Outlines the main characteristics of strategic and total reward, from building a business case to designing and implementing a reward strategy across the organisation
Date: 07/06/11 Duration: 00:23:36
How can organisations effectively deploy reward to achieve objectives in many different locations and how can they maintain equity and motivation and when market rates and conditions vary so much around the world? Charles Cotton, the CIPD’s Adviser on Reward, Peter Newhouse, Global Head of Reward at Unilever and Frances Richardson, Head of Reward at Oxfam, discuss.
View the full podcast transcript
Philippa Lamb: Hello and welcome to the podcast which this month comes from the CIPD’s Annual Reward Conference in London. We’re going to be looking at reward from a global perspective. How can organisations effectively deploy reward to achieve objectives in many different locations and how can they maintain equity and motivation and when market rates and conditions vary so much around the world?
I'm joined by the CIPD’s own reward adviser Charles Cotton and also by representatives from two organisations both operating on the global stage. Peter Newhouse who’s global head of reward at Unilever and Frances Richardson, head of reward at Oxfam.
Charles shall we kick off with the basics? Let’s talk about the key elements to look at in global reward and is it different to local?
Charles Cotton: I think the main difference is around the issue of delivery. If you look at how reward is classically thought of it’s about what the organisation is trying to achieve, what does the organisation therefore need from its employees to be successful, what values, behaviours, performances, attitudes, skills? And how are these then going to be rewarded and recognised? How are we going to get the people we need into the organisation? How are we going to retain them and engage them?
When you move to an international context you start looking at there are more, I suppose, more contextual issues that you need to take into account so if you’re looking at just creating reward in the UK you’re going to need to look at the UK legal system, regulatory system, perhaps society as well and when you start operating in India or China, Australia, then you start to realise there are different legal issues, different regulatory issues, all of which can have an impact on, not so much the principles of your reward strategy but how it is delivered and so for instance you may think in this context an employee share plan won't work so therefore how are we going to try and allow people to share in the success of the organisation? Is there something else we can do rather than giving them share plans because it won't work here?
PL: And for most organisations is cost actually going to be the top priority or is it more about alignment with the strategy or ensuring you’re market competitive?
CC: Well ability to pay is always going to be critically important because if you haven't got the funds you’re not going to be able to operate in that country but obviously cost, you know, so cost is key but also you've got to at least offer a salary that people are going to want to kind of join your organisation and similarly if you’re going to send people overseas to fill certain skill gaps you’re going to have to do something to kind of make them want to go, either it’s perhaps giving them more money or it’s offering them the potentiality of earning more money in the future because it will help their career going forward and there's also some places in the world are more glamorous than others and it might be that may be the benefit in its own right to go and work and live places like Seattle or Washington.
PL: As opposed to Sierra Leone?
CC: Sierra Leone may be more challenging or possibly a place like Zurich which often has a dull reputation, you know, you may have to give people a bit more money to go to a place like that because there's less to do.
PL: Well let’s hear about Unilever. We all know the name how many people do you have globally?
Peter Newhouse: Well we have about 168,000 people so we've got lots of people. We operate in about 100 countries so we have plenty of complexity. We take a lot of our lessons from the business itself. We're trying to operate global brands across the world. So there are some things that we like to do because we are a global company employing people at certain levels to do global things. At other levels we've got people who work in our factories and supply chain who are very local, who do things locally, who are very unlikely to be part of a mobile workforce and so we have our feet in the local geography where we employ people but near the top of the organisation we try to operate in a very global fashion.
PL: So how many people do you have on the move around the world at any one time?
PN: Well we've got about 16,000 internationally mobile employees that we recognise as such. So we have a global international assignment policy and we've got about 16,000. But in addition to that we also have people who move as local employees, local to local. So they have the opportunity to pick up a job somewhere else in the Unilever network if that's possible for them and what they want to do. And then we also have, underneath the main policy, a lot of improvisation, often for cost reasons, where people want to get mobility but they don’t necessarily want to use the global Unilever policy to do that.
PL: Okay. Now let’s kick off with that thorny question of pay and the issue of do you pay people according to where they are or where they come from? How do you do it?
