Rewarding Globally Mobile Executives
June 2017
Prepared by Aon Hewitt
Talent, Rewards & Performance
Topics for Today
Developing and Designing Global Remuneration for Multinational Companies
Explore Convergence of Pay and Reward Opportunities for Senior Global
Executives
Global Job Architecture
Rewarding Global Nomads
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Developing and Designing Global Remuneration
for Multinational Companies
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Designing Pay Across Global Markets
Typical elements to a total rewards package
– Base salary
– Bonus
– Benefits and noncash rewards
– Long-term incentives (LTIs)
LTI model award value
Challenges of operating a global LTI plan
Total rewards philosophy to include global operations
Global talent administration
Miscellaneous
– Develop global commincation resources
– Employee education and engagement
– Implement global payroll/Workday
– Review stock plan vendor(s) and other administration third parties
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Designing Pay Across Global Markets
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Designing Pay Across Global Markets
Base salary
– Benchmarked to local job market
– Paid in local currency
– Subject to local currency fluctuations and inflation
Annual Base Salary
Argentina Base salary is for 13 months’ period
Guaranteed Fixed Payments
Australia & New Zealand Superannuation and other fixed allowances
China 13th months’ base salary
Colombia Christmas bonus, severance fund, interests of severance fund and other fixed allowances
Greece 13th & 14th months’ base salary
India Leave travel, lunch/meal/canteen, domiciliary medical, professional development allowance, provide fund and gratuity
Mexico Christmas bonus, vacation bonus, saving fund and food vouchers
Puerto Rico Christmas bonus
Poland Functional, holiday, work wear washing and tenure allowance
South Korea Meal, transportation, mobile, vacation, holiday, overtime and other cash allowances
Turkey 13th and 14th months’ base salary
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Designing Pay Across Global Markets
Bonus
– Total cash compensation benchmarked to local job market
– Paid in local currency
– Subject to local currency fluctuations and inflation
International Implications—How to Define Bonus Opportunity
Base Salary
Base salary and mandatory fixed payments 26.9%
Base salary, mandatory fixed payments, shift differentials, and overtime 23.1%
Base salary and overtime 19.2%
Other 30.8%
100.0%
Other Non-
Number of Mandatory Fixed Performance-
Companies Country Payments Shift Differentials Overtime Related Payments
13 China √ √ √ √
10 Mexico √ √ — √
13 United States — √ √ √
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Designing Pay Across Global Markets
Benefits and noncash rewards
Employee Benefits Perquisites
Defined Benefit Pension Plan Company Car
Defined Contribution Pension Plan Car Allowance
Medical Insurance (Employee only) Mobile Telephone
Medical Insurance (Employee & Partner coverage) Cafeteria/Meal
Medical Insurance (Employee & Family coverage) Education Reimbursement
Life Insurance Executive Club
Medical Check-Up
Additional Vacation
Loans
Children Education Allowance
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Designing Pay Across Global Markets
Long-term incentives
– Tied to local pay
– Consistent across the globe
– Can be tiered or adjusted by country, region, job level
– Multiple types of awards
– Determine performance measures and metrics
– Worldwide currency that provides a hedge against inflation and currency fluctuations
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Designing Pay Across Global Markets
International implications
Employee Local Tax Securities Exchange Data
Country Taxation Deduction Registration Controls Severance Risks Acquired Rights Privacy Translation
Australia
Austria
Canada
China
Czech Republic
Detailed country notes sample
Country Securities laws issues? Employee and employer Copy of rules requirement? Acquired rights risk? Tax-favored Comments
taxation on acquisition of arrangements
(as to the legality of shares* (as to whether or not there is (as to participation possible?
offering share-based a need to provide the becoming a
awards to employees *Please note: separate participant with a copy of the contractual rather than
without the publication of from the income tax and rules of the Plan) discretionary right)
a prospectus) social tax charges
described in this column Translation requirements?
