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October 05, 2004
More Multi-Nationals Adopting Centralized Compensation Structures

The number of multinational companies with centralized compensation structures is growing, according to new survey results released by jointly by Watson Wyatt Worldwide, an HR consulting firm, and WorldatWork, a not-for-profit association for compensation professionals.

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Additionally, the survey found that multinationals with centralized compensation systems report higher effectiveness levels than those with decentralized structures.

"A strategic compensation strategy can help differentiate a company from its competitors, promote overall internal consistency from country to country and, most importantly, drive performance," said Robert Wesselkamper, director of international consulting at Watson Wyatt. "It's therefore critical for a global organization to oversee the design and evaluation of its compensation plans around the world from a centralized, all-encompassing perspective."

The survey found nearly 6 out of 10 companies (59 percent) with decentralized compensation structures expect to centralize their structures in the next two years. Additionally, 23 percent of companies with centralized compensation structures already in place plan to become even more centralized in the near future. Just under half of the respondents--49 percent--currently have centralized compensation structures.

The Watson Wyatt/WorldatWork Global Compensation Survey focused on three key areas of global compensation practices: structure and strategy, tools and systems, and compensation targets and vehicles. A total of 230 companies with operations outside of the United States participated.

"Companies that want to use compensation to their strategic advantage need to look at the big picture," said Anne Ruddy, executive director at WorldatWork. "Having the most competitive compensation practices in a given country or region does not guarantee success. The good news is that more companies are making these practices part of a larger, global strategy."

When asked why they have centralized compensation structures, employers most often responded that it was to maintain a consistent link between rewards and results. Maintaining the organization's position in the marketplace and promoting internal equity among employees ranked second and third, respectively.

The survey also found that companies with centralized systems report higher levels of effectiveness. Of those with centralized compensation in place, 58 percent rated their payment structures as "very" or "mostly" effective, while relatively few companies (36 percent) with decentralized structures expressed similar confidence.

"Centralizing a compensation structure does not mean overlooking regional or country-specific variations in compensation practices," said Ira Kay, national director of compensation consulting at Watson Wyatt. "A successful centralized structure will take into account these differences and integrate them into a single strategic framework."

Key survey findings also include:

  • More than half (55 percent) of respondents reported that, regionally, Asia presents the most challenges in developing a global compensation system, followed by Western Europe (33 percent) and South America (24 percent).

  • Organizations with a centralized global compensation approach are twice as likely to have a global approach to sales compensation as organizations that are decentralized in their compensation management structure (44 percent vs. 22 percent). However, only 34 percent of all respondents have a global approach to sales compensation.

  • Among organizations with equity vehicles, stock options are the most commonly implemented globally (90 percent). The second most common (55 percent) are employee stock purchase plans, followed by restricted stock. And only 38 percent of organizations have implemented performance share plans globally.

 

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