PN: For the globally mobile we've tried various approaches to this so a bit of history I think it would be fair to say that over a long period of time Unilever was unusual and identified very much with a host-based payment system. So we tended to put people into host country pay arrangements when we move them from country to country. A few years back we changed that policy so we've now gone in the opposite direction and we now pay people much more in terms of where they came from. So we have a home-based payment policy and we've been operating that since about 2007, not with total success I think would be fair to say. Because of the numbers of nationalities involved in our mobile population, we've got well over 25 nationalities mobile so if you’re in any one large centre you could have up to 22 different ways of paying people to do the same thing. So that causes some difficulties.
PL: Friction between colleagues?
PN: Yes and perceptions of inequity and all those sorts of issues. So it is something we're looking at right now to sort of think about how we can improve the way that we do it.
PL: But presumably you also face issues if you pay people according to where they are because by necessity some local pay will be considerably higher than others. So do you then get issues about people not wanting to go to certain postings?
PN: Yeah there's no perfect solution to this I mean and you’re also dealing with a mobile landscape in terms of exchange rates, inflation rates, so for example when you look around the world now you look at a country like Brazil it’s very expensive from an employment point of view because the people earn quite a lot of money. Well that wasn't the case a few years ago it’s being generated by big shifts in exchange rate, big shifts in inflation rates. And so relative value in terms of pay isn’t a stable concept in itself it does shift over time. So that gives you an added level of complexity when you’re moving people over what could be a substantial part of their career.
PL: Okay I think we're starting to get our heads around just how complicated this is? But Frances let’s talk about Oxfam how many people do you have? Most of your people aren’t UK based are they? That's probably the first thing to say.
Frances Richardson: That's right because we're an international development and humanitarian organisation our business is actually in developing countries and we have about 5,000 people around the world, most of them in the 50 countries or so in which we work.
PL: And you pay matching to local norms is that right?
FR: We have national staff and we do like to employ people from the country concerned wherever possible to build the skills within that country to be able to do their own development and their own humanitarian response but of course the skills are quite lacking in some of the poorest developing countries so we may need to bring in skills by using expatriates to fill gaps and we will want some of our senior managers to have experience in working in a number of different parts of the world.
PL: But if say a senior manager came who was a French national, for the sake of argument, and went to work in a developing country would they be paid according to the country they were then working in rather than their base norm back in Paris?
FR: We try to distinguish between the level of skills we need rather than where the person has come from. So if a job requires skills that you would get by having worked internationally previously we have a common global pay rate for those jobs with certain adjustments to take account of cost of living in the country concerned but whether you’re French or American and going to work in India makes no difference as far as Oxfam is concerned you will be paid on the same global pay rate.
PL: And as Peter’s been saying they’ve got issues around colleagues doing similar jobs being on different packages presumably you avoid that with your system?
FR: Yes to a large extent. We've actually got a rather paradoxical problem that we've got a system that is very good at encouraging people to move internationally when we want. Now that we're trying to have more people working in their home country, once people have got international experience it does mean to say that they’re less keen to move back to their home country when that's what we want them to do.
PL: Ah so how do you get round that?
FR: We are rolling back on some of our international packages and the number of staff that it applies to and one way of doing that is by going for shorter assignments. So, for example, for humanitarian disasters we’ve now got pools of people, national staff in different countries, who will be called up to do a fairly short stint in the early stages of a humanitarian emergency and they’ll get an additional amount, perhaps 10%, over and above their national salary with their expenses paid in the country that they’re working in but they won’t be going to the full global rate that then makes them reluctant to take those skills that they’ve learnt back to their home country.
PL: How do you deal at Unilever with incentivising people to move to places that perhaps they’re not that keen to go to?
PN: Yeah I think it’s worth bearing in mind that to be international in Unilever is really useful because Unilever is a very international company. So it’s sort of inconceivable that you could get on very far in Unilever without experience and an international perspective, understanding how the business works.
PL: So it’s career progression?
PN: There's a lot of career progression, nonetheless the money is important and so getting the money right and the balance in the package between, for us, incentives together with fixed pay, relativity against other people who are moving around, all of those are quite important issues and as you said whether you want to get people back home is a big driver, whether you want people to stay in one place is another big driver, shifting labour around from one part of the world to another is another issue. We have quite a few hubs around the world where we effectively have regional centres and those regional centres tend to become magnets for people in the vicinity in the Unilever universe and we want those people to cluster together for economies of scale.
