TM - August 2007 - (Page 28) recruitment & retention assessment & evaluation compensation & benefits performance management learning & development succession planning LOST IN TRANSLATION: MOVING COMPENSATION ABROAD Daniel Margolis As globalization has become a reality over the past 25 years, many newly global companies have encountered new challenges in regard to negotiating a global economy. A global survey from Deloitte Touche Tohmatsu and the Economist Intelligence Unit found that senior business executives rate recruitment abroad over the next three to five years as 10 percent more valuable as a source of talent than do their HR counterparts. This suggests the demand for HR to obtain overseas talent, through both recruiting abroad and more effective use of offshoring, is gaining traction. The challenges of managing compensation are drivers of this shift. “Historically, compensation was built on a model that was largely created postwar, in the ’50s, when you had highly regulated environments, a stable economy, average family units that looked the same — all the things that went with the middle to late 20th century,” said Jeff Schwartz, study co-director, as well as principal and global leader for people, change and human capital at Deloitte Consulting LLP United States. “There tended to be a degree of stability that we see as not really existing anymore. What we see now is great pressure to maximize the ROI on employee costs, the largest of course being wages, and that creates shifting of markets, outsourcing, movement to India — all the dynamics we’ve seen.” This has led to a business climate where, if a salary base in a country shifts slightly, a company is likely to jump abroad to shave 5 percent of its salary costs, Schwartz said. A company must ask itself a series of questions when it approaches compensation in a new market, said Tim Phoenix, principal of human capital at Deloitte. “Is it a U.S.-type country, industrialized with low regulation? Is it industrialized with high regulation like Western Europe? Is it recently industrialized like Korea? Is it high-growth, low-wage like China, India and parts of Latin America?” Phoenix said. “The overarching dilemma here is that companies want ‘one size fits all.’” But managing compensation on a global level doesn’t work this way — it can’t. When hiring in another country, organizations must immediately contend with differences in language, culture, currency and regulations from one country to the next. To best manage compensation on a global level, companies need to establish meticulous oversight across a globalized organization. “Companies want to have more visibility than they ever did before of how they’re managing talent globally, how they’re managing mobility and how they’re managing compensation and tax issues,” Schwartz said. “The idea that people will be stable in a country and not necessarily move either within a region or across regions is probably not the case.” In taking compensation global, talent managers should pay particular attention to their nonmonetary benefits because these can be easiest to allocate in another region. “When you actually look at what motivates individuals, there is a great deal beyond direct pay and incentives that actually drives not only satisfaction but, more importantly, commitment,” Phoenix said. “Those types of nonfinancial rewards — be it flexible scheduling or a commitment to a diversity of culture or whether a company is particularly green or even, frankly, the personality of the CEO — have a significant impact on people’s performance. And those nonfinancial rewards can cross borders easier than a 401(k) look-alike, for example. We actually think there’s greater value in trying to globalize these less-tangible rewards.” countries that embrace different sets of standards. Organizations that do business in Europe need to meet requirements set forth by the European Union (EU). The EU Data Protection Directive sets restrictions on how elements of personal information can be collected, stored and shared. The variations in stipulations between European and U.S. dataprivacy requirements are one reason why managing data privacy is so cumbersome for organizations. Under the EU directive, the focus is protecting individuals and their personally identifying information such as race, political affiliation, sex, name or even seemingly standard business information such as office phone number extension. These types of data are restricted from being shared unless explicit employee permission is given or procedures are put in place to properly protect this information. Organizations must be aware that personal data protected under EU privacy directives could be the same information that could be requested under U.S. laws such as the USA Patriot Act. The EU restricts the transfer of data to those countries that it deems do not have rigorous data-privacy regulations, including the United States. There are a few countries within which companies are free to share information under the EU requirements, including Argentina, Canada and Switzerland. To manage the transfer of data to other countries, multinational employers need to adopt compliance strategies for data. One option (albeit very limiting) is local processing. This local storage format and processing of data needs to happen within the country of origin, and it restricts the movement of data. Organizations that embrace this strategy might want to partner with a vendor that has local hosting facilities that will keep data within EU boundaries for services such as payroll. This option would have to include controls on who accesses data, as all accessing personnel would have to be considered “local” to that country. Under this option, managers in countries outside the approved set 28 talent management magazine www.TalentMgt.com http://www.TalentMgt.com
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