capital gains tax will
ordinarily be payable upon (as to whether or not there is
the disposal of shares if a legal requirement to
gains are made following translate Plan materials into
acquisition prior to disposal the local language)
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Designing Pay Across Global Markets
Local Global
Target Award LTI Award
Design tied to local business goals and strategy Design tied to global business goals and strategy
̶ Short-term goals ̶ Long-term goals
̶ Can be individual objectives ̶ Goals and objectives determined by parent company
̶ Annually changed ̶ Periodically metrics changed but award-by-award goals
̶ Measured and paid locally are not subject to change
̶ Measured and funded by parent company
Other Implementation and Design Considerations
Peer market data
̶ Cash
̶ Bonus
̶ LTI
Communication of awards and opportunities
Employee education
Administration
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Designing Pay Across Global Markets
Consumer Goods Company Paying Country Head of Sales Across the Globe
LTI as 40% of
Country Base Target Bonus Base Salary
U.S. $200,000 100%–$200,000 $80,000
Germany $180,000 80%–$144,000 $72,000
Brazil $125,000 60%–$75,000 $50,000
India $110,000 50%–$55,000 $44,000
China $103,000 50%–$25,000 $42,000
Global Mobile Employee $160,000 70%–$112,000 $64,000
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Convergence of Pay and Reward Opportunities
for Senior Global Executives
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Pay for Senior Global Executives
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Pay for Senior Global Executives
A Global Executive…
Is a band of executives that share similar responsibilities
Is a reporting level 3 or 4 from the CEO
Oversees key business line/country or region/strategic initiatives
Expected to be relocated across various global regions for business needs
Generally represents 1%–2% of the total company population
– Jobs could include:
• VP EMEA
• Managing Director Asia Pacific, Personal Care
• President, China
• EU Managing Director
– Other executives could include:
• High performers
• Future leaders
• Strategic influencers
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Pay for Senior Global Executives
Implications
– Base pay
• Compensated within a single band
• Physical location irrelevant
• Generally denominated in headquarter country, paid in local currency
– Annual incentives
• Consistent opportunity
• Consistent metrics tied to headquarter goals balanced with local measures
• Consistent performance evaluation
– Long-term incentives
• Target opportunity/grant sizes consistent and tied to corporate headquarters
• Award type consistent and tied to corporate headquarters
• Metric consistent and tied to corporate headquarters
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Pay for Senior Global Executives
Multinational companies not differentiating grant values for their senior executives
27%
Yes
No
73%
We expect this to continue as companies and executives become more global breeding a new group of
executives who are citizens of the world
A secondary trend is companies reducing their participant eligibility and only providing grants to
executives or senior executives in the organization. For these companies, we would expect similar
results regarding tiering.
Companies noted the impact on managing dilution
Source: Aon Hewitt Global Salary Increase Survey 2016–2017
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Pay for Senior Global Executives
Manufacturing Company Global LTI Grant Table
Tier 1 Tier 2 Tier 3 Tier 4
Bands Level U.S. Canada India Malaysia
1 NEOs Not Differentiated
2 Senior Global Executives Not Differentiated
3 VPs 95,000 76,000 66,500 52,250
4 Director 75,000 60,000 52,500 41,250
5 50,000 40,000 35,000 27,500
Manager
6 35,000 28,000 24,500 19,250
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Final Thoughts
It’s a more uncertain world from an economic standpoint
Competition for talent continues to remain a hot issue
Employee engagement is even more critical during economic slow down
As a result, having a competitive global compensation program is more important because it adds
stability to employee retention
Rules on global equity are solidifying with more common practices
Important to have good data to make decisions on global compensation
Organizations are breeding true global executives
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Global Job Architecture
Trends and Impact on Global Mobility
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Global Job Architecture
A systematic process for establishing broad equivalencies in role and contribution across geographic boundaries
Enables an organization to define, understand, and manage global internal equity
The outcome is a framework that helps to understand how work is structured and executed to create and sustain value
