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    Chap # 8 International Pay Systems (Text Document) PDF

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    Incia Haider

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    “hoc tt > 8 international Pay sasod wage rates and Services, W ro. and ta Es * Yeading sware companies och as we directly tied to cataclysmic soci sNvrtie had Yong deed gop yen we Shing Rin, ig the people. In China, the onl : wl sively Usted heed coves, et a tig Seam val! Sonne sant-ewoed compan eo ener achat. tn pecheeumcs al li art ae Chinn, Shanghe! Shaymgwepe Sone ae ao care to help them eun ey employes and . increase sso pee wn owned enterprises ar using stock ownership ax ail be striving to become a worker's paradise, bot the asa pay pundit’ paradise ‘side that threatens social unrest. Following Jist countries reported going unpaid for hey were owed back wages, with the average wat eystem is a brown bag under the table” ctive pay delivery some historical perspective: 1. Oris it? Let's step back to gs! afluenced by distant foreign markets, raring, and even business skills of those who had emigrated fe 2st century, Rather, itis from 1oted, and mass migration mn had increased ose engineering, manufact rkets are not influenced by the a s not a description of ced, free trade was being prom sshic cables, the speed of communicatios 100 years ago. In pie was wndereay. Te pp ceils Ea Tact Piscean. ma ew oe erer pees "Survey Reveals Wage Conta Hiaher 1 November 14, > sunism and ia Tanion: Evidence fom e ee ses Seen empres Deets Emterprises Under Cor a Se pctaioas Bence, Apr 2005. FP. 357-2601 BOA “Manufacturing Compensation Economy, Repott by the Joint Economie Cel ery ein Nor 28 BO Ce Une nN tO : ‘July 2005; N. Zupan, “HRM in Slovenian Transitional Companies.” presentation at ‘CAHRS of Human Resource Management, NP ommitce of United £ ‘Berlin, tune 2002. ries (Singapore: MeGraw Hil . Goodall. and Winer. ~The End ofthe Iron Rice Bowl,” Jnermat Dong, K Gots esa A. Quai, Compensation ond Benfis rocict# = 04). s sein. pumsien 1 Come Unity Gta! HEM Dito senna ea. eg none Shan Gal HRM Diss oe inar Jing Zhou and J. Martechio, me pert yo : % 145; Mei Fong. jone| Journal ‘Selected Asian Cow eral i nerd Decors Perera Ppcoieey 4 (SRSRE MAL “Chine ue il Set ora Noga 6 2 eee eaingsDieretals betwen Stat an Now A Can si ibn Cis Paci Fors 711) 2002), pp 181-197 sin ibe ee Dennnaaon i 8 Nonpayment Criss OND) A (enor: ILO, 2000 Doing Jo, rceenecpe. A204 ab te cle Satiranona Pir. "Completa a Fed pj ae Sat Working Pape! 06129. 19 0, Finn te Evolution of 1948 Century Al larsis Economy (Cambridge, rations. Ye by 1717 these lbs inks fd been sepa ay rear vske and uncertinty of Pobalization Siem te Me Monegn competitors Immigrants mete acwsed of reversible has 20 30 ai om sage js hurt mn is neither unique nor i a MANAGING VARIATIONS: THE GLOBAL GUIDE Understanding international compensation begins with recognizing differences and similarities and fgg out hove Best to manage them, How people gt paid around the world depends on vatitions in the fac, in the global guide depicted in Exhibit 16.1. Four general ones are economic, institutional, i and employee, with subfactors. These factors have been discussed throughout the book; now they can by applied globally. But once we shift from a domestic to an international perspective, additional factors become important, too, Institutional factors, such as cultural traditions and political structures, and economic fet, such as differences in ownership of enterprises and the development of capital and labor markets, come nig play. Further, social contracts and the role of trade unions must be reconsidered. The DaimlerChrysler example illustrates the usefulness of the global guide. Prior to Daimler’s sequiviios of Chrysler, the pay for the top 10 Daimler executives equaled the pay of Chrysler's CEO alone. As lite 25 percent of Chrysler managers’ total compensation was in the form of base pay, whereas Daimler manager” base pay accounted for up to 60 percent of their total compensation. The merged DaimlerChrysler sdopad #2 Chrysler-like approach to executive compensation. Some have even claimed that the attractive pay was tee reason Daimler executives were eager to acquire Chrysler!"