The
type of pay and benefits expected in the developed world may hold no attraction
for local employees in emerging markets. Gemma Townley offers advice on how to
attract the local creme de la creme
You’ve
cracked the pay strategy issue, having got all your employees hooked on
performance-related pay, and everyone from your senior managers to your
administrators is working towards the same goals. You have a wide variety of
benefits to suit the needs of all your employees, and your employment package
is second to none. Now you are setting up an office in South America. Think you
can roll out your global pay strategy to recruit local employees? Think again.
Thinking
global and acting local is such a well-known adage that it is almost a clich‚.
Yet putting it into practice isn’t always that easy, particularly when local
expectations run contrary to global ones. "Generally in developing
countries, people are very wary of cash bonuses and variable pay," explains
Martha How, head of UK reward business at PricewaterhouseCoopers. "What
employees will be looking for is fixed pay, whether it’s hourly, weekly or
monthly. Yet this is precisely what most HR directors are trying to move away
from."
Pay
is never an easy issue to master, mainly because it is so emotive. Employees
may see career progression, autonomy and flexibility as more important than
their pay packet, but should they find out that a colleague who does the same
job is on more money, they will soon be demotivated. And if your pay strategy
doesn’t appeal to employees in a particular country, you are unlikely to
attract the creme de la creme of local talent.
On
the whole, global pay strategies are not rolled out to all employees in all
countries; they tend to apply only to senior managers. But if you have a very
firm pay strategy in place, it may still be possible to implement aspects of
it. "You have to establish how you want employees to feel," explains
John McKeown, international HR director at US-based telecommunications company
Lucent Technologies, who rolled out stock options to all Lucent employees
around the world. "Do you want them to feel ownership? Look at the whole
package, including promotional prospects and the right working environment."
Of
course, one of the reasons for setting up operations in developing countries is
to benefit from lower costs, so it’s no good offering more than the market rate
to attract employees if it wipes out half your profits.
On
the other hand, though, offering the right package can make all the difference.
"The key is to benchmark properly," suggests Paul Kelly, European
partner for global consultancy William M Mercer. "Benchmarking across the
region isn’t enough; you need to benchmark locally against direct competitors –
companies with similar numbers of employees. It isn’t easy, but it’s essential
if you’re going to get your own pay right."
Marcia
Marsh, practice director for international consulting at Watson Wyatt (US),
agrees. "It’s important to do a quick apples-to-apples comparison of pay
and benefits," she says.
Another
factor to bear in mind is that basic pay isn’t the whole story. While fixed pay
is often very important to employees in developing nations, benefits and
allowances can stack up. "The balance between basic pay and other benefits
may be very different in emerging markets," explains Kelly. "In
India, for instance, basic pay may appear very low, but there will be
additional allowances. Don’t ever judge salary costs by basic pay alone, because
you won’t be seeing the real picture."
It’s
also worth being open-minded when it comes to the benefits you offer. In the
West, benefits such as pensions, health insurance and company cars are
standard. In many developing countries, state pensions and health provision are
of a good standard; what employees want is something extra. In some ex-Soviet
countries, for instance, companies will often help employees with their
mortgages.
In
other Eastern bloc countries, employees expect a company loan of anything up to
£1,000 (US$1,500) when they start work, repayable when they leave. In Africa,
having an on-site clinic or doctor is perceived as a very valuable benefit –
much more so than private health insurance because insurance won’t go very far
if the facilities are not available. And if your factory or workplace is not
located close to residential areas, a bus to transport employees will be
appreciated, if not expected.
Employees
in developing countries appreciate the opportunity for development as much as
employees elsewhere. "We are big on training," reveals the head of
global compensation and benefits at a multinational consumer goods company with
factories around Asia and Latin America. "We offer employees the
opportunity to learn new skills, and these days that’s a valuable
commodity."
Another
major issue for global companies is ethics, which is often on a par with
profits as a key shareholder concern. Marks and Spencer, the UK retail store,
suffered badly when it was accused of using sweatshops in the third world to
produce its clothes. And companies like Nike are equally keen to avoid being
attacked by the press.
