Global Pay for Performance Success - P4P

©2013 Performensa0on

Global Pay for Performance Success in Expanding Companies

Businesses that have moved into the global marketplace o>en spend considerable 0me and capital se?ng up regional opera0ons. Finding the right talent to run these businesses is cri0cal, and we o>en find that companies are willing to pay aggressively for the right fit. As a regional business starts to take root, it is important to bring its pay prac0ces into alignment with the rest of the organiza0on’s pay-‐for-‐performance program. Doing this effec0vely and knowing the major areas of concern are cri0cal when implemen0ng a global pay-‐for-‐performance strategy. In this white paper we will discuss why global pay for performance is important, define the cri0cal role employees play in global companies, and detail the steps necessary to enable an effec0ve program.

Companies with only local or na0onal staff are o>en so entrenched in their own cultures and understanding of local employees’ needs that they forget the work culture in other countries can be significantly different. Employees who work in new office loca0ons outside the company’s home country tend not to voice their concerns about this cultural misalignment. In addi0on, employees in these loca0ons may have mul0ple roles and responsibili0es when compared to those who work in other areas in the organiza0on, and their offices may not benefit from the resources that the corporate headquarters o>en take for granted. Regional employees may feel le> out of the loop and disconnected and thus become demo0vated. Global pay for performance is important because, if done correctly, it can op0mize the performance of each region and create a sense of fairness among employees that can lead to heightened engagement and mo0va0on.

Understand that employees are the key to crea=ng value in global firms As today’s organiza0ons expand beyond their borders, they are introduced to increasingly complex and compe00ve environments. The main challenge is to s0mulate performance and to do more with less. All company resources and stakeholders play a role in the company’s success or failure, but the most cri0cal factor in this situa0on is the employees themselves. They are the most valuable asset of any organiza0on and this is especially true when a company is growing. Today, more than ever, when managers operate in a global environment, they need to place employees in the center of the service-‐profit chain.1

The service-‐profit chain (see Exhibit 1) links rela0onships between profitability, customer loyalty, and employee sa0sfac0on, ul0mately leading to overall produc0vity. Profit and growth are s0mulated primarily by customer loyalty. Loyalty is a direct result of customer

Compensation Thought Leadership 2013Q2 - Global Compensation

1 J.L. Heske[ et al. “Pu?ng the Service-‐Profit Chain to Work,” Harvard Business Review (March-‐April 1994): 164-‐174.

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sa0sfac0on, which is largely influenced by the value of products and services provided to customers. Value is created by sa0sfied, loyal, and produc0ve employees. Employee sa0sfac0on results from high-‐quality support services and policies that enable employees to deliver results to customers. A global pay-‐for-‐performance program delivers valuable feedback and rewards to employees when the service-‐profit chain is opera0ng effec0vely.

Once the service-‐profit chain has expanded to the global arena, effec0ve leadership focuses on factors that enhance and sustain regional employee happiness, sa0sfac0on, and engagement at work, which all lead to the organiza0on’s overall performance. The elements of employee mo0va0on evolve in each region over 0me. Every organiza0on has its own unique employee needs based on the culture, values, and regulatory environment. Nevertheless, their similari0es can be gathered into a ‘Mo0va0on Spectrum’ (see Exhibit 2). This model illustrates the links between the various mo0va0onal drivers and their influence towards organiza0onal performance.

The mo0va0on spectrum gathers three key drivers of sustainable mo0va0on: (1) live, (2) grow, and (3) connect; each driver gathers a set of ini0a0ves.2

‘Live’ supports the idea that work is first and foremost a means to allow people to sa0sfy, directly or indirectly, their fundamental physiological and psychological needs and, beyond that, to strive for greater sa0sfac0on and well-‐being. It is the opportunity for people to live, to be able to enjoy the quality of life.

‘Grow’ recognizes the human need for competence, progress, and achievement, which help employees to take interest in and find meaning in their work. It goes through opportuni0es for progression and challenge, responsibility, empowerment, and growth. It is a way for people to be able to fulfill their ambi0ons and grow.

‘Connect’ relates to the fact that most people seek connec0ons in work, whether it is for their colleagues, their leaders, their clients or the organiza0on itself. It goes through a cohes ive , co l labora0ve environment where people share common values and inspire each other. It gives employees a sense of iden0ty and allows them to connect in a place where they feel they belong.

In order for employee mo0va0on to be sustainable over the long term, the management and employees need to maintain two precondi0ons: (1) trust and (2) the ability to adapt. ‘Trust’ is when the managers create a reciprocal rela0onship based on transparency, accountability, and fairness. ‘Adapta0on’ is when managers take into account the differences among employees and/or employee groups and customize their approach as necessary.

