3/3/2008
Although multinational employers are striving to globalize their compensation practices, less than half have predominantly global pay programs, according to Mercer’s Global Compensation Strategy and Administration Survey.

The survey includes responses from 168 multinational companies based primarily in the United States and Europe. Spanning a variety of industries, these companies have an average of 20,000 employees and revenues between $1 billion and $5 billion.

The survey found that just 45 percent of participating organizations take an almost exclusively global approach to compensation design. The majority still take either a local approach (39 percent) or regional approach (16 percent).

Beyond the Executive Level

And while most responding organizations (84 percent) have established a global compensation strategy for their executive-level employees, far fewer have done the same for other employee groups:

• For their managers' pay, slightly more than half of the responding organizations (53 percent) have specific global compensation strategies in place.
• For their professionals' pay, less than one-third (30 percent) have global strategies.
• For their sales employees' pay, slightly more than one-quarter (26 percent) have global strategies.

“While the majority of global compensation programs are for executives and defined at the corporate level, strategies for other employee groups are often determined regionally or locally,” explained Darrell Cira, a principal with Mercer’s human capital consulting business in Philadelphia.

However, this trend is changing rapidly, especially among U.S. multinationals, she added. That's because talent mobility throughout the organization benefits from common cultures and values, as reflected and reinforced by compensation strategies.

United States vs. Europe

According to Mercer’s survey, more than half of participating companies have global strategies for managers. However, about one-third more U.S. companies have them than do European organizations.

“It’s clear that the biggest difference between U.S. and European organizations with regard to global pay programs is at the management level,” said Philip van Elsdingen, a principal with Mercer’s human capital consulting business in Amsterdam. “European companies are less likely than U.S. companies to develop global strategies below the executive level because of a greater sensitivity to the potential barriers associated with implementing a common approach.”

Global Compensation Continuum

Defining a global compensation strategy is just the first step in developing an effective global compensation program, according to Mercer. The next step involves restructuring the human resource function so that the compensation program can be administered in a more centralized way.

But Mercer’s survey shows that just 36 percent of responding organizations have centralized administration of their global compensation programs.

The survey shows that many multinational organizations are not following the best practice for designing a global compensation strategy. “Many are implementing global incentive plan and performance management system programs before implementing key elements of the compensation infrastructure,” Cira said.

Stephen Miller is manager of SHRM Online's Compensation & Benefits Focus Area.