Compensation problems
with a global workforce
Expanding the international workforce to include non-parent
country employees has brought increased capabilities and decreased costs –
along with a new set of compensation problems. For example, the director of
international HRM for a large multinational IT company faced such a dilemma.
It seems as though our
international compensation program has gotten out of hand. I have
parent-country expatriates, third-country nationals and inpatriates yelling at
me about their allowances. In addition, headquarters is yelling at me because
the costs are too high. Quite frankly I can’t seem to get any answers from our
consultants about how to handle compensation for such a global workforce and no
one else in the industry seems to know how to approach the problem either.
This IT multinational has 40 highly paid US expatriates
working as field engineers and marketing managers in 14 countries. But it also
has foreign national employees from the Philippines, Japan and Bolivia working
alongside the US employees in eight locations worldwide. And, finally, it has
foreign nationals from Thailand and the Philippines working with US nationals
at the organization’s headquarters. In all cases it is the firm’s policy to
send such employees out on foreign assignments for less than five years and
then return them to their home countries. An example of the types of complaints
that were being received from the expats involves the following problem concerning
inpatriate employees working at headquarters.
The firm has a field engineer from the Philippines who’s
earning the equivalent of US$25,000 in Manila. It has another field engineer
from Thailand who‘s earning the equivalent of US$30,000 in Bangkok. And they’ve
both been relocated to headquarters and are working side-by-side with American
field engineers who earn US$60,000 for the same job. Not only do they work
side-by-side but they live near each other, shop at the same stores and eat in
the same restaurants. The problem that IHR has is that it’s spending a lot of
money on cost-of-living adjustment data for expats from two different home
countries, both going to headquarters, and yet their current standard of living
is the same, and the same as their local peers. They are angry because their
allowances don’t reflect how they live in the headquarters’ country. Their
allowances also don’t reflect how they lived in their home countries either.
So what we have are two employees, one earning US$25,000 and
the other earning US$30,000 (plus cost of living adjustments), working and
living side-by-side with headquarters’ counterparts who are earning US$60,000.
The solution that most countries have tried is to simply raise the foreign
nationals’ salaries to the US$60,000 level, thereby creating a host-country pay
system for a home country employee.
Unfortunately, there’s nothing more pathetic than the tears
of your foreign nationals when it’s time to return home and you have to tell
them you are cutting their salary to the pre-headquarters’ assignment level.
What you are looking for is a pay system that
will compensate your foreign nationals either by pay or by provided
benefits (including housing and local transportation), in a consistent, fair
and equitable manner, and will allow you to repatriate them with minimal
trauma.
1.
Design a compensation policy that would deal
effectively with this problem.
2.
What are the strengths and weaknesses of your
policy?
Japan’s Canon uses
incentive compensation (Japan)
As multinational forms open more and more operations in more
and more countries, they must make basic decisions about what structure they
want for their compensation system in each country. Trying to use a centralised
system everywhere can cause problems in countries that may utilise different
compensation systems. And, yet, trying to localise the compensation system may
also run up against cultural assumptions about what might and might not work,
as the following example shows.
At the end of 1995, Canon ranked 43rd in market
value on the Tokyo stock exchange. By the end of 2001 it has shot up to 8th. Canon’s performance is driven by a
competitive company culture that sets it apart in Japan. Canon has long based
compensation on performance instead of seniority, creating significant wage
differentials, greater than other Japanese companies. For example, in March
2002, 21 of its best assembly workers were each awarded a bonus and the title
‘Meister.’ This clearly goes against the traditional Japanese culture of group performance
and recognition and seniority-based pay.
Canon’s R&D also runs on competitive principles.
Cash-flow management reduces development time and cost. Unprofitable products
are cut mercilessly. Patents protect newly developed technology. Researchers
can achieve unlimited awards for big patents, and such incentives have
spurred epoch-making products such as the laser beam printer and bubble jet
printer.
CEO Fujio Mitarai says, ‘Canon works on competitive
principles. It does not treat people equally – but it does treat them fairly.’
Canon has adopted decidedly non-Japanese incentive schemes to support its
successful global competitiveness. Clearly, MNEs must assess carefully what
will work best where.
Discussion Questions.
1.
Are there any constraints on the use of
different forms of compensation such as bonuses or incentive schemes? What
would these constraints be and why?
2.
What would a cultural perspective have predicted
for the acceptance or rejection of the incentive compensation scheme at Canon?
3.
From an organizational strategic perspective,
does it make sense to implement a centralised and standardised compensation
system globally?
For Quality Research Projects: kojalajohn12@yahoo.com
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