PL: I mean obviously there are cultural differences in people’s perception of what equates to reward aren’t there around the world? Is that an issue for you Frances that people don’t necessarily want the same things so you can’t really have a global strategy?
FR: In Oxfam we very much need to have a global strategy partly because we are in 50 different countries so the number of employees in some of these countries will be quite small. It simply wouldn’t be viable for each country to have a completely independent reward strategy but secondly because we do have a lot of people moving around the world and we would also have a global career development structure with people coming from countries to go and work in regions, head office and moving between different countries, particularly on the humanitarian work stream of the organisation.
So I think the trick is to have a global framework that is adaptable to the local circumstances and you’re absolutely right there are some things that may not be so valued in some countries as others. So, for example, does everybody want a Western style pension scheme or is some other form of saving for when they stop work, hopefully when they reach retirement age, more useful in some countries than a Western style pension.
PL: Yes it’s interesting you raise pensions because I want to move on to that actually but just before I get there I mean presumably Charles, and it relates to pensions actually, international regulation and compliance is a, well I hesitate to call it a fetter, but an issue for all these elements of reward?
CC: So you've got two almost opposing forces. On the one hand you've got the force of convergence, technology has shrunk the world, we're constantly told that we're living in a global village and it’s 24/7, more countries are opening up now to trade so we're seeing a convergence there or countries are competing against one another on rates of tax, legislation, corporation tax, so you've got there a kind of almost harmonisation or convergence of practice.
Increasingly lots of countries their capital cities look rather the same, you go down the high street it’s very similar. Also the reason why food prices have gone up is because the developing nations are seeming to adopt, for right or wrong, a Western eating habit and many organisations are saying, well do we really need to have a different reward approach in France or Germany or Spain? Why don’t we set, like Peter has mentioned, arrange things along product lines?
But at the same time you've got I suppose these pressures of divergence where you've perhaps living the time when you've never had so much information that's kind of pouring forth about well these are the reward issues and the reward data that's going on in Zimbabwe, this is what’s going on in Afghanistan and it’s then a very challenge to actually interpret all this information and say well how do I make sense of this as an reward practitioner to work out well what should the salary scales be in these regions? What should be the market rates we're adopting for these individual occupations? How should we be looking at pay progression at a time when whilst you've got one set of pressures trying to harmonise I suppose the tax rates you've got other issues, more domestic, where perhaps the population are saying well we believe that tax rate should be higher or there should be regulation of the financial services sector or there should be regulation around here and it then can be a lot harder for organisations to think well how do we combine, on the one hand we're wanting to make a more coherent and simplistic approach towards reward yet we've got these other pressures which are trying to make it even harder to deliver that and I think it’s again no easy answers, no right way, it’s kind of just trying to balance that tension but obviously when you’re looking internationally you've got so many more tensions to balance and in so many different areas.
PL: And Peter presumably this is a big, constant headache for you?
PN: It is you could sort of do it a bit like this, roughly 170,000 people, let’s imagine that each package has about ten elements, that's 1.7 million bits of pay flying around, each of which are driven off position, performance and potential, so you've got three dimensions, three drivers, that's about five million aspects amongst the whole things. So the drive for simplification is kind of helpful because when you've got those five million aspects flying around based on inflation rates, exchange rates and career progression you've got a fairly complicated mix of bits and pieces so anything you can do to drive the simplicity and the consistency and the predictability of how all of that works is a big plus for a large organisation.
PL: What do you do about pensions?
PN: Well we have a general policy towards defined contribution pension plans. We don’t put in pension plans unless there's some kind of a market for them. In other words we don’t have a point of principle that says we must always have pension plans. If the local market is doing something along those lines we keep an eye on it and when we feel it’s the right thing to move we move and where we do move we would prefer to do a defined contribution pension plan rather than a defined benefit pension plan because that gives us more flexibility.
PL: And how does that work at Oxfam?
FR: In Oxfam because our organisation exists to overcome poverty and suffering we do believe in encouraging our staff to save for their retirement so that they won't be poor in their own old age. Having said that of course pension schemes don’t exist in a lot of the countries where we operate, places like Afghanistan.
