Chief executive officers no longer need
to be educated on the importance of
establishing global governance around compensation and benefits; the key issue
now is how to design and implement an efficient global governance framework — this is
where many organizations are struggling.
Watson Wyatt Worldwide conducted a
recent survey of 101 multinational companies focusing on global retirement governance. It indicated that, while 78 percent recognized the importance of efficiently managing their worldwide pension plans, only 39
percent had taken the initiative by establishing a global governance committee.
“Obstacles to global governance abound,”
says Frazer Russell, international practice
leader with Watson Wyatt Worldwide.
“Having a logical step-by-step process to
implement a structured framework is the
most successful way of getting your hands
around all of the potential issues. A successful framework brings together data, tools,
policies, roles and responsibilities and
approval processes in an easy to understand
manner that, crucially, does not impose a
large amount of bureaucracy.”
Smart Business spoke with Frazer about
how companies can go about designing and
implementing a global governance framework around compensation and benefits.
What are the steps for developing a global governance framework?
- Readiness assessment: The first step is
to determine if your company has the infrastructure and the tools in place to support the
implementation of a global governance
framework. For example, if you don’t have
the necessary resources (internal or external), access to good data, buy in from senior
stakeholders or the capability and structure
to effect changes globally, any plan you put in
place is likely to fail in the execution stage. - Baseline assessment: It is key that the
current status of your existing global governance framework is understood. This can
involve gathering a complete inventory of
benefits and compensation provision and
policies, checking for compliance and competitiveness and analyzing the current operational and investment protocols. - Philosophy: Now that a clear idea of the
starting point is known, it is simpler to develop a global compensation and benefits philosophy that defines the guiding principles
shaping the subsequent objectives and strategy. The philosophy is developed based on
your business vision, objectives and culture.
Examples include: above-average compensation to attract top-performing employees and
a desire to care for sick or injured workers,
etc. A well-formulated HR strategy and, in
turn, compensation and benefits strategy,
supports your overall business strategy. - Objectives: The objectives are the specific goals of the global governance framework
linking your overarching philosophy to the
strategy. - Strategy: This is essentially the roadmap
that defines who will be responsible to deliver the plans and programs globally. Having
clearly defined, assigned and communicated
roles and responsibilities is vital to implementation success and the ability to achieve
ongoing compliance. - Ongoing governance: During implementation you will have assigned roles and
responsibilities for each facet of the ongoing
governance cycle including: annual planning,
oversight, financing, accounting, plan design,
administration, communication and investment, etc. This needs to be monitored and
reviewed in a planned manner.
What role should CEOs play in implementing a
global compensation and benefits governance
framework?
Executive sponsorship of the initiative is
vital to achieving success as is a clear communication structure. We recommend adding the framework’s roles and responsibilities into each individual’s performance plan
to make certain that both implementation
and compliance is a priority and that expectations are clear. Last, CEOs should establish
a global benefits committee and work
through that group to keep track of implementation progress and ongoing compliance.
Which human capital programs make the most
sense to manage globally?
One issue to consider is which compensation and benefits elements should form part
of the framework. Watson Wyatt produced
another survey, jointly with World at Work.
From the results we can see that not all components of compensation are candidates for
centralized management. Base pay, for example, can be driven at the local country, regional or global level — either way, local market
conditions must be closely considered. On
the other hand, more than 90 percent of the
companies we surveyed govern executive
compensation globally, and nearly 75 percent
do the same with long-term incentives.
Most of the companies surveyed require
approval from global management for new
equity plans, expatriate policies and for
bonus plans. These are rewards that are
either linked to the performance of the
organization overall or are global in nature,
so global consistency makes sense.
In recent years there has been an increase
in global management of benefits and
perquisites too. Retirement plans are governed globally for around half the companies.
There is no single solution among companies or even within industries. One thing is
clear, however: the optimal balance will shift
as a multinational company expands and
moves into and out of local markets.
FRAZER RUSSELL is an international practice leader with
Watson Wyatt Worldwide. Reach him at (415) 733-4354 or
[email protected].