Tag: Compensation Surveys

My business is focused on advising employers on how best to structure their compensation and benefits programs in developing and high-growth markets. We have particular expertise in Africa, where our compensation and benefits surveys cover all 54 countries.

Recently, I helped conduct an employer roundtable for clients in South Africa, focused on fast growing African markets. It was a lively and informative discussion, but one of the charts we looked at stands out: A comparison of the pay mix across 20 different African markets.

You can see there is wide variation across the featured markets in how employers design their pay packages. Base salary is at least 60% of the total package in most countries, but the pattern is not uniform. That’s why it’s important to watch your A-B-C’s — Allowances, Benefits in-kind and Cash.

We are often asked by clients why the pay packages in Africa are so complicated? Why can’t they just pay cash and be done with it?

There are several reasons for the widespread use of cash allowances and benefits in-kind. Here are some to think about:

  • Benefits are provided for critical business reasons – for example, a commuter bus is needed to ensure workers can go to and from the office on time. In some countries, the lack of reliable public transportation, coupled with traffic congestion and the high price of shared taxis is a real hardship for workers. So the company steps in. Similarly, companies sometimes provide in-house medical clinics, free or subsidized meals, and even access to credit.
  • Historical reasons – many cash allowances used to be treated differently for tax purposes, providing a small advantage to staff through higher net income. Most of the special tax treatment is long gone, yet the practice of providing allowances such as 13th month or rep allowance persists.
  • Statutory requirements – certain allowances or benefits are mandated by local labor law, so there is no choice but to provide them.
  • Cultural reasons – a company car is a status symbol in many countries, and even if there is no advantage compared to cash, the car continues to be popular. Why? Well, your friends and neighbors can see the car in the driveway, but they cannot see the cash in your wallet!
  • To save the company money – Really? How can a company save money by providing extra allowances or benefits? If an allowance is paid just once a year at the end of the year, the company has essentially an interest-free loan from employees for the first 11 months of the year.

    We know employers benchmark their total compensation package against the market. The total compensation is a fixed pie that simply gets divided up according to each employer’s policies. Adding a new benefit or allowance usually means reducing other components, including cash, so that the total is still aligned to the market. It’s a zero-sum game, actually.

Our experience working with employers in developing markets in Africa and elsewhere around the world indicates that employers need to pay careful attention to their pay mix at all levels of the organization. If you focus just on cash, you will fall short in the eyes of your employees, even if the cash has been adjusted to “make-up” for benefits and allowances you decide not to offer.

Ironically, one of the most challenging aspects of compensation administration in these markets is reward communication. Many employees don’t fully understand what they get, why they get it and how the company calculates their packages.

So my advice is two-fold:

  • Be sure you have a competitive mix of cash, allowances and benefits in-kind, and that your “A-B-C’s” are aligned to the market and your internal policies and strategies.
  • Communicate, communicate, communicate. Make sure your staff understand their pay packages in total, not just their paycheck. Focus on total rewards in your explanations.

Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.

As a data provider and as compensation consultants, clients often ask us for advice and guidance in formulating policies and processes for using market data to inform and manage their compensation program.  The questions range from “What percentile of the data should I use?” to “How should I take inflation into account?”

The answer is to refer to your remuneration framework (aka compensation policy).  Your framework should address the key issues you need to sort out, along with practical steps to move from market data to salary scale.  Here are some tips.

Top Ten Features of a Well-Designed Remuneration Framework

Here are the top ten things that form a solid basis for a well-designed remuneration framework:

  1. Cost of Labor vs. Cost of Living. Salary setting is essentially an application of supply and demand to the labor market.  While managers and employees like to think that inflation is important, data shows that there is little or no correlation between labor market increases and inflation.  So stick to cost of labor, not cost of living for your policy.
  2. Credible Market Sources. You need market data to assess your competitive position.  Use a professionally-conducted salary survey.  Resist the temptation to rely on internal mechanisms such as the “call around” to your peers to see what they’re paying. Not only is this time consuming and fraught with pitfalls, in many countries, it’s illegal to share salary information.  A neutral third-party survey provider will insulate you from these risks.
  3. Solid Job Classification. Despite reports to the contrary, job classification is alive and well, and good practice requires its use.  Comparing jobs is not like comparing a can of peas.  Each organization defines roles differently, so job comparisons are hard.  This is true when comparing jobs internally in your organization, and externally in your market.  Job classification is a systematic and objective way to determine which jobs are equivalent to which other ones, along with building a hierarchy of your organization.  There are many good ways to apply job classification, but before you think about that, be sure you have a robust classification standard in place.
  4. Know Your Market. Organizations should define their ideal comparator group to include peer organizations within their sector, and across all sectors, with whom you compete for talent.  Limiting your comparators to your own sector is unwise. In most developing countries, sectors are too small for meaningful sector cuts.  And even when they are possible, comparing across different market strata is a fool’s exercise.  Instead, focus on those employers in any sector, including the international public sector, that target the same strata as your organization.  If you are a leader, you should compare to other leaders. And remember, your sector is not an island.  Even if there is good sector data available, as you will find in more developed markets, it is useful to compare sector data to general market practices to understand the actual differences.
  5. Total Compensation Approach. There are many parts of total compensation, and there are wide variations within countries and from country to country.  The only practical way to determine your market position is to use total compensation.  If your total comp is right, then you can “unscramble the egg” into the components your company chooses to offer.  If you look at things component by component, it will be almost impossible to achieve your desired target.
  6. Annual Updates. Labor markets are dynamic.  In developing countries, where we do most of our work, the amount of change we see during the year is significant, so much so, that we update our survey data three times a year.  Even in more stable, slow growth, developed economies, it’s helpful to look at the market at least once per year.  Remember, markets are not static – there could be new competitors emerging in previously non-existent sectors, for example, which cause market disruption.  Or a big company could open a new facility and try to poach all the key talent from the market.  With access to current data, you are in a stronger position to know what’s happening and how best to react.
  7. Use Local Currency. With just a few exceptions around the world, such as distressed economies or countries where civil unrest is ongoing, staff compensation should be determined in local currency, without any hard links to foreign currency benchmarks (e.g., US dollars, Euros, British Pounds, etc.).  If you don’t believe me, we should talk so I can convince you.  And you should have a Special Measures Policy (see number 10 below).
  8. Go GLOCAL – Global Standards but Local Adaptation. Organizations often formulate policies on a global basis without enough consideration of local practices.  The world is a messy place and compensation practices vary according to many factors, including local culture, level of economic development, historical practices, and a host of other reasons. Reserve some flexibility to address the market differences that exist which require wider pay spans and variable increase percentages between grades depending on the market.  Pay curves are much steeper in developing markets than in more mature ones.  If you acknowledge this, then your global standard formulaic approach won’t deliver the results you need.  In these situations, trust your local experts – they usually know what’s common in their country.
  9. Ageing of Data. Survey data is always a snapshot in time, and always retrospective, not prospective.  There are many approaches to age data forward to anticipate some market movement that is not already reflected in the survey.  It’s a good practice to make these adjustments.
  10. Address Special Circumstances. We believe every employer should develop a policy outlining specifically what steps will be taken if an unforeseen or uncontrollable event occurs.  Whether it’s economic (inflation, devaluation) or non-economic (natural disaster, civil unrest, ongoing conflict, etc.), your managers and employees want to know, when something bad happens externally, what their employer will do. It’s a real competitive advantage to have a policy in place for such circumstances, to provide clear, transparent information to all those affected, and enable your organization to act quickly and lead the market in responding to the crisis.  Yet few employers have taken the time to develop a Special Measures Policy to do this.  You probably have a crisis management plan in place for other functions, but I bet it doesn’t address these fundamental issues that become especially important to staff when a crisis occurs.

So there you have it – our top ten features to include in your compensation policy to help manage it in a market-driven, cost-effective and professional manner.  It takes time and discipline to do this consistently, but don’t be afraid to try.  Of course, professional assistance could increase the capacity of your organization to deliver and fill in any technical gaps you may be experiencing.

Birches Group specializes in the study of work – how work works.  Our Community™ Platform includes job evaluation, labor market data, skills assessment and performance management.  Through a combination of consulting, simple to use software and our focus on jobs as the core element for every employer, we assist organizations in optimizing their workforce design and ensuring their competitive goals are achieved.

We conduct multisector market surveys in 155 developing country markets, including all of Africa.  In addition, we offer a specialized survey for international NGOs and those companies organizations involved in international development in approximately 85 countries.

Birches Group can assist clients through our consulting services in the areas of job evaluation, salary scale design, compensation policy development (including special measures), as well as support for skills development and performance management.

For more information, please contact us.

Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.

Compensation professionals all use salary surveys as inputs into the management of salaries in their respective organizations.  As we all know, surveys capture market data for benchmark jobs – representative positions that are commonly found across many employers – and this data is then used to inform about other (non-benchmark) roles.

As a survey provider for high-growth and developing markets, Birches Group is focused on countries with smaller markets, fewer employers, and a myriad of different jobs, often defined differently from employer to employer.  In our surveys, we capture occupationally-specific data as a reference, because our clients demand it.  But are these references really valid or meaningful?  Below is an example from Côte d’Ivoire:

You can see that the range of pay provided by job family (green columns) closely matches the overall data at the 50th percentile of the market (grey rectangle).  The incumbent average data also varies a bit by job family, but clusters within the market range.

