More multinationals embracing centralized compensation structures

With companies becoming more global, a growing number are shifting to more centralized compensation and benefits structures to help ensure that employees and executives around the world share the same incentives, according to a new survey by Watson Wyatt Worldwide, a global human capital consulting firm, and WorldatWork, the association for human resources professionals.

The survey of 275 companies with operations in two or more global regions found that more than half (56 percent) plan to shift to a more centralized structure over the next two years, up from 42 percent in 2004. In addition, two-thirds of multinational companies (66 percent) have adopted a human resources strategy that is consistent across offices worldwide.

ìA centralized global approach to compensation and benefits is necessary for consistency and alignment with company goals, although multinationals should watch how much emphasis they place on consistency,î said Bob Wesselkamper, director of international consulting at Watson Wyatt. ìLocal cultures and the availability of resources play a big role, too. The key is finding the right balance, as some programs are best managed globally, while others are best managed locally.î

The survey found that most multinational companies manage executive compensation, long- and short-term incentives and performance management globally, largely because these programs are linked to a companyís rewards and performance measures.

Programs Managed Globally/Percentage of Companies
Executive compensation/92%
Long-term incentives (nonexecutive)/79%
Performance management/48%
Short-term incentives (nonexecutive)/42%

Programs Managed Regionally or Locally
Perquisites/89%
Health and welfare/87%
Retirement/83%

ìCompanies are fully centralizing programs that drive strategic performance,î said Don Lindner, CCP, compensation practice leader at WorldatWork. ìCentrally managing executive compensation programs allows multinationals to strongly link rewards for executives to the results of the total enterprise.î

Part of the push for more centralization has come from regulatory reporting requirements, such as those in the Sarbanes-Oxley Act in the United States. Forty-five percent of multinationals now have a formal approach to global corporate governance in place, including requiring benefit changes to be approved by global or regional management.

The programs that most frequently require global or regional approval before changes can be implemented are executive compensation (92 percent) and long-term incentives (73 percent). In addition, 80 percent of companies are developing clear global policies, and 64 percent are implementing consistent global tools, processes and technology to strengthen governance procedures for total rewards design and administration around the world.

ìInstituting clear policies to support the design and delivery of new rewards programs globally generates benefits beyond simple compliance with regulations,î said Laura Sejen, Watson Wyattís global practice director for strategic rewards. ìIt can help companies uncover and address inconsistencies and help them communicate to employees worldwide the value of their total rewards packages.î