As the economies of China, India, and the rest of Asia blossom, multinational companies are scrambling to set up their offices in these regions and make the most of the qualified and experienced local work force. However, when a recent survey was conducted amongst businesses having offices in different regions of the world, it was found that Asia emerged as the region that presented the greatest challenges to developing their global compensation system.
Here’s a brief overview of the compensation and benefit challenges in Asia that most companies face:
Centralized vs. Decentralized global compensation structure
Though a centralized compensation structure is easy to manage, many MNCs these days are opting for the decentralized compensation structure as they believe the latter to be better suited for doing business in different locations that have diverse economic development, culture, laws and regulations. However, while opting for a decentralized compensation structure in Asia, several other factors like the standard of living and role of labor unions should also be taken into consideration.
To begin with, living standards in certain regions of Asia are still very low, where inequality between living standards and salaries lead to increasingly bold industrial actions and demonstrations by labor activists. So, such union influences need to be taken into account while determining wage policies. While in some parts of countries such as India, unions negotiate pay rates for its workers, some other countries like Hong Kong have, by contrast, weak labor unions, which is why the free market determines the wage rates. So, apart from deciding on the type of compensation structure to adhere to, negotiating deal with labor unions or fixing a pay structure in accordance with market norms is a big challenge for companies having their offices in Asia. Those following a decentralized global compensation structure also have to grapple with the question of what should be the unit of structural organization — business unit, geographic, or a combination of both.
Fixing base salary, cash compensation and equity programs
The quest for skills and talent has inflated salaries considerably in some parts of Asia like India and China. Since skilled labor is easily available in these countries, ‘’brain drain’’ to developed countries is a major problem. So, companies need to devise their compensation and benefit plans to motivate and retain this volatile group of professionals. In fact, many companies now emphasize on the motivation function rather than attraction and retention, which were the preferred parameters earlier. So, apart from determining salary and compensation on these lines, companies these days also need to think about various types of equity programs like performance share plans, stock options, employee stock purchase plans etc.
Assessing motivational use of rewards and incentives
Unlike Americans for whom money acts as the driving force, people of many Asian countries attach great importance to other factors like prestige, independence, and influence, in addition to financial incentives. Since such cultures emphasize on family, respect, a satisfying personal life, job security, advancement, social acceptance, or power, which often act as alternatives to money, HR professionals need to match the rewards with such values.
As companies attempt to manage human resources across national boundaries of Asian countries, they need to deal with the above mentioned complex components of benefits and compensation challenges.