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Wolfang¶s balancing act

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Rewarding Healthcare executives in a dispersed yet integrated firm
L/O/G/O

Who¶s Wolfgang?
‡ Master¶s degree in International Management from University of Hamburg (Specialized in Human Resource management and Compensation Strategies) ‡ Executive MBA Program with a transnational orientation

Who¶s Wolfgang?
‡ Worked in the HR department of a mediumsized German Technical company ‡ Have been HR manager of Healthcare for one year and been in charge of Global Compensation Polices ‡ His project: Reviewing existing Global Compensation Polices and practices in Healthcare ‡ Company¶s requirement: Recommendation on coordination of Global pay system in Healthcare

Which¶s Healthcare?
‡ One of the largest European pharmaceutical companies ‡ A successful global player in the pharmaceutical market (with 200 subsidiaries and 30,000 employees all over the word) ‡ Key markets: Europe, US/Canada, Latin America, Asia Pacific

Healthcare¶s Finance (in 2005) Table 1: Key data .

Chart 1: Net sales by region (2005) 5% 11% 6% 42% Europe USA/Canada Asia Pacific 35% Latin America Other .

000 2005 15.000 5.000 20.000 0 Headquaters Europe USA/Canada Asia Pacific Latin America Other Total .Healthcare¶s Personnel ‡ Chart 2: Employee by region (2005) 35.000 30.000 25.000 2004 10.

600 1.800 1.000 800 600 400 200 0 Wages and Salary Social security and Support Payments 2005 Pensions Total 2004 .Chart 3: Personnel costs of Healthcare 1.400 1.200 1.

Healthcare¶s leadership competence Business related competencies People related competencies Personal competencies .

Healthcare¶s leadership competence Achievement Orientation Business related competencies Innovation and change Decision Making .

Healthcare¶s leadership competence Team leadership People related competencies Capability Development Relationship Building Impact and Influence .

Healthcare¶s leadership competence Business understanding Personal competencies Analytical thinking Self-development .

Healthcare¶s HR policies HR area Recruitment of key talents Management development Transfer/ mobility Executive compensation Pension system Organization development Policy direction Good recruitment practices Strategic workforce planning Corporate management development system base on corporate leadership competency set Enhanced cross-functional mobility Well-balanced cross-regional mobility Attractive and competitive compensation Aligned bonus system Move to define contribution systems Clear structures. efficient processes Corporate announcements on managerial and structural changes Balanced goal setting Measuring performance Clear feedback Linkage to variable pay HR Performance management .

The global performance system of Healthcare 1.themegallery. Leadership feedback 3. Goal setting and appraisal The individual Performance management 2. Link to the compensation policy Long-term incentives Short-term incentives 1. Individual component The bonus of managers 2. Broader Context component www. My unit component 3.com .

What¶s the trouble in the road to international coordination at Healthcare? ‡ Figure 1: Healthcare¶s cross-border strategy .

Germany .What¶s the trouble in the road to international coordination at Healthcare? ‡ Standardizing the new compensate system: 65% fixed income + 35% variable income depending on individual performance ‡ The new system was opposed by employees in France.

± Realize the difference in culture between Japan and USA (the Uncertainty avoidance) ± Visit some of Healthcare¶s subsidiaries and talk with HR managers .What did Wolfgang do? ‡ 1st step: contact with the HR representative in Japan and USA and visit others subsidiaries.

What did Wolfgang do? ‡ 2nd step: Present the right mixture of standardization and flexibility ± Figure 2: Balancing global integration and local responsiveness in Healthcare¶s compensation strategy .

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Impact of a transnational strategy on Pay strategies and underlying basic pay decisions .

Utterance avoidance  Risk taking managers Japan. Taiwan. Mexico & Latin America prefer variable pay incentives  Australia & Japan moderately emphasize this kind of pay accept large incentive payments Risk averse not accept a high income variability .Variable/fixed pay Country specific  Employees in USA.

Group performance-based pay: nature of work demands close corporation 2.Individual performance-based pay and group performance-based pay 1.High individualism: tend to value personal accomplishment. selfishness. independence. Cultural aspects: individualism/collectivism .Individual achievements for motivation 1 2 .Low individualism: team accomplishment. internal locus of control . individual attributes. dependence on the social units . Company specific features . sacrifice for others.

low UAI.Short-term and long-term incentives Short-term Frequent reward: tied to desired behaviors such as bonus system Share options Long-term More appropriate in countries with high individualism. PDI .

The global performance system of Healthcare  The individual performance management 1. Short term incentives . Goal setting and appraisal 2. Long term incentives: grant share options to its managers 2. Leadership feedback  Compensation policy 1.

The bonus of managers at Healthcare 25% 50% 25% Individual component My unit Broad context .

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Local adaption & exception  Lie in the cultural and institutional environment ‡ Legal requirements: Firm do not have a choice whether to adapt to the local conditions or not  Fringe benefits: determined to a large extent by the legal environment  Ranges for calculating the bonus potential: Cultural preferences ‡ High uncertainty avoidance: bonus potential would not be fully used while in countries ‡ Low uncertainty avoidance: contrary  Currency rules ‡ Do not follow the pattern of firm external determinants: for the markets in the US and Japan .

QUESTION 2 Should he add or delete some existing practices from the T account? .

Our solutions  No add or delete factors from the T account ‡ Basic of cultural and institutional determinants ‡ Integration of political influences of different network units in the analysis of transnational pay practices .

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1 Strategically important function-specific skills 2 Control of an important market size 3 Success in a highly competitive market 4 Strategically important management skills .

shifting them from globally standardized to locally customized? Global Standardization Localization .Question 1 Should he move some of the existing pay elements across the T account.

Driving Factors Change in Environment Costs increasing Pressure on Price Standardized HR Policy .

Question 1 .

Transnational Compensation Framework explaining transnational compensation strategies .

Question 3 Should he change the weights or emphases (percentages) of existing elements of the pay system? .

Pay System Changes Option 1 2 Condition > High UAI > Low UAI Fixed ( 70% ± 75%) =/ (60% .30%) =/ (35% .40%) .65%) Variable (25% .

Impact ‡ More safety ‡ Discouraging performance-based incentives scheme .

com .Thank You! L/O/G/O www.themegallery.