Thus it is impera0ve for managers and senior leaders to consider the regional environments of their employees and maintain support services and policies that are flexible enough to accommodate the

In order for employee mo=va=on to be sustainable over the long term, the management and employees need to maintain two precondi=ons: (1) trust and (2) the ability to adapt.


2 Xavier Pavie, Valuing People to Create Value (co-‐author with Hervé Mathe and Marwyn O’Keeffe, Singapore: World Scien0fic, 2012), 85, 175.

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unique needs of employee groups. If a business located in America is expanding into foreign countries, it is important for them to understand what mo0vates and engages the local workforce. As an example, employees based in Mexico may desire more work-‐life flexibility instead of higher pay. So in theory, allowing employees to have greater flexibility at work may be more effec0ve in boos0ng company performance than just throwing more money at them.

Most importantly, consider if the staff in the various regions are ready to be a part of a global firm. The core concern is to maximize shareholder value. Avoid forcing a global pay-‐for-‐performance model at the sacrifice of shareholder value. It may take years for certain regions to be ready and effec0vely merge into a global firm. If the 0ming is not right, iden0fy the factors that need to change and consider a phased approach. Monitor metrics that support shareholder value and transi0on to a global pay-‐for-‐performance program with confidence.

Understanding how employees are the key to crea0ng organiza0onal value and how they drive performance sets the founda0on when implemen0ng any global program. Employees create and deliver product and service value to customers in an increasingly complex global landscape. Senior leadership and managers need to be familiar with the unique factors that drive employee mo0va0on and engagement in each region before the organiza0on can effec0vely operate a global pay-‐for-‐performance program.

Choose the project teamWhen implemen0ng a global pay-‐for-‐performance program it is important to involve the right individuals in your project team as well as to iden0fy key stakeholders. As we have men0oned previously, different regions across the globe are faced with various market condi0ons, regulatory environments, and cultural idiosyncrasies. Understanding the implica0ons of local issues requires knowledge of the legal environment as well as market/social prac0ce and culture.3 Involving the correct individuals is essen0al to understanding the issues and interdependencies that are necessary for the program’s success. Know the key leaders and influencers in each region and ask for their support for the ini0a0ve. It is o>en beneficial to involve the regional leader in determining the best local expert to include on the project team. This simple step creates a sense of local sponsorship and accountability. The local expert can be tasked with communica0ng relevant details back to the regional leader. You should also involve legal, finance, and human resources staff, as appropriate.

Know the key leaders and influencers in each region and ask for their support for the ini=a=ve. It is oOen beneficial to involve the regional leader in determining the best local expert to include on the project team.


Missing local HR support- Can cause confusion during the roll out of any program- May not understand local regulations or culture

Lack of Recruiting support- Employees offered benefits that are not visible to

headquarters- Poor management of Employment Contracts

Company communications- Is translation to local language needed?- The communication channel ineffective

Incompatible or missing Systems- System exists but is not used or understood- Poor system performance in remote areas- Lack of technical support

Common Pitfalls

3 Len Gray. "Going Global, Being Global: Degrees of Difficulty in Cross-‐Border M&A Deals,"WorldatWork Journal (Second Quarter 2012): 38-‐44.

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Take inventory of the human resources infrastructure Before aligning all the global regions of a business onto a common pay-‐for-‐performance plaworm, evaluate the current human resources infrastructure. Look at each region where the company has a presence. Is each loca0on supported by an HR specialist or team? How are employees recruited into the organiza0on? Is there career and succession planning? An honest assessment of the strengths, weaknesses, and missing components is necessary to avoid piwalls that may magnify shortcomings during the program rollout.

Global technical tools such as a human resource management system (HRMS), compensa0on so>ware, performance management so>ware, organiza0onal char0ng tools, file sharing, etc., not only improve overall firm-‐wide performance but also establish a level playing field for workers in all loca0ons. One of the common complaints heard in organiza0ons is that it is more difficult to accomplish tasks and communicate if you are located outside the corporate headquarters. Highly desired so>ware plaworms that are available only at large loca0ons but are missing in the regions can cause considerable problems with performance and communica0on. Having shared so>ware and other business resources will give every global employee a fair chance to be a high-‐performing contributor to the firm’s success.

The business must have a founda0on of suppor0ng systems, staff, and processes in order to run an effec0ve global program. Evaluate the HR infrastructure carefully and set realis0c expecta0ons about effec0vely administering a global program. Bringing all regions into harmony could take months or years depending on the current state of the human resources infrastructure.

