If you read nothing else, read this . . .
- Views on bonuses can differ from country to country, and region to region, as well as between organisations.
- Labour markets, costs of living and exchange rates must be considered when setting an international bonus structure.
- Rewarding individuals for the right behaviour as well as achieving results is an important element of bonus plans.
- Clear communication of bonus structures is vital for employees who work across different regions.
Many factors must be considered when applying a bonus structure internationally, says Tynan Barton
For global organisations, setting a bonus structure for staff who work across different regions can be complicated. Countries, like companies, can have differing views on bonuses. For example, European employers tend to reward bonuses from the top of the organisation down, whereas countries such as Japan and Singapore have flatter bonus strategies.
In addition, employers need to consider what role the bonus will play in relation to their culture and business goals. Katharine Turner, UK practice leader of executive compensation at Towers Watson, says: “One of the considerations for organisations when thinking about annual bonuses for all employees is the corporate philosophy on remuneration. What are the annual bonuses there to do? Corporate philosophy varies a lot, by country and by organisation.”
Another aim is to ensure a bonus plan will encourage the behaviour and values the organisation wants, not just the business goals. James Berkeley, director of Berkeley Burke and Co, says: “It is critical employers continue to build self-esteem. By that I mean self-worth and self-confidence in people when they are applying the right approach to doing something. It is important not only to reward the desired results, but also to reward the desired behaviour.”
Large multinational employers will often have a centralised approach to executive bonuses, wherever staff may be based. But beyond that top cadre, it is not always possible to have a pan-region framework in place, so local practice may be more applicable. Piia Pilv, a partner at Mercer, says: “It is a question of what makes sense for each employee category: one size fits all or a pure geographic approach. It is about looking at the different roles, responsibilities and labour markets.”
How to measure success
When assessing bonuses for regional roles, employers must consider how to measure success. The contribution of staff working across different areas will be less visible than that of staff working in a single country, so employers must carefully assess the measures they will use.
Stuart Hyland, associate director at the Hay Group, says: “For example, do they express bonus as a fixed cash sum, in which case they could have a question over the relative inequity of payouts – although everyone is getting the same, different costs of living could mean one euro is worth more in one area than in another.
“Similarly, if employers give out a percentage of base salary as a figure, there is a danger they will magnify any inequities in base salary. It is a real problem as to which route to go down.”
If an employer wants to ensure global consistency and equity, it has to consider whether setting targets for certain roles will be competitive worldwide. Paul Coleman, senior consultant at ORC Worldwide, says organisations could set a fairly standard target level, normally driven by performance measures. “Those performance measures will, if achieved, have a significant upside,”
For example, a mid-management-level employee on a global variable pay plan might have an opportunity to earn 15% of their base salary, irrespective of where they are in the world. “Then that person’s performance, and how much they influence their objectives or their measures, may increase that opportunity to as much as 30% or 50%.That is the main challenge in ensuring consistency,” says Coleman.
Staff will inevitably discuss bonus plans, so employers must ensure objectives are clearly communicated. This can be achieved by spelling out the intent and design of the bonus plan and what it reflects about the business. “It is the philosophy behind the bonus,” says Hyland. “Employers can communicate that to staff and there might be a few issues where individual staff are not happy, but they will understand the logic behind it.”
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