Revised April 2008
This factsheet gives introductory guidance. It:
- defines reward in an international context
- looks at the issues involved in creating an international reward and recognition strategy.
This guidance in this factsheet is based on research conducted for CIPD by Professor Stephen Perkins of the Department of Management and Professional Development, London Metropolitan University1.
Context
Professionals designing and implementing international reward and recognition programmes face many challenges. Globalisation is creating an ever more competitive context for addressing demands by consumers, employees and other stakeholders.
Organisations are increasingly focusing on corporately aligned performance and trying to ensure that employees are accountable and rewarded for their contribution. A global pay-for-contribution approach is emerging for most middle and senior managers. Employers are examining new approaches to managing talent globally as the cost and risk of moving employees around the world increases. Reward is a key tool in this aspect of managing performance and engaging the people who are key to organisational success.
Definition of reward in an international context
Many organisations now define reward as including financial and non-financial elements. Financial rewards might include pay, ‘perks’, paid holiday, etc. Non-financial rewards might include opportunities for learning and development, as well as ‘voice’ and quality of working life. For more information on such reward issues generally, see our overview factsheets on pay and on total reward.
By definition, trans-national reward strategies need to take into account multiple settings, including the parent country where the organisation is headquartered, the host country where a subsidiary may be located and other countries which might be the source of, for example, employees, finance, or research and development.
Cultural differences may affect the way employees view the effort-reward relationship. Political/legal structures will have an impact on the nature, value and how rewards are implemented and viewed by employees. In the case of employees sent on international assignments outside their country of origin, career planning and career-lifestyle support issues take on an even greater significance as part of the total reward portfolio.
Creating an international reward and recognition strategy
The main objective of an international reward and recognition strategy is to provide focus for aligning corporate vision and values vertically and integrating other HRM practices horizontally across the multinational organisation. The strategy needs to be perceived as meaningful and equitable by employees in different parts of the world. It must be practical to implement, and support value adding organisational performance.
CIPD research findings show that, in managing reward internationally, a number of tensions need to be recognised and addressed.
- Shareholders: 80% of respondents said that the primary aim of their organisation was to maximise shareholders’ wealth. However, when asked about external sources of influence on reward policies 42% of respondents said that shareholders had no influence at all.
- Customers: Over 92% of respondents said that their organisation’s primary aim was to meet customers’ needs and customers’ expectations. However, 50% attributed a zero influence on reward strategy to major clients.
- Board of directors: Half of respondents felt that the board of directors had a strong influence on the alignment of corporate reward strategies. However, a quarter perceived the board as having little or no influence.
- Global/local: Our case study evidence from leading-edge multinationals indicates a shift towards greater global consistency. But survey research indicates a more generally emergent strategy, responding to local labour market and economic conditions.
Employee characteristics have also been found to act as a source of tension: those who appear to be most adaptive and open to the ‘boundaryless career’ may use their network building for employability purposes rather than to advance corporate interests. The employment bargain they demand may emphasise matching corporate-personal values as much as extrinsic reward delivery, a situation rendered more complex still when accommodating cross-cultural and cross-institutional variations.
Overall, our research shows that there are three broad objectives in designing international reward and recognition systems:
- To design a system that fits with corporate strategy while engaging employees by demonstrating fairness and a total reward fit across international operations.
- To design a system that facilitates knowledge transfer across corporate networks and corporately managed career development, where necessary but not always involving the geographical mobilisation of people.
- To design a system which sets and maintains reward levels that are competitive in the relevant marketplace internationally to attract and retain talent.
The process of creating an international reward strategy will make it necessary to:
- balance cost-performance factors – setting pay levels at a competitive rate against cost containment imperatives, which may be higher in not-for-profit enterprises
- review international assignments - against other options such as recruitment and development of local employees and alternative forms of trans-national mobility such as short-term assignments. Increasingly, international assignment business cases are being judged on a return on investment basis: that is, their investment costs must match clearly specified accountability for performance outcomes. The offer of material incentives to accept expatriation may be calibrated against the value of an individual’s transferred knowledge balanced against the organisation’s capacity to deliver long-term career assurances. More information can be found in our factsheet on international assignments.
- Go to our factsheet on Managing international assignments
Technology is making it easier for organisations to communicate their total reward offering to employees, and to manage the process irrespective of location. This is also helping to drive the standardisation of performance management and review globally. With an emphasis on self-service HR provision, major investments have been made in IT and shared services, to improve quality and transparency across global operations, while achieving cost reductions - see our factsheet on HR shared service centres.
One particular challenge facing organisations managing reward in an international context is the provision of pension plans, especially the shift from defined benefits to defined contribution arrangements. Some employees might value this, as they will be able to move their pension funds between companies. However, portability between countries is still a complex issue, particularly around the tax and social security elements.
Useful contacts
References
- PERKINS, S.J. (2006) International reward and recognition. Research report. London: CIPD. Available at http://www.cipd.co.uk/bookstore
Further reading
CIPD members can use our Advanced Search to find additional library resources on this topic and also use our online journals collection to view journal articles online. People Management articles are available to subscribers and CIPD members on the People Management website. CIPD books in print can be ordered from our Bookstore
Books and reports
MERCER HUMAN RESOURCE CONSULTING. (2006) Global compensation planning report: the information you need to develop your worldwide compensation strategy. 17th ed. Geneva: Mercer Human Resource Consulting.
PERKINS, S.J. and WHITE, G. (2008) Employee reward: alternatives, consequences and contexts. London: CIPD. Forthcoming. (See chapter 11: International reward management).
SPARROW, P., BREWSTER, C. and HARRIS, H. (2004) Globalizing human resource management. London: Routledge.
TYSON, S. and BOURNOIS, F. (2005) Top pay and performance: international and strategic approach. Oxford: Elsevier Butterworth-Heinemann.
VERNON, G. ‘International pay and reward’. pp217-241. In: EDWARDS, T. and REES, C. (2006) International human resource management: globalization, national systems and multinational companies. Harlow: Financial Times/Prentice Hall.
Journal articles
GROSS, S.E. and EDELSTEN, M. (2006) Paying the price of global expansion. Workspan. Vol 49, No 9, September. pp42-46.
HUNTINGTON, R. and NAYLOR, K. (2004) Managing cross-border rewards. Workspan. Vol 47, No 10, October. pp34-38.
PERKINS, S.J. and DASTE, R. (2007) Pluralistic tensions in expatriating managers. Journal of European Industrial Training. Vol 31, No 7, pp550-569.
WHITE, R. (2005) A strategic approach to building a consistent global rewards program. Compensation and Benefits Review. Vol 37, No 4, July/August. pp23-40.
This factsheet was written by CIPD staff and updated by Stephen Perkins.