And so what we do is if the staff can join our UK pension plan we put them into that. We will support staff to put a contribution with a doubling contribution from the employer. If they can join a personal pension in their country of work or their home country, for Europeans, we may support them to stay in their home country social security system. That does still leave a lot of our national staff in developing countries without any form of retirement savings and in those cases at the moment we pay a lump sum when they leave the organisation.
But we are now looking to move to the next step of introducing a global pensions framework and a global pensions plan certainly for our mobile employees with the possibility of putting some of our national staff into that. But as Charles says we also need to take account of legal requirements because there may be other things happening in that country. So we need to look at how much we're spending already on state provident benefit schemes and so on and take that into account in deciding how much Oxfam can contribute as well as that to a company pension.
PL: Okay and we're pretty well coming towards the end of our time but I would just like to talk about evaluation because obviously that is at the crux of all this. How do you evaluate whether you’re getting this right and whether you actually need to adopt different strategy? Frances what do you do?
FR: We take account of whether or not we're able to recruit and retain staff of the quality that we need, at the pay levels that we're offering. We benchmark ourselves against other organisations to see whether our pay is competitive or in some cases perhaps we may be spending more than we need to compared to other organisations. So I would say that it’s a mixture of good data and experience and judgement.
PL: How about Unilever?
PN: I think this is a really important area and kind of very exciting because in many respects what we have are consumers of reward inside of Unilever and we like to learn from our business so we have consumers of our products we also have customers, the customers aren’t necessarily the people who consume the product. So the customers for reward in Unilever are often the managers who want to motivate their staff to do the things that Unilever wants to do but the consumer themselves are the people who get paid.
So we try to do as much insight into our consumer preferences as possible to understand what it is that really motivates them and interests them so that we can deliver perceived value to the consumer and not just what we want them to have. So it’s very tempting to abuse our monopoly position I mean in lots of ways as a reward ((profession?)) in a big company you have a monopoly they will take what you give them but it may not be what they want and it may not be an efficient way of using the resources you have available in the reward function. So understanding the customer, customer insight is where it’s all at.
PL: So for you it’s not so much about benchmarking against other organisations?
PN: I think it’s… the trouble with benchmarking is that it doesn’t really…the relativity of pay is I think a huge problem. So just doing what other people do because that's what they do is not the answer with pay. I think it leads us to the wrong conclusions and the wrong kind of practices.
So one of the things I say is we wouldn’t pay anybody unless other people did it. We only pay people because other people pay but I think we need to have more insights and understand better what it is that drives people and it isn’t necessarily pay, it’s the combination of the employment proposition, the reputation of the employer, the career prospects, the opportunity that you offer, the environment in which you operate, all these things and I'm sure in your business Frances, the value of what it is that people contribute to their society is a huge motivational driver and it’s not all about money. And it’s not that dissimilar in Unilever. So we’d like to feel that our people have a sense of commitment for what it is that we do and not just what we pay.
FR: Absolutely. People come to work for Oxfam because they want to make a difference in the world and, we hope, because we do have quite a good reputation as an international NGO and so people feel that their effort is going to make more of a difference towards overcoming poverty and suffering working for us. So that and the whole career development, personal development, the enjoyment of doing the job, whether you work well with your colleagues, are all absolutely vital parts of working for us and the reward is there as a basic but that's really not what brings people to work with a sparkle in their eyes.
PN: Exactly yeah and so we have a big programme on sustainability so this is something that's very close to Unilever’s strategy is to be more efficient in the way that we help people to improve the standard of their lives as consumers of our products.
PL: This seems like a suitably uplifting place to leave this discussion at least for now but many thanks to my guests, Charles Cotton, Peter Newhouse and Frances Richardson. Thank you all.
You can find out more about today’s speakers and read up on the CIPD’s own research on reward in the show notes for this podcast, click through to http://www.cipd.co.uk/podcasts.
If you're looking for more insight into reward related issues do not miss the upcoming CIPD Annual Conference and Exhibition. Manchester is the venue and the dates for your diary the 8th, 9th and 10th November.
Next time we we’re going to be talking about shared purpose which we've touched on today. How do smart organisations create that vital but elusive spark and equally importantly how do they sustain it. Join me then.
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