Consistent where you can be: The future of compensation delivery
Global companies face a myriad of issues revolving around the primary theme of balancing global consistency with local needs. The desired outcome is often a series of compromises that trade country-specific requirements for a degree of standardization that cuts across borders. In the HR arena, one important test of a global mindset is compensation delivery and it is in this area that a number of large enterprises have not achieved a value-creating level of effectiveness and simplification.
With the past decade’s explosion in M&A activity and many global companies' operations of separate but related businesses, it is common for global organizations to work under a complex, varied set of compensation programs, practices, procedures and processes. This complexity can lead to a dysfunctional compensation model where time would be better spent on strategic issues like content creation and meaningful customization but is instead spent on operations and administration.
Maintaining a global web of ad hoc compensation systems has several disadvantages. They often lead to higher net labor costs, inhibit HR from performing strategic roles in the business, increase the time required of managers and leaders in the compensation process and add administrative cost due to duplication and inefficiency. In addition, these varied, complex programs also interfere with creating a truly global organization.
For example, cross-border teams may assemble as peers, but find themselves at different levels of title, pay and local authority. The search for a qualified collaborator may suffer if a given title means one thing in one country but something different in another. And, as employees move around the globe more frequently, they need to find recognizable and equitable compensation and incentive systems no matter where they work.
As the talent marketplace outgrows local and national boundaries, it becomes more important to replace a patchwork of compensation programs and delivery with a more centralized model. With appropriate governance in place, organizations can achieve standardization without sacrificing the important benefits of local customization. This move toward harmonized compensation stands in parallel with the increasing global alignment of other HR operations and shared services. The next several years should see the process accelerate, especially as technology drives it.
Getting it done: The appropriate decisions at the applicable levels
The early steps toward a globally consistent compensation function may be familiar to veterans of any large-scale transformation: Use analysis and benchmarking to understand the current state, define a target state that meets strategic and operational requirements and empower an effective team to move the organization from Point A to Point B. In this transformation, a focus on the delivery model is crucial. Establishing the “whats” and “wheres” of delivery helps promote the accountability and integrity of the compensation program. In many cases, establishing a compensation delivery model using a Centers of Expertise approach can be a useful path in moving toward global consistency and standardization.
The initial design of Compensation Centers of Expertise will likely depend on two key factors: Organizational maturity and program complexity. A very mature organization with highly evolved programs, processes and technology will tend to require a smaller global Center of Expertise focused primarily on strategy and plan design. This is also true where compensation programs are highly standardized and few exceptions are made. On the opposite end of the spectrum, organizations with widely varying plans, lots of exceptions and less mature processes will likely require an extensive Center of Expertise with deep design, process and administrative ownership.
Organizations can approach their compensation programs by assessing the goal of each program component. This can lead to the appropriate balance between global and local standards. For example, if the goal of the job structure is to make cross-border moves for employees seamless, global consistency is appropriate and a tightly controlled job architecture may be managed by the global Center of Expertise. On the other hand, if effective recruiting in growth economies is of concern, more flexibility on compensation structure and local control of decisions might be provided. An effective service delivery model can provide defined roles and responsibilities that support organizational strategies.
A typical Center of Expertise structure has multiple layers. At the top, a global Center of Expertise can work with senior leadership to establish strategic priorities. Below that, regional teams that may be part of the Center of Expertises can roll out those priorities in a way that is sensitive to location-based needs. By the time a local office delivers HR services to its employees, or perhaps oversees an employee self-service environment, the global view can be built-in.