! The Daimler and Chrysler managerial pay systems are contrasted in Exhibit 16.2, using the factors is global guide (Exhibit 16,1). At Daimler, the roots of today’s pay system reach back over 60 years to postexr agencies, and financial institutions participated in centralized negotiations. The result was industrywide negotiated pay systems called rariff agreements, They included predictable annual increases, governmex: provided social welfare programs, and well-defined internal structures. All companies competing in the sam product markets (e.g., Daimler, Volkswagen, and Opel) used the same pay structures, Daimler could pj above these negotiated rates but had little reason to do so, Instead, it competed for employees based on it reputation as a place to work, its quality of training, and the like. As a result, managers were less likely! consider pay as an instrument of strategy, Instead, pay was a constraint determined outside the organization German tax policies and labor regulations supported this approach. A typical Daimler employes’s marp tax rate (percent tax on each additional euro earned) is 30 percent higher than a Chrysler employee's tax aie an additional dollar's pay in the United States. As a result, the financial returns for working longer and bar® in order to receive er ee eee cpa Dae: Ae, broad-based sot options for employees were illegal until very: In exchange for their higher taxe Employer federations Autonomy Information flows ‘Technology Innovation Work roles EXHIBIT 16.1 wc generous welfare and unemploymert paymeis, plus ‘AuBxhiit 16,2 shows, centralized Wage Ownership, and high taxes that Supper # hrysler's German ocations.” ‘Nhe, 2,208, 9.11. Competitive market dynamics /egpitat flows! ‘ownership Organization Success and Fair Treatment of Employees Awitodes! preferences Guide to Iteration Compensation Sources © Geer Maen subsidized college ond apprenticeship rated financial predictable annual PAY increases, concent me ne «forthe pay sytem at ety nt stiNiprvide the come seen one, coe ae ry ne ed ‘Financia Organizational Sermegsc ner High mafyina highend vehicles Autonomy Lomer sutonoeny Work ries Employee Skilltnowiedge Ccotinvoas leaming Defined roles Aides behas sor igh commitment Deming Older, experienced Total pay system ‘Sensitive to social contract, huerarchical,, well-defined job a serves as a tool kit"? unrritanding vanation in international “Yatiations in (1) social contracts, (2) sor eaters cpmanagers’ 3 sccsrey Wile we separate the fac on ie we eet ayo Sms ma eriap and act, ea g THE SOCIAL CONTRACT te social contract, the employment relationship is more han rerrement, all enterprise : prera= ‘gomers (sometimes acting individually and sometirnes Joyees (sometimes acting individually St cc panies form te sci corr. As you tak abs os Pot no a eo in dierent ours bl iin bain SSS y vee. Understanding Now to manage em ee cry requires 20 1 cnn ta CY RSE Ten Je. to make them more responsive f9 roourage innovative and quality Servet Teanging the expectations of partes 0 the social contract. Centralized or Localized Decision-making a striking example of the social contract's effects on pay systems i in Exhibit 16.3, whieh degree of eeniralization Of PAY a tring among countics” COMPANIES We the United States, 4 Kingdom, Canada, Hong Kone and Brazil use highly sceeneralized approaches Wit ile ment. Japen, © Germany, Belgium, and Slovakia are moderately ‘centralized by industry eeamnark, and Austria use RighlY centralized approaches that creas & national pay system Austria Belgium Czech Republic Cuba 6 Germany Hungary Zz Argentina India Poland g Brazil Israel Sweden Canada Japan o France Korea z Hong Kong Slovakia 5 Mexico Slovenia 3 Singapore i UK USA. sees industrywide Local Seren systems ‘Systems Synems PAY: N SYSTEMS qulture Matters, but So Doe, International Pay 7a la hay ue classes CONSder the Unite * Cultural Diversit ” sean collects) seale. Innes 8 y y-onscius (as opposed Soe Drs Howcrccs sunita k 0 te hon 18.0 study found that Slovenian manson MAAR fae resis en US onar, Th mo sing anager tended on erage & ens augers. cull diersions wa wing sho in Exh 4 naa Gof eae i at raven collins sek eee eee athe degre of individualist in both nations amiek y I © i e | 1 ‘ \ f | 1 ; Risk avoiding X | 8 Xus. XSlovenia Risk ting U.S. MBAs — Slovenian MBAs EXHIBIT 164 Understanding 1h all Hann of Vveonwittin «Cate Sohow useful is the notion of a national culture when managing {ntetnational pay’ dia on variations such as those in Exhibit 16.4, it