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.
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
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.