Trends in compensation and benefits Featured

7:00pm EDT November 25, 2007

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 Frazer.Russell@watsonwyatt.com.