Dusty
Kidd, Nike’s vice president of corporate responsibility, is keen to stress that
social responsibility is high on its agenda when it comes to paying employees
in emerging markets. "We hope to advance our work in environmental and
social issues," she explains.
To
emphasise this commitment, Nike has signed up to the ten-point code of
environmental conduct from the Coalition for Environmentally Responsible
Economies (CERES), which involves improving environmental and labour conditions
in the apparel industry.
"Ethics
is a huge issue for multinationals," agrees Kelly. "We’re doing lots
of ethical audits for clients to make sure that they are paying their employees
enough, and offering good conditions of work. It’s a defensive thing as much as
anything; companies want to know they are in the clear in case anyone points
the finger."
But
while companies worry about social responsibility, they also need to consider
the other tricky issue of culture. "Employers sometimes get a shock when
they set up in developing countries," admits How.
"Bribery
is often an unavoidable aspect of doing business; you sometimes have to play
the game, which can be very difficult ethically. And sometimes local employees
are blatantly sexist and racist; if you’re used to UK or US legislation and
have built an HR policy to avoid sexism and race discrimination, that can be
tough."
Working
practices are also affected. Andy Snalune, a civil engineer working in Bangkok,
found that his "Western" expectations were often not met. "The
teams I have working for me have a very ‘manana’ approach to things," he
explains. "And when they decide it’s time to eat then they all down tools,
whatever the state of play with the project. Things get done ‘in their own
time’, and if you try to fight against it by introducing performance-related
pay, they simply feel threatened."
And
don’t underestimate family ties. According to How, in some ex-Soviet countries,
if you employ one person, you shouldn’t be surprised if other family members
turn up at the workplace. And if you do decide to open up your benefits package
to dependants, you may want to set some guidelines. "In the West,
dependants may consist of a wife and two children," explains Kelly.
"In the Middle East you may be looking at several wives, lots of children,
grandparents and so on. If they are all dependent on the employee’s salary,
drawing the line may prove difficult."
But
while the going can get tough, the reality is that the positives nearly always
outweigh the negatives, says How. "In many developing countries the work
ethic is phenomenal – employees can be very keen to learn and develop, and are
often extremely enthusiastic.
"When
you experience that, it makes the whole thing worthwhile."
Advice
on rewarding staff in emerging markets
–
Do as much research as you can into the local labour laws. Try and get hold of
a sample contract of employment, and establish how powerful the local unions
are.
–
Find out the level of state provision for health, pensions and so on. If state
provision is poor, you will probably be expected to make up the shortfall;
equally, if state provision is high, you should concentrate on alternative benefits.
–
Find out about government grants or assistance, which are often available if
you undertake to employ a certain number of people.
–
Spend time finding a good local operational manager. If you have someone on the
ground who understands your goals and also the local people and expectations,
then you are halfway there. In some cases, you will find managers who take on
this role regularly on an interim manager basis – they may cost you more, but
will probably be well worth it.
–
Usually what matters most to prospective employees is the level of fixed pay.
–
Get to grips with the tax regime in the country you are moving into. It is a
vast issue and can significantly affect pay structure.
–
Global pay strategies often work well at manager level, but can rarely be
applied to all employees.
–
Accept that cultures are different – it may not be possible to impose your
company’s culture and ethics on all your employees around the world.
–
Benchmark pay levels against local competitors. Ultimately, if they pay more or
less than you, this will matter more than what the average salary is in the
country as a whole.
–
Accept differences in expectations and be flexible when it comes to benefits.
Further
information…
For
more details on local compensation and benefit structures, log on to the
following Web sites:
–
PricewaterhouseCoopers: www.pwcglobal.com
–
William M Mercer: www.wmmercer.com
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
–
Watson Wyatt: www.watsonwyatt.com
Also
check out to www.personneltoday.com/features for more compensation-related articles.