We would argue that fewer jobs might serve clients better. Here’s why.

Let’s suppose you hire three new staff this week – one in finance, one in marketing and one in engineering.  All three are placed in the same salary band in your company, say band C.  The starting salary for each is determined in accordance with your policy, and takes into account several factors, such as experience, education, past salary history and scarcity in the market.  You might also consider internal equity and compression issues.  In the end, all three individuals are successfully recruited and placed at three different salaries in band C, all within the lower half of the range.

Fast forward to the first pay review for the same three individuals.  What factors are used to determine their pay movement?  Performance?  Budgets?  Compa-ratio? Relationships with the boss and peers? Internal equity?  Yes to all of these.  Now how does their specific job role or occupation factor into the calculation?  Not at all!  You treat all the band C employees the same when applying your merit pay policy, don’t you?

Companies typically have generic pay bands.  Jobs with comparable value to the organization are placed in the same band, regardless of occupation or role.  Pay movement for individuals within the band is based on many factors, but it is company parameters and individual characteristics, not job or occupation, that determine pay progression.

If you agree with this conclusion, then what follows is even more important.  The occupational differences reported by most surveys, while certainly interesting, do not actually mean that the reason for the difference is related to the occupation or the role.  Rather, it illustrates that for any job, there is a range of compensation that varies according to individual circumstances.

Companies build their generic pay ranges by carefully selecting representative benchmark jobs across each job family.  They look for multiple sources of data for each benchmark job and often create elaborate calculations, with weightings of various sorts, and using different percentiles of the market data, to establish the final going rate.  This is then used to build a structure for all of the jobs at that grade in the company.  By blending data into a single going rate, you are in effect, using generic data for your structure.

So, why not simplify your life, and use generic data to start with?  Our grade averages report (other providers refer to them as level reports or roll-ups) provides all of the information you need to build a structure.  Because all job data we collect is included, even those positions with insufficient data to be separately reported, the sample size is the largest and most reflective of the market practice.

Best of all, you no longer have to wring your hands about what to do if you cannot match enough specific jobs to the survey.  As long as you know how the survey provider levels map to your internal grades, you’re good to go.

It’s time to rethink how surveys are conducted and used, and admit that false precision and complex processes are misleading and wasteful.  De-emphasizing jobs is the first step.  We will share more ideas in future articles.

Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.

More and more companies are consolidating operations into regional centers, using a base in one country to manage businesses in multiple markets. This makes good sense for several reasons:

  • Efficiency – regional offices eliminate duplicate resources and allow organizations to focus on customer-facing positions in smaller markets.
  • Expansion – a regional approach allows for gradual expansion into new markets, permitting “testing of the waters” before entering a market.
  • Local knowledge and expertise – staff in a regional center are usually familiar with more than one of the markets in the region, so can often help bridge market, language and cultural differences.

Regional offices sound like a great model for many companies. But how does a regional role impact compensation? This is a subject of considerable debate amongst compensation professionals.

Here’s my take:

Regional roles should be benchmarked against the market where they are physically located. So, a regional role based in Kenya, focused on East Africa, should be compared to the Kenyan market. Now, I know some of you would suggest I’ve got this wrong — you think a blended approach using data from multiple countries would be better. Why?

A blended approach could result in a lower number since lower-paying, less developed markets come into the mix. In the East Africa example, would you include Ethiopia? Rwanda? Tanzania? Uganda? Burundi? In Central America, would you look at data from all six countries for a position in El Salvador?

I believe a better approach is to use local market data for the regional office location. It’s usually the largest and most sophisticated market and typically has a more robust (but not necessarily the highest-paid) labor market. But how do you match regional jobs with local country roles? What if there are insufficient regional positions in your survey for a good measure of the market?

The simple solution is a regional “premium” which usually takes the form of an increased grade level. For example, in Kenya, if a country-based Brand Manager is an internal grade 8, a regional Brand Manager might be slotted as a grade 9. This reflects a premium for the regional role to compensate for added complexity, multiple market coverage, more customers, etc. You may debate if this is enough — that really depends on your business and how the jobs are actually structured.

This is a better approach because you end up using solid benchmarks to build your country market profile, and then overlay the regional jobs using mostly internal criteria. This makes sense because each organization structures their regional roles a bit differently, and none are really solid survey benchmarks.

Another point-of-view argues that a regional position competes for talent across many countries, so all of the countries are appropriate to consider in deciding on compensation levels. But, each country market is separate, impacted by multiple factors besides availability of talent. Consider standard of living, exchange rates, tax and social insurance differences and benefits, to name a few. It’s impossible to reconcile these factors into a truly blended regional pay rate, unless you are willing to just take the highest country as the starting point. Even if you could create a blend using multiple country data, there is a high likelihood that for more senior level professional roles, the sort that are usually regional, there won’t be clear benchmarks from every country of the region used in your blend.

