples:

FMCG: A UK producer might not feel the need to pay a premium, with pay in the sector just 2 per cent above the general domestic market. But applying this globally would be dangerous – especially in emerging economies. FMCG employees are paid 35 and 39 per cent above the going rate in China and India respectively.

Why? Because the first-class sales and marketing skills so prized in the industry are far less prevalent in these countries than in Europe or the US – as Unilever discovered when recruiting management trainees in China. The firm received more than 30,000 applications for 100 positions, yetsaw fit to hire only 80 of them. So companies have to pay big for top marketing talent.

Oil & Gas: The sector pays a global average premium of 20 per cent. But this is skewed by whether or not a country has exploration and drilling operations, which require highly-qualified geologists and engineers. The large salaries they command tend to inflate pay across the whole workforce in these markets.

As a result, places like Malaysia pay 58 per cent above general market rates, India 46 per cent and Saudi Arabia 38 per cent; while workers in non-drilling markets such as Italy, Greece and Hungary receive no premium.

A holistic view

The lesson is plain: you cannot set global reward policies according to domestic market dynamics.

This applies not just to salaries, but all elements of remuneration: incentives, benefits, allowances and so on. Different markets have different expectations. What is an incentive in one place may prove just the opposite in another.

Take the example of one multinational that rolled out its employee recognition scheme worldwide. At home, employees embraced the opportunity to exchange points awarded for good performance in return for company merchandize. But this was not seen as an attractive benefit elsewhere.

And pity the firm that allocated the same amount of shares to all senior executives worldwide as a long-term incentive. This worked well as a retention tactic in wealthier economies. But in developing countries, it did the opposite: the shares equated to a very comfortable retirement pot. Swathes of senior executives cashed out at the earliest opportunity.

 Avoiding the pitfalls

 So how do firms go about setting the right global reward policies?

In my view, it comes down to arming yourself with three levels of information for each territory:

Local insight: what is common practice?

Local knowledge: what do your on-the-ground HR team recommend?

Local data: what do the numbers say?

  How competitive is your reward globally?

You can find out if your business is offering competitive reward packages. Hay Group PayNet© is a powerful online tool that provides essential and reliable rewards and pay data, specific to your industry, function or location.