More and more HR and compensation professionals are finding themselves in the position of developing and implementing global compensation programs, as their employers expand internationally. The December 2007 issue of WorldatWork's workspan magazine includes a terrific primer on developing base pay policy in a global environment. While it is certainly important to establish and set all policy in alignment with an overall compensation philosophy, it is also key to understand and account for local practices and influences.
In the article, author Adam Sorensen provides an overview of some of these critical local considerations, including:
- Government Mandates: Many countries have specific laws that impact the design and delivery of base pay, including minimum salary, standard workweeks, negotiation, employee representation and mandatory communications. HR practitioners should also keep in mind that, once implemented, some types of rewards can become legally protected entitlements.
- Base Pay Elements: The definition of base pay varies signficantly by country. Items such as nondiscretionary bonuses, differentials and allowances for transportation and meals are common elements of base pay in many parts of the world. Definitions of base pay can also impact other elements of total rewards (e.g., retirement contributions, variable pay, merit increases, etc.) that are linked to base pay calculations.
- Pay Frequency: In some countries, annual base pay is spread over more than 12 months, which reduces monthly salary payments while allowing employees to collect the remainder in periodic "bonuses." Such bonuses should not be confused with variable pay or pay at risk because they are considered part of base pay. Companies should understand how different pay frequencies will impact their salary budgeting and administration practices.
- Pay Progression: Pay proression practices also vary around the world. Automatic base pay progression is still common in areas with strong union influence, but pay for performance is becoming more prevalent. Also, the range spread within a salary grade and/or the difference between grades may be significantly larger or smaller depending on the market practices in a particular country.
- Market Data: Reliable market data is critical to competitive positioning of base pay. Unfortunately, the availability and validity of market data varies dramatically worldwide. While local market data may be available through a variety of formal and informal sources, practitioners should use caution when interpreting and applying the data because differences in methodology may lead to inaccurate conclusions about local market practices.