Share pay-‐for-‐performance guiding principles across all global regions Successful pay-‐for-‐performance programs operate from a set of guiding principles that help companies obtain the results they desire and ensure their strategies stay on track. Pay-‐for-‐performance guiding principles are standards that direct the organiza0on and its managers to use the same approach when alloca0ng rewards to employees in exchange for their performance. These principles should be the same in all global loca0ons, with small regional variances where necessary due to local culture, prac0ce, and regula0on.

Guiding principles need to be more specific than just a[rac0ng, rewarding, and retaining talent. They should seek to align performance fairly, compare leadership roles of different scope and depth, and avoid measurement bias, among other things. The guiding principles for any pay-‐for-‐performance program must also be 0ghtly aligned with corporate strategy as they are o>en the most visible form of communica0on of the strategy. It is important for the firm to revisit these principles a>er each year or each performance cycle and ask ques0ons such as: “Did our compensa>on strategy meet our expecta>ons during the last cycle?” and “Is the return on investment of compensa>on programs in alignment with the return on investment that shareholders expect for the business?” If not, make adjustments to the guiding principles to ensure that these guidelines change with the market environment and meet the firm’s needs. Communicate these principles throughout the human resources group and management team to ensure that the pay-‐for-‐performance strategy is understood and successful.

Have a global job structure Having an effec0ve pay-‐for-‐performance program requires the evalua0on of similar jobs on a regional and global basis. It is difficult for a manager to compare the performance of a financial analyst with that of a corporate a[orney, but if the jobs are grouped so that one financial analyst is compared with others in the same job, a more fair assessment can be made. In order to group and compare similar roles, a company needs to have a common job structure that is flexible enough to allow minor regional differences in culture and scope. Although people doing

An honest assessment of the strengths, weaknesses, and missing components of Human Resources infrastructure is necessary to avoid piUalls that may magnify shortcomings during the program rollout.

The guiding principles for any pay-‐for-‐performance program must also be =ghtly aligned with corporate strategy as they are oOen the most visible form of communica=on of the strategy.


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similar jobs in different loca0ons can have different market pay levels, an organiza0on can s0ll ensure that rela0ve pay increases are based on the same rela0ve performance. A shared job structure will help facilitate this.

Also consider regional leadership posi0ons that exist in the organiza0on. Each region may have country managers who oversee opera0ons of various scope and strategic complexity. For example, say the country manager in the United Kingdom runs a large and complex business opera0on, while the country manager in Belgium runs a small office. Their roles may be very similar in content, but the difference in job scope and complexity must also be taken into account when comparing performance levels.

Have a global performance programIt is clear that a developing global business must revisit its business strategy to fit its evolving environment. There are new customers and distribu0on channels, and each country has its own opportuni0es and challenges. As the business strategy becomes more complex and mul0faceted, it is important to understand the new factors in performance and align these elements to create shareholder value. An effec0ve global performance program will support new strategic goals that will make global pay for performance possible.

Employees in mul0ple loca0ons should reference the global performance program on a regular basis. They need to understand what their objec0ves are, how to accomplish them, and how they will be rewarded for their performance. The program should help them understand how their goals and the goals of the regional business help accomplish the company’s objec0ves. Employees who know how their efforts contribute to the regional business and overall firm results are o>en more engaged and perform be[er. These employees use their knowledge of the organiza0on’s business strategy to frame their daily work and can be[er use their knowledge to make important trade-‐offs when confronted with difficult choices.

Global companies benefit greatly when they establish a regionally consistent system of evalua0on to promote performance. The same performance strategy and metrics should be used firm wide. Exhibit 3 shows an example of a standard five-‐point scale that is common among many firms.

Performance levels need to have well-‐defined descrip0ons to be easily understood. Each region should ensure its managers clearly understand how to classify employees by performance level to ensure fairness. Also, and perhaps most importantly, at the corporate level, the company should consider how the performance measures relate to compensa0on decisions by each region. This can be easily done by reviewing each region’s relevant sta0s0cs performance ra0ng by performance ra0ng. Establish ranges of what is acceptable and research outliers. The review of individual performance and related compensa0on decisions is essen0al to an effec0ve pay-‐for-‐performance program.

Market pay will vary by region due to local compe00ve wage fluctua0ons, but rela0ve merit pay levels should be similar by performance firm-‐wide. Many companies give managers discre0onary guidelines for incen0ve pay awards by level of performance; other firms are more precise and provide a tradi0onal compensa0on matrix that determines the incen0ve pay award by the level of performance and posi0on in the pay range. The method chosen by any individual company should be based on the company’s culture and pay-‐for-‐performance guiding principles.

