News

Grasp Country Differences to Manage Global Pay

Compensation practices such as mandated salary increases add to the complexity

March 30, 2010 | Stephen Miller, CEBS

As multinational organizations continue to grapple with global competition, employee expectations and cost containment, they are focusing on overseas employment costs necessary to attract and retain their top talent. Because compensation practices vary among countries, this undertaking is particularly challenging.

Mandated salary increases, profit sharing, additional payments for holidays or bonuses ranging from 12 to 16 months, and allowances for meals and transportation are just some of the pay schemes that vary from country to country.

“It's necessary to understand the different mandatory and customary pay practices among countries to cost-effectively manage a global workforce,” said Rebecca Powers, a principal with consulting firm Mercer. ”Multinational employers should first develop a global perspective and then interpret it in light of the pay practices and requirements in each country. This ensures a consistent and rational global reward strategy that is relevant and workable in the local markets where they operate.”

Mandatory Salary Increases

As multinational organizations strive to manage global employment costs, one factor that continues to pose a challenge is mandated salary increases. In the Americas, for example, most countries, including Canada, do not mandate salary increases. In Brazil, however, union agreements dictate mandatory salary increases commonly while in Colombia salary increases are required only for employees making the minimum wage. The United States does not mandate salary increases for nonunion workers, although unionized workers might have a salary increase provision in their labor contract but not required by the government.

In Europe, salary increases often are dictated by collective labor agreements. While salary increases are not mandated in Finland, Germany and Sweden, for instance, they often are included in collective agreements. Additionally, in Turkey and Denmark, salary increases are required for companies that have unionized workforces. In Greece, they are mandated only for employees paid the minimum wage. Other European countries, including the United Kingdom and Poland, do not have mandated salary increases.

Most of Asia-Pacific countries do not mandate salary increases. Thailand, Japan, Indonesia and India are among these countries. In Malaysia, however, pay increases are required for unionized and blue collar workers.

“Part of the challenge of cost-effectively managing a global workforce is reconciling the company reward strategy with the many local practices,” said Powers. “When pay practices are mandatory there is no choice but to comply, but when a company’s reward strategy is at odds with the typical local practice, the company must think through how each approach will position them in the local market. While it is often best to adapt to the local approach, there are times when following the global strategy can differentiate an employer and make them especially attractive to the most desirable employees.”

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Companies must think through how each approach

will position them in the local market.

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Differences Abound

Besides mandated salary increases, compensation practices that differ by country include additional guaranteed cash payments (payments provided to employees beyond salary but independent of performance) such as cash allowances for transportation, meals or holidays.

In the Americas, there are countries that mandate additional salary payments comprising a 13-month salary payment, holiday bonus or profit -sharing payout. In Argentina a 13-month salary payment is required by law, while in Brazil companies are required to pay a vacation bonus and provide a 13-month salary. In Mexico and Puerto Rico, holiday bonuses are mandated. In Mexico, profit sharing is mandatory. Transportation allowances (reimbursement for public transportation or a car stipend) are common in Brazil, Chile and Colombia but not in the United States or Canada. Meal allowances (lunch vouchers and cafeteria meals) are mandated in Venezuela.

In Europe, some countries, including Italy, Portugal and Spain, mandate additional salary payments. In Italy, for example, nearly all companies provide a 13-month salary to all employees while other companies provide a 14-month salary. Portugal and Spain mandate 13-month and 14-month salaries, respectively. Belgium, France and Norway mandate an allowance for transportation. While the practice of providing company cars is common in some European countries, including Belgium and Ireland, the practice is not as prevalent throughout the region as it is in the Americas.

In Asia-Pacific, some countries, including India, Indonesia and the Philippines, mandate additional salary payments. In other countries, such as Singapore and Taiwan, 13 or 14 months of salary is common, while in China and Malaysia additional salary payments exist but are less common. Although a car benefit and an allowance for meals is common practice throughout many Asian countries, these pay practices are not as prevalent as a transportation allowance.

Mandated Salary Increases Worldwide
	Yes	No
Americas
Argentina		X
Brazil		X
Canada		X
Chile		X
Colombia¹	X
Mexico		X
Puerto Rico		X
United States		X
Asia-Pacific
Australia		X
China		X
Hong Kong		X
India		X
Indonesia		X
Japan		X
Malaysia		X
New Zealand		X
Philippines		X
Singapore		X
South Korea		X
Taiwan		X
Thailand		X
Western Europe
Austria		X
Belgium²	X
Denmark		X
Finland		X
France³		X
Germany		X
Ireland⁴		X
Italy		X
Netherlands		X
Norway⁵		X
Portugal		X
Spain		X
Sweden		X
Switzerland		X
United Kingdom		X
Eastern Europe, Middle East, Africa
Czech Republic		X
Greece⁶	X
Hungary		X
Israel		X
Poland		X
Russia		X
Slovakia		X
South Africa⁷	X
Turkey		X
¹Colombia: For minimum wage and integral minimum wage only. ²Belgium: National collective labor agreements require an indexing of employees’ salaries that is linked to the health index; index adjustment timing varies by industry. ³France: The employer must have an annual salary negotiation even if it does not result in an agreement with the union. ⁴Ireland: Historically, public sector and many private sector companies with unions signed up for national wage agreements and pay increases were negotiated on a national basis for multi-year periods. Given the current economic situation, there is uncertainty about future payments under these negotiated agreements. ⁵Norway: In industries with large unions, companies need to follow the collective agreement between the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Business and Industry (NHO) unions. ⁶Greece: Only for employees paid the minimum wage. ⁷South Africa: Mandated increases apply only to nonunionized sectors. ___________________________________ * Mercer’s Compensation Plans Around the World guide constitutes a general survey to help HR professionals identify compensation practices and regulatory issues in a number of countries. Mercer recommends that employers seek legal advice and confirm the details of the topics covered as it pertains to their specific situation before evaluating their own employment practices or implementing changes to their compensation plans.