may, offer a starting point, However, ‘polit National culture can be thought of as the “average” in Exhibit 16.4. Itprev ides some in ‘iat kinds of pay attitudes and beliefs you are Tikely to find in an area. But ov {an seriously mislead, This point is citieal for managing intemational pay: TO hd people within Germany or within China share ation. Considerable diversity among ‘companies ‘company Lenovo, which recently purchased history, Lenovo has relied heavily upre g0 dose not reflect widely beld belie iebusivess-cemerscom/ fot Hol ) uses 20 percent of the company’s pro G. Milkovich, and zee Contracts,” Cl CConitact and, Organizations CitizenshlP af Analied Peveholagy 89(2) (ABS 2004) In the absence of better it is only a starting formation about crteliance on the “average” Jair that all organizations i ns and differences within ‘a mindset igno! rag tnaa aS 472 © Compensation Samat in which ncn croyes sect eset Sela it Wap preferences. All this diversity in Wy in which the Chinese government still owns communi’ Se erg lod out este price In tna chap To Caley nea’ ee Sl organizational, and individual conditions within each nation oF region, taken #6 a hobs contexts for determining compensation, Understanding these factors inthe global guide ia useful ge employee compensation. However, do not assume uniformity (the average) within « country the full range of individuals within nations is even more important.” So how may understanding cultural diversity within « nation matter to global pay? eye to attracting and motivating those risk-taking, entrepreneurial Slovenians, © multinationa) use performance bonuses, stock awards, and hierarchical pay structures rather than simpy mae “average” Slovenian culture. i OQ TRADE UNIONS AND EMPLOYEE INVOLVEMENT Europe remains highly unionized: In Sweden, 91 percent ofthe workforce belongs o unions; inthe United 33 percent; and in Italy, 44 percent. Asia is less heavily unionized. Japan's unionization rate is 24 pero af South Korea's is around 11 percent. In some countries, workers" pay is set by collective agreements es tg the workers may not be union members. In France, for example, 90 percent of workers are covered by clita My gu agreements, but only 10 percent are union members” In addition to having higher rates of unionization, Repay and Germany require the establishment of worker councils that must be involved in any changes to s pay pas The European Union is trying to provide common labor standards in all its member countries. The pyar Of standards is to avoid “social dumping,” or the relocation of a business in a country with lower saad and labor costs. At present, hourly labor costs and productivity vary substantially among the EU comma countries, 100, Britain specifies the fewest requirements, with no minimum wage, no maximum hows dat ms forinal methods for employee participation. France and Germany have the most generous social isms I Manag, According to the German federal labor agency, monthly unemployment benefits for a couple with rwo es I diene can reach 1,600 Euros ($2,050) G OWNERSHIP AND FINANCIAL MARKETS \ differences are inparas® is far Jess coca ite ot Ownership and financing of companies differ widely around the world. These international pay. In the United States, corporate ownership and access to capital than in most other countries. Fifty percent of American households own stock in companies eee oor nie hn Ling and Martha Avery, The Lanov Afar: The Growth of China Compuer Giant and ta There of ISO John Wiley & Sons, 2006), See especially pp, 266-273 Alu see DZ. Dig, . Aha, and G1 Ge, “Organi gg ‘Managerial Compensation and Benefits in Chinese Firms" International Journal af Human Resource Manageme _y PP $93-715; and Wan Liin, “The Stodent Job Crunch" China Intemanal Buss, June 206, p82 ote ‘Harry Katz and Owen Darbishire, Converging Divergences: Worldwide Changes in Employment ver ne parole lane fenee eters (2001), pp, 647-662, cent a ) (2001), saens. get ™ K:Schab, M. Fone Sci, A. Wane, and M. Levison The Global Competitiveness Rapon 2000, Wei i: (Cambridge, MA: Harvacd University ress, 2000). al » Bertrand Benoit, “Benefit 2:k: Why Germany is Confronted with a Wel B Dowling and R, Sc. ule, International Dimensions of Human Resoun “Global Compensation in the New Economy.” Iernationa Practices: Vive Lo ference; Part 7; Mastering People

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