Compensation mantra

Compensation mantra

Its key for firms to find the right matrix of payment

Compensation mantra

Since compensation practices vary among countries, this undertaking is particularly challenging.

Mandated salary increases, profit sharing, additional payments for holidays or bonuses ranging from 12 to 16 months, and allowances for meals and transportation are just some of the pay schemes that vary from country to country.

“It is necessary to understand the different mandatory and customary pay practices among countries to cost-effectively manage a global workforce,” said Rebecca Powers, a principal with Mercer.

“Multinational employers should first develop a global perspective and then interpret it in light of the pay practices and requirements in each country. This ensures a consistent and rational global reward strategy that is relevant and workable in the local markets where they operate,” she added.

Mercer’s Compensation Plans around the World guide for multinational organisations summarises compensation practices and regulatory variations in more than 45 countries.
The report includes remuneration practices such as typical pay components, including mandatory salary increases, cash payments for transportation, meals or holidays, number of months of pay, mandatory salary increases and frequency of salary increases.  
Mandatory salary hikes

While the report constitutes a general guide that helps HR professionals identify compensation practices and regulatory issues, it is not a substitute for local legal advice and detailed research into local practices and requirements. As multinational organisations strive to manage global employment costs, one factor that continues to pose a challenge is that of mandated salary increases. In the Americas, for example, most countries, including Canada, do not mandate salary increases.

In Brazil, however, union agreements commonly dictate mandatory salary increases while in Colombia salary increases are required only for employees making minimum wage. The United States does not mandate salary increases for non-union workers although unionised workers may have a salary increase provision in their labor contract, but not required by the government.

In Europe, salary increases are often dictated by collective labor agreements. While salary increases are not mandated in Finland, Germany and Sweden, for instance, they often are included in collective agreements.

Additionally, in Turkey and Denmark, salary increases are required for companies that have unionised workforces. In Greece, they are mandated only for employees paid minimum wage. Other European countries, including the United Kingdom and Poland, do not have mandated salary increases.  Most of the countries in Asia Pacific, like in the Americas, do not mandate salary increases. Thailand, Japan, Indonesia and India are among these countries. In Malaysia, however, pay increases are required for unionised and blue collar workers.

“Part of the challenge of cost-effectively managing a global workforce is reconciling the company reward strategy with the many local practices,” Powers said. “When pay practices are mandatory there is no choice but to comply, but when a company’s reward strategy is at odds with the typical local practice the company must think through how each approach will position them in the local market. While it is often best to adapt to the local approach, there are times when following the global strategy can differentiate an employer and make them especially attractive to the most desirable employees.”

Compensation differences

Besides mandated salary increases, other compensation practices that differ by country include additional guaranteed cash payments (payments provided to employees beyond salary but independent of performance) such as cash allowances for transportation, meals or holidays. In the Americas, for example, there are countries that mandate additional salary payments comprising of a 13-month salary payment, holiday bonus or profit sharing payout.

In Argentina a 13-month salary payment is required by law while in Brazil companies are required to pay a vacation bonus and provide a 13-month salary. In Mexico and Puerto Rico, holiday bonuses are mandated. Additionally, in Mexico profit sharing is mandatory.

Transportation allowances (reimbursement for public transportation or a car stipend) are common in Brazil, Chile and Colombia, but not in the United States or Canada. Meal allowances (lunch vouchers and cafeteria meals) are mandated in Venezuela.  

Within Europe, some countries including Italy, Portugal and Spain mandate additional salary payments. In Italy, for example, nearly all companies provide a 13-month salary to all employees while other companies provide a 14-month salary. Portugal and Spain mandate 13-month and 14-month salaries, respectively.

Belgium, France and Norway mandate an allowance for transportation. While the practice of providing company cars is common in some European countries, including Belgium and Ireland, the practice is not as prevalent throughout the region as it is in the Americas.
In Asia Pacific, some countries, including India, Indonesia and the Philippines, mandate additional salary payments. In other countries, such as Hong Kong, Singapore and Taiwan, 13 or 14 months of salary is common, while still in other countries, such as China and Malaysia, additional salary payments exist but are less common. Although a car benefit and an allowance for meals is common practice throughout many Asian countries, these pay practices are not as prevalent as a transportation allowance.