1. Jacque Vilet Vilet International Institute of Human Resources September 10, 2012

2. Takeaways from this session:  Understand the local market  Understand local labor/employment laws  Understand cultural issues  Integration of new plan with Corporate Compensation

3. Agenda:  Understand local labor/employment laws pertaining to pay  Understand any cultural issues that impact compensation  Knowing who the local competitors are  Helpful demographics  Supply and demand issues  Selecting a market survey  Navigating the compensation survey obstacles

4. Agenda:  Developing salary structures  Determining local versus corporate bonus and stock designs  Developing merit budgets  Making incorrect assumptions/calculations  Educating management

5. Checklist of questions:  What companies in your industry are present locally? Are they in the same city where your facility is?  Are the local competitors well-known multinationals, or lesser known firms?  Does your company have a strong employment brand in the country?  Do you have a need for college graduates? If so, are there universities that have degrees relevant for your operation?

6. Checklist of questions:  What is the unemployment rate for type of jobs you need?  What has turnover been for jobs for the past couple of years?  What are the best compensation surveys for this country?  Is there a surplus of the type of talent your company is looking for?

7. Corporate questions to resolve “up-front”:  Pay for performance or across-the-board adjustments?  Market competitive locally or centralized/global market position?  Pay as “part of the pack” or differentiate yourself in the market?

8. Corporate questions to resolve “up-front”:  Individual or group bonuses/incentives and commissions?  Local market competitive bonus targets or centralized/global bonus targets?  Local job grades? Or match to corporate?  Awards for performance or length of service?

9. Navigating compensation survey obstacles:  Must have survey for each country  Cost per survey ---- #3,000 or more (a few global ones)  Limited selection of surveys  Not many participants in some countries  Example: Vietnam

10. Navigating compensation survey obstacles:  Poor job matches or no data at all some jobs  Fewer benchmarks --- will have to “slot” more jobs than in the U.S.  Many surveys are not as sophisticated as in U.S.  Industry segmentation  Results by revenues  Segmentation within an industry

11. Navigating compensation survey obstacles:  Not same competitors as in the U.S.  Not all survey providers are good worldwide --- Mercer, Towers Watson, etc. Some are better in some regions; others better in other regions  Some local, in-country surveys are best

12. Navigating compensation survey obstacles:  Local market practices will be different from those in the U.S.  No exempt/non-exempt like the U.S.  Pay is usually once a month except for manufacturing  Common practice----13 th and 14 th month pay (1-2 months’ pay on top of 12 months)

13. Navigating compensation survey obstacles:  Extra months have historical bonus. Usually paid for annual leave/holidays. This is in addition to normal annual leave/holiday policy  Some countries mandate extra months; some don’t  To avoid confusion talk in terms of “monthly pay” not “annual pay” ---- this is how locals refer to pay  Monthly pay is how it is referred to in employment contract (offer letter)

14. Navigating compensation survey obstacles:  Sometimes 13 th or 14 th month is included in annual pay and paid in equal 12 monthly installments.  Sometimes 13 th or 14 th month are paid in addition to normal monthly pay a couple of times per year – Ex: 13 th month pay in June in addition to normal June paycheck  Local nationals call annual pay “annual pay entitlement” (Doesn’t mean they really think of it as “entitlement” --- just what they call it)

15. Navigating compensation survey obstacles:  Singapore: 13 th month payment is not mandated, but is common practice -- averaged into 12 month pay cycle  Mexico: Companies are mandated to give employees one extra month’s pay at Christmas -- two month’s pay in December --- regular paycheck and extra month

16. Navigating compensation survey obstacles:  Peru: Law requires a 13 th and 14 th month bonus; the 1 st extra month is paid in July and the 2 nd in December  Italy: In December, employees are paid a Christmas bonus equal to one month’s salary.  Japan: Many companies pay out 16 months pay --- 2 extra for spring holiday and 2 extra for fall holiday

17. Developing salary structures:  Job titles may differ from the ones you use in the U.S. – same jobs but different titles  May find that building a structure requires more or less job grades than the structure you have in the U.S.  Example:  U.S. you have 4 levels of Engineer  Peru you have 5 levels in the local market and shown in market surveys

18. Developing salary structures:  Problems with setting one market position worldwide --- may need to be different by country depending on competitive environment  This may clash with corporate guidelines  “Hot” market like India may need to pay at 75%ile  Normal market like Sweden may only need to pay at 50%ile

19. Developing Salary Structures  May need more or less job levels in a job family than what you have in the U.S.  May need more or less salary grades compared to the U.S.

20. Title Country Bonus Target %tage of Salary Vice President U.S. 50% Director U.S. 35% Managing Director U.S. (no title) Brazil France N/A 40% 20% Sr. Manager U.S. 25% DR’s to MD U.S. (no title) Brazil France N/A 25% 10% Manager U.S. Brazil France 15% 5% Sr. Individual Contributor (critical skill) U.S. Brazil France 15% 10% 0

21. Corporate decisions for bonus:  Keep same number of grades as U.S.  Keep local competitive number of grades  If keep local ---- map local grades to corporate grades for bonus, commission and stock structure consistency

22. Grade mapping for bonus: U.S. Consulting Engineer20% Sr. Engineer15% Engineer10% Jr. Engineer5% FranceConsulting Engineer Principal Engineer Sr. Engineer Engineer Jr. Engineer

23. Developing merit budgets:  Gather local country “intelligence”  Local consulting firms usually provide this information on all countries --- either free or low price  Surveys may provide projected data  You will find merit budgets %tages vary by country

24. Developing merit budgets:  May be 15% in India, 3% in the UK, 10% in Brazil and 3% in the U.S.  CFO needs this information or he/she will enter the U.S. merit %tage worldwide for all employees --- creating incorrect budget projection

25. Converting currencies to make comparison: Concerned about internal equity --- assumption that all Sr. Engineers should be paid the same worldwide U.S. $90,000 Germany 80,000 India 40,000 Brazil 25,000 No internal equity issue Each Sr. Engineer paid competitively in his/her country --- don’t convert foreign currency to U.S.$ and compare salaries across countries

26. Educating management:  Being global does not mean U.S. policies/practices should be the same for all countries  One size does not fit all --- local labor market is king!  Set overall philosophy that pay (including salary and bonus) will be competitive with local market in order to attract, retain and motivate employees

27. Educating management:  Each country has its own competitive market, statutory requirements and common practices  Job titles  Merit budgets  Additional months’ pay  Exempt/non-exempt  Number of salary grades and job levels due to local market  Converting salaries from foreign currency to the U.S. $ is a “no-no” leads to faulty assumptions

28. Educating Management:  Some compensation policies are made at the government/bargaining agreement level ---mandate automatic pay increases to all employees except management  “Employment at will” does not exist outside the U.S.  Severance pay is mandated and can be very large --- 2 to 3 years pay especially in Europe

29. International compensation:  Challenging to learn  Develops global perspective and mindset  Builds awareness of cultural differences  Develops “conflict resolution” skills in resolving issues between corporate and local employees

30. Questions?

31. Email: jvilet@viletinternational.comjvilet@viletinternational.com For articles see: http://www.linkedin.com/pub/jacque- vilet/8/616/135http://www.linkedin.com/pub/jacque- vilet/8/616/135 Website: www.viletinternational.comwww.viletinternational.com Ph: 214-609-4437