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C o m m entary
Equitable compensation and the
Canadian multinational corporation
Deciding whether to provide Social policy: This plays an Increasing their discretionary income
similar levels of pay for work of important part in influencing would improve their standard of living,
equal value is a natural consid- pay. For example, Canada has but is this reasonable for one group of
eration for Canadian compa- seen significant increases in the employees and not others? Why wouldn’t
nies with operations abroad — compensation of mining execu- Canadians ask for something similar?
internal equity is a key platform tives as they are free to leave Fairness may not just be a question of
for human resource strategy. and work in higher-paying ju- pay: it may also mean what that pay can
However, a number of chal- risdictions. Other reasons buy. In addition, how will the company
lenges must be surmounted, By paul pittman
might include the level of (and respond to investors when asked why it
which raises the question: Is special to the who pays for) the social safety pays more than what is required to at-
northern miner
this a noble cause, or a fool- net. The U.S. government, for tract and retain supervisors in the local
hardy gesture? example, unlike Canada, plays competitive market?
In looking at what “similar pay” actu- a limited part in subsidizing health care Paying employees the same amount
ally means, it’s important to look at why or tertiary education costs for working for doing the same work — irrespective
there are differences in pay for the same individuals, thus putting more pressure of local competitive pressure — is, there-
job in different countries: on pay levels. fore, probably not a sound approach.
Talent supply: Labour is not free to Location: The attractiveness of a loca- However, there are occasions where
move at will across international bor- tion may have a discounting effect on moving towards the same pay for certain
ders. And while this is changing, at dif- local salaries. For example, Canada has types of skills may be prudent.
ferent times countries will have short- lagged international competitive pay For example, an international organi-
ages of certain skills that cause levels despite higher taxation, and many zation may have a pay philosophy that
competitive pay to increase at different considered this to be because Canada advocates a global pay scale and equal-
rates. — with its open spaces, safe cities, high izing absolute discretionary income for
Costs of living (including housing): As human-rights standards, education and the executive team. Why? Because they
a general rule, in free-market economies, health care — is a first-rate location for are globally mobile and capable of being
salaries rise in relation to the prosperity families. hired by anyone, anywhere. As a result,
of the economy and underlying inflation. the amount available for lifestyle items
This will differ by country and over time What is ‘equal’? and services (such as cars or vacations)
has resulted in significant variances While the sentiment may be noble, pay- is at a similar level irrespective of loca-
among countries in compensation levels ing the same rates for similar jobs in dif- tion, and executives from low-paying
for the same work. In the last 20 years, ferent jurisdictions can have unintended countries don’t feel discriminated
however, with more goods and services consequences. For example, “equaliz- against.
available on a global basis, differences ing” the pay between Mexican and Ca- That same company might want to
in costs for the same goods have begun nadian supervisors would almost cer- equalize pay for senior managers be-
to diminish. tainly mean paying the Mexicans more. cause they are successors to the execu-
Payroll taxes: These include income Mexican salaries at this level are lower tive team and mobility is a scarce com-
tax, social security and other state-initi- because the competitive pressures are petency. This would retain managers
ated deductions from pay. While not fewer, Mexican supervisors are unlikely with a successful international transfer
directly impacting gross pay, they cause to (be able to) move to competing juris- record who have skills or experience
indirect upward pressure on pay when dictions, and their standard of living is useful to international growth.
net pay is reduced. lower. Expanding internationally introduces
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a number of considerations that don’t 2. Assignment of one to three years: home base (or encouraging employees
exist when dealing with operations in a Future career plan: At end of assign- to move overseas), the employer may
single country. Employees at a newly ment, return to home location and un- need to go beyond its traditional com-
acquired overseas subsidiary may ex- likely to move abroad again; likely to pensation philosophy and pay compo-
pect to be paid at Canadian levels, and have a series of overseas assignments. nents.
human resources will need to have a Pay philosophy: Home country salary What do we need to pay to attract, re-
prepared response. Equally, if the new with expenditure components protected tain and motivate? Research gross and
operation is in a higher-paying location for high costs in host location, such as net competitive pay levels in the host
than Canada, human resources will need housing, taxes, goods and services; may location for the skills you need to retain.
to know how to respond to Canadians also recover amounts representing less Determine to what extent you will rec-
seeking parity with their new interna- costly expenditure in host location, such ognize any differences, how you will do
tional colleagues. as equalizing housing or taxes to home that and whether an incentive is required
An international compensation policy country; to reinforce mobile nature of to motivate mobility.
should similarly address the philosophy career, sever compensation links to Are incentives aligned with strategic
and practices behind how relocating em- home country and provide an interna- goals? Ensure assignment goals are
ployees are to be treated. The approach tionally competitive salary; reimburse clearly documented and agreed to, and
must be informed by the needs, nature additional costs of temporary housing that they are appropriately incentivized.
and goals of the business. Employers and any double taxation (not equalize); For example, if completing the assign-
have developed numerous iterations, international assignment objectives ment is critical to your business, con-
but the traditional method of keeping should be included in regular short-term sider a completion bonus.
employees “whole” and reimbursing incentive goals; subject to numbers and While equity and pay equity are im-
every extra expense that may arise is locations, may involve a global employ- portant principles when considering
rapidly being replaced with more holis- ment strategy or company. employee compensation, it becomes
tic and less administratively cumber- 3. Assignment of indefinite length: more complicated across international
some and costly approaches. Future career plan: Likely to remain in operations. At senior levels, there may
Here are three examples of pay strat- host location. be competitive justification to equalize
egies for expatriates at an international Pay philosophy: Host location pay some or all of the key components of pay,
organization: scale and incentives; additional, fixed but, as a general rule, this will create
1. Assignment of less than one year: offshore amount to retain total in-line more challenges than it resolves.
Future career plan: Likely in home with former home country compensa-
country; may be high-potential; unable tion, if required. — Paul Pittman is senior partner and
or unwilling to relocate; temporary as- When administering pay in an inter- founder of The Human Well, a collabora-
signment will reflect temporary need for national context, the approach must re- tive HR consulting practice with global
short-term specialized skills in host loca- flect and align with a company’s business clients. He previously held executive se-
tion; possibly may repeat this approach values and culture, industry practices nior HR positions with Alcan, RJR
in other locations. and serve the goals of the business. Fun- Nabisco-Japan Tobacco and was the lead
Pay philosophy: Home country pay damentally, the issues remain the same partner for the Human Capital practice
scale plus temporary allowance and per as when managing domestic compensa- for Andersen-Deloitte in Canada. For
diem for expenses or international con- tion: more information, visit www.thehuman-
tract scale; permanent or fixed-term Do we have the right skill sets to achieve well.com. This article first appeared in
contract reflecting progression poten- the tasks required? If this means attract- Canadian HR Reporter.
tial within company and industry norms. ing employees from overseas to the
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