One more issue to think about is how to treat foreign nationals in a regional office. Most regional offices will recruit nationals from neighboring countries. Are these incumbents expats, even if there is no possible role for them in their home country? Many will have previously migrated to the regional office headquarters and are then hired; will you provide any special benefits? How should expenses such as schooling be treated, especially if languages are different (for example, a Uruguayan in Brazil, or a French national in Germany)?

My view is “it depends.”

It depends on each unique situation, and sometimes it will be necessary to provide something extra. Generally, though, I would discourage treatment of locally-hired foreigners as expats, and even for those recruited from the region, a modified local-plus approach makes more sense for the company.

By now, you are probably thinking that this stuff is getting really complex. You’re right – this is a complicated subject. What is your experience managing pay for regional roles? What pitfalls have you encountered? What are your “better” ways?

Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.

Most human resources professionals are familiar with salary surveys. Consulting firms around the world offer labor market data and have been doing so for decades.

And, you would agree that offering a competitive compensation and benefits package is a key element in attracting talent to your organization and retaining and motivating that talent towards the achievement of your organization’s mission.

So, isn’t it odd there are still many organizations that don’t participate regularly in salary surveys?

Are Salary Surveys Even Worth It?

Some organizations believe salary surveys are luxuries – expenses with little value – and so choose to do without them.  Others simply purchase surveys on an ad-hoc basis when acute pay issues are encountered. Without regularly updated labor market information, organizations are unable to make informed, data-based decisions on pay – relying instead on anecdotal ‘evidence’ from staff and managers (who hasn’t heard: “Well, in Company X they pay Y dollars for that job?”).  Participation in salary surveys – especially for global organizations – is critical. 

It’s a big world.  Compensation and benefits packages, the rate of market movement, and general labor market conditions vary greatly from one country to another.  For organizations that don’t participate regularly in salary surveys, what they know about the labor market can easily become outdated or inaccurate.  Basing pay decisions (often one of the highest expenditures in an organization’s budget) on outdated, inaccurate assessments of the market simply because salary surveys are expensive, or relying on word-of-mouth market information, is – as the saying goes – penny-wise and pound-foolish.

But when it comes to surveys, what is it that you are paying for?

One Size Does Not Fit All

Many consulting firms that carry out yearly salary surveys take methodologies designed for large, developed labor markets (e.g. the US) and apply the same approach in developing countries (e.g. Uganda).  But there are big differences between developed and developing markets, as shown in the table below:

As you can see, there are some important differences between developing and developed markets.  The salary survey you choose should apply a methodology that accounts for these differences and captures the nuances in each country.

One of the most common mistakes companies make in developing markets is seeking only sectoral data.  There are several reasons why this doesn’t work:

  1. The sectors are too small.  There are insufficient employers for a meaningful sample.
  2. The sector is highly stratified.  There could be enough employers in a sector, but only a few are leading the market and the rest are well-below those levels.  The data is skewed low.
  3. You ignore other prominent sectors.  In developing markets, the leading employers across sectors will provide a richer market position than a single sector view.

Don’t overlook the international public sector, such as embassies and multi-lateral international organizations, and international NGOs.  These organizations are well-structured and provide competitive packages.  They recruit a lot of the same talent most large, global companies seek.

Birches Group Knows What Works in Developing Markets

Birches Group has been conducting salary surveys in 150 developing countries globally for almost fifteen years. Recognizing the limitations of traditional, developed-market-based survey methodologies, Birches Group tailored its approach to meet the requirements of developing markets:

  • Developing markets are dynamic and fast-moving:

We update salary survey data three times a year in order to reflect the most current data from participating employers.

  • Labor market competition is multi-sector:

We gather data from targeted, leading private industry companies (both local and multinational), embassies and governmental organizations, and international NGOs.

  • Job matching expertise is highly variable:

Birches Group specialists match your jobs, ensuring a high level of accuracy and consistency in our survey data.  The whole data collection process is streamlined and customer focused.

We Don’t Stop There

Birches Group’s new Community™ Market Compensation and Benefits Survey Report provides comprehensive labor market data in 150 countries in a standard format that is simple, concise and easy to use, and consistent across all survey locations. Each report comes with an Executive Summary that identifies your organization’s placement in the market (i.e. how far ahead or behind you are) and how aligned you are with market practices in terms of benefits. Further, all annual subscriptions come with a free custom cut that allows you to select a sub-group of organizations, so you can target the ones that are of most interest to your organization.

We are available to assist salary survey participants in interpreting the salary survey report, selecting their custom cut of participants, and extending their use of survey data to salary scale design. Visit our website to learn more.

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

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