Have global compensa=on plansFairness of compensa0on and other rewards across regions may improve employees’ morale and therefore lead to enhanced performance. When employees perceive they

Employees who know how their efforts contribute to the regional business and overall firm results are oOen more engaged and perform beWer.


Exhibit 3 -‐ Performance Distribu=on

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are being treated fairly, it creates a sense of dignity and self-‐worth. Fairness encourages a sense of community or membership within the business where individuals and teams are recognized for their contribu0ons. This membership, as an important part of the business, fosters accountability and responsibility that leads employees to accomplishing goals and driving overall firm performance.

It may seem obvious that paying fairly for the same rela0ve level of performance requires similar pay components globally. Consider how the business manages the base pay program by region. Pay decisions should be made using similar structures across loca0ons. Similar programs should exist for short-‐term incen0ves, long-‐term incen0ves, and recogni0on. However, be mindful of each region’s tax requirements and regula0ons. In certain countries, long-‐term vehicles used elsewhere may not deliver the same value or may even be burdensome for the employee and firm. Also consider pay policies for various situa0ons, such as where employees are eligible for different types of leave or where off-‐cycle pay adjustments are called for. Be willing to make regional changes that may provide differen0a0on in tools used while s0ll maintaining a similarity in compensa0on delivered.

ConclusionA global pay-‐for-‐performance program requires a company to bring its regional pay prac0ces into alignment with those of the rest of the company. If done correctly, it can op0mize the performance of each region and create a sense of fairness among employees that can lead to heightened engagement and mo0va0on.

Employees are the key to unlocking value in global firms. The sa0sfac0on of staff and their loyalty is the center of the service-‐profit chain, and employee mo0va0on is essen0al for highly performing firms. Employee needs are based on culture, values, and the regulatory environment but similari0es can be found on the Mo0va0on Spectrum that include how employees live, grow, and connect with the firm.

Having a strong human resources infrastructure is the key to establishing an effec0ve global pay-‐for-‐performance strategy. In a performance culture, employees must understand and have an equal opportunity to contribute to the success of the company. Common compensa0on policies and programs are needed to create a level playing field and support the company’s pay-‐for-‐performance guiding principles. Any company expanding into the global arena will experience challenges as they bring regions into their pay-‐for-‐performance strategy. Effec0ve planning and program design will help companies navigate obstacles and keep their culture of performance on track.

Market pay will vary by region due to local compe==ve wage fluctua=ons, but rela=ve merit pay levels should be similar by performance firm-‐wide.


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To contact the authors of this ar0cle, please write to Sam Reeve, [email protected] at Performensa0on. Sam Reeve is an Execu0ve Vice President of Performensa0on and is located in Colorado, USA. Xavier Pavie, Ph.D is the Director of ISIS (Ins0tute for Strategic Innova0on & Services) of ESSEC Business School based in Paris and Singapore. h[p://www.xavierpavie.com

About Performensa/on

Since 2006 Performensa0on has focused on providing high performance compensa0on plans for publicly-‐traded and privately-‐held companies. As a recognized industry thought leader, we learn as much as possible about your company to diagnose the founda0ons of success. We then apply this knowledge to custom-‐fit solu0ons. We offer assistance in tracking and monitoring complex performance metrics and collaborate with leading firms such as Radford to ensure access to best of class equity valua0on and TSR metric tracking. Our plan design and communica0on services deliver structure and messaging that align your goals, culture and vision with holis0c compensa0on programs.

About ESSEC Business School

Since 1907 ESSEC is an innova0on-‐driven ins0tu0on that creates value and focuses on the individual. It cul0vates a dis0nct approach in order to preserve and enhance its leadership in today’s fiercely compe00ve global environment. ESSEC is guided by the values of dialog, crea0vity, innova0on, responsibility, excellence and openness to the world as the basis for training tomorrow’s business and government leaders, building its own future and increasing recogni0on of the school worldwide.

ESSEC-‐ISIS, The Ins0tute for Strategic Innova0on & Services, aims to s0mulate, generate and foster crea0vity and innova0on in the services and manufacturing industries with a view to genera0ng responsible growth and sustained organiza0onal compe00veness.

About the AuthorsPerformensation Contacts:

Dan Walter, President and CEO +1 (415) 625-‐3406 [email protected]

Sam Reeve, EVP+1 (415) 625-‐3088 sreeve@performensa/on.com

Mel Jameson, EVP+1 (415) 625-‐3405 mjameson@performensa/on.com

ESSEC Contacts:

Xavier Pavie, Ph.DTél : [email protected]


mailto:[email protected]


http://www.xavierpavie.com

http://www.xavierpavie.com







