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WORKSPAN
WORKSPAN DAILY |

Global Compensation: Apples Are Not Oranges


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Editor’s NoteWorkspan Daily will be reproducing a monthly Compensation Café blog post for the benefit of our readers and to encourage further discourse on topics vital to compensation professionals. New to WorldatWork? Please feel free to join the discussion in our Online Community or send your thoughts to workspan@worldatwork.org.

It's human nature to look for simple solutions to perplexing problems. Simple avoids confusion, keeps you “on message” and helps (you think) create greater employee awareness and an appreciation of reward programs and policies. However, when you're dealing with the diversity and complexity of international compensation, it's just not that easy — nor should it be. For those seeking the simple life, it can be difficult to understand and accept that each country operates in a different environment from the next.

There's no cookie cutter out there.

Perhaps it’s because of its long history of isolationist tendencies, or a bit of Yankee arrogance, but United States managers tend to struggle with the challenge of this "no, we're not all the same" concept more than many other players on the global scene.

For the most part, U.S. managers don't want to hear that pay levels in Finland, Argentina or Tunisia are different from the U.S. — even for identical jobs. Instead, they would rather treat everyone the same, call it globalization and with a pat on their shoulder consider themselves a one-world player. But those who push such an agenda of simplicity foment and spread a misleading distortion of the facts; a twisted sense of reality that they'll find very costly to implement, and its inevitable results will more than likely irritate key talent within their workforce.

Consider the senior manager who simply wants to convert a foreign national’s salary into U.S. dollars — based on a concern over what they call “internal equity.” The manager is under the assumption that everyone pays approximately the same for an “XYZ Manager,” or should.

"We pay USD $60,000 for the job; what's that in Euros?"  Or worse

"When we convert our UK employees’ pay to dollars the amount is less than their U.S. counterpart. We have to do something."

No, no, no.

Other considerations:

  • If simple conversion was a viable approach, why don't we see such formulae prominently displayed by highly reputable salary survey providers? Why are all figures reported in local currency?
  •  Local national employees will be skeptical of the simplistic approach, as in their mind too many local realities would be ignored in favor of what is perceived as company standardization for the sake of administrative ease. And that somehow they're saving money at the employees’ expense.
  • Lacking a strong correlation between country pay levels will lead to needlessly increasing your compensation costs, or undervaluing your employee talent, thus risking disengagement — or worse.

I once developed a formulaic approach that explained to a chief operating officer (COO) why he should not establish internal equity between the U.S. and the UK by simply converting GBP into USD. I factored in a host of elements, including local taxation, competitive pay levels, incentive practices, cost of living, required social charges, benefit costs, etc. to make my case. My point was that a simple conversion would be a distortion of the economic realities that drive pay levels in both countries.

Sad to say, but the explanation was ignored and the COO, though he acknowledged the logic of my argument, continued to prefer a simple conversion to establish relative values in his own mind. So every time the conversion issue arose, we had to rehash the myriad differences between countries to remind decision-makers that apples are not oranges — that there is no universal fruit.

To operate successfully on a global basis, management needs to understand and truly believe that each country operates like a separate and sovereign national entity with distinct economies, taxes, competitiveness, employment laws, culture, statutory benefit requirements, etc. that make a 1:1 comparison with any other country a distortion that will cause you to either over spend or underspend your rewards dollars. 

Either result should be avoided.

About the Author

Chuck Csizmar CCP is the founder and principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant.

This article was first published at Compensation Café on Aug. 31, 2021. 


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