for the organization
Job Functions/
Employees Jobs
Families
Career Path Function
Global Area
Role Levels
Executive 2
Management
3
4
Professional
5
Support
6
Employee A Java Developer Development Eng.—
IT/ Software
Advanced Advanced/P4—
Employee B C++ Engineer Development Global Level 3
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Why Organizations Pursue Global Leveling
A desire to look at their A desire to measure and A desire to aid and
talent pool in a holistic reward impact in a support more global
and globally consistent globally consistent way mobility
way
A desire to facilitate the A desire to develop A desire for globally
integration of current and globally consistent HR consistent titles and
future business platforms market data research
transactions
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Trends in Global Job Architecture
Implementation Application
90% … more pressure to Linking eligibility by
implement at a faster
have a Job level as opposed to
Architecture pace. Typically less job or title based
than 6 months
Less emphasis on
54%
… a global team is midpoints within
of them are put in place to lead structures
global
instead of a U.S
centric approach Greater use of
66% formalized job
… use of a sampling evaluation plans,
Use more
than 16 of anchor jobs to including point factor
levels
define architecture plans
Source: Aon Hewitt U.S. Salary Increase Survey 2016–2017
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Client Example
N
40+ Countries Pre Global Job Architecture Outcomes
Diversified Growing need to manage Identified set of 50 to 75
Organization workforce on global basis “global employees”
Varying job evaluation plans Consistent set of policies to
Situation used by countries and allow similar benefits across
Global Job employee levels across the countries
Architecture driven globe Consistent structure
by need to Inconsistent use of framework (i.e., number of
harmonize C&B compensation structures by levels and within band
globally across country organization) across the
acquired business Inconsistent eligibility guidelines globe
units for STI and LTI globally Tiered LTI approach
Flexible job evaluation
approach to integrate new
organizations going forward
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Rewarding Global Nomads
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International Compensation Approaches for International Assignees
Home Country
or
Balance Sheet
Approach
Local Plus
Approach
International
Pay Structure
Mixed
Approach
Host Country
Approach
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Market Trends—International Compensation Approaches
No perfect solution—will depend on the assignment structure, assignment location, company’s mobility
objectives, and guiding principles
The home-based (balance sheet) approach continues to be the most prevalent practice
– Around 75% of companies use a home-based approach for traditional long-term/short-term
assignments
– Around 50% use host-based approach for permanent transfers, localized assignments
– 15% used a mixed approach or local plus approach special assignment locations
About 10% of companies have an international pay structure, used mainly for global nomads
Sources:
KPMG Global Assignment Policies and Practices Survey, 2016 and Worldwide ERC Talent and Mobility Survey, 2014
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International Pay Structure
N
+ –
Facilitate talent mobility particularly Difficult to repatriate
for global nomads Need to align global benefit
More equitable—eliminate pay programs with compensation
differential across nationality approaches
Easier to administer Market driven in most
expensive region/countries
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Example of International Pay Structure
Blended
(International)
Position Level U.S. UK Australia India Salary Rate
Executive $500,000 $520,000 $490,000 $380,000 $418,750
Management $250,000 $270,000 $240,000 $180,000 $209,375
Supervisor $140,000 $135,000 $130,000 $60,000 $105,000
Professional $110,000 $100,000 $97,000 $40,000 $79,000
Data is for illustration purposes only
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Contact List
Derrick Neuhauser Bethany Beyer
Global Executive Compensation Director Associate Partner
Talent, Rewards & Performance Talent, Rewards & Performance
Executive Compensation Broad-Based Compensation
+1.847.771.8587 +1.847.442.3932
derrick.neuhauser@aonhewitt.com bethany.beyer@aonhewitt.com
Yanina Koliren Cathy Loose
Global Compensation Survey & Solutions Leader Associate Partner
Talent, Rewards & Performance Talent, Rewards & Performance
Executive Compensation Broad-Based Compensation
+1.847.442.3597 +1.202.862.5303
yanina.koliren@aonhewitt.com cathy.loose@aonhewitt.com
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