MGTO 630B Managing People Globally for Competitive Advantage

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MGTO 630BManaging People Globally for
Competitive Advantage
Please note This is only a preliminary version
of the file that will be shown in class.
Depending on the flow of in-class discussion, we
may not be able to discuss all the overheads in
this file.
Network Co-ordination Cross-boundary teams,
Global Performance Management Development and
Compensation Saturday, March 15, 2003
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By the end of today class, you should be able to

• Apply the concept of network to the transnational
  firm
• Develop guidelines to effectively manage
  cross-boundary teams, an important network
  coordinating mechanism
• Analyze the implementation of a global
  performance management system
• Understand the role of compensation in global
  performance management

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Why Networks?
Source John Kotter
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Network Analysis / Theory

• Originally developed in economic sociology
  (Scott, 1991)
• A social network is G (V,R), where V is a set
  of social actors and R is a social relation
  defined over the elements of V. Each element of
  R is a part of elements from V with R ? V x V,
  the Cartesian product of V with itself.
• In other words
• Network analysis is a technique for looking at
  the relationships between people and
  organizations.

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The Importance of Networks
D
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Figure 7-2. Coordination Mechanisms
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Team Effectiveness Exercise

• You are a member of a project team in an MNE with
  a 2-week deadline for completing a project. You
  all have your own jobs in different functional
  areas (e.g., production, design, marketing,
  etc.). While you are working on this team, you
  still have to complete your own work and have
  tight deadlines for doing so. Your team members
  are from Europe, the U.S., as well as Hong Kong.
  They all have the same deadline pressures that
  you have. You feel that your team members are
  more focused on completing their own work rather
  than the team project. Overall, you feel that
  you are carrying all the weight for the team and
  feel that no one else in the team cares very much
  about the project. What would you do to get your
  team on track to meet its 2-week deadline?

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Increasing Team Effectiveness Exercise

• Think about what you would do (3 minutes)
• Re-organize into groups according to place of
  origin (i.e., Europe U.S., HK other Asia (2
  groups) (1 minute)
• Each person in each group presents his/her
  solution to team members (no discussion) (2
  minutes each)
• Team members then discuss solutions, seek
  clarity, evaluate solutions in terms of their
  effectiveness (5 minutes)
• Once agreement has been reached on most effective
  solution, one team member to record and present
  teams finding to rest of class (3 minutes each).

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Teams

• The most important thing to remember about teams
  is that organizing them is a long hard process,
  not a quick fix that can change your company in a
  few weeks. Says Johnsonvilles Stayer, When I
  started this business of teams, I was anxious to
  get it done and get back to my real job. Then I
  realized that, hey, this is my real job.

Source Who Needs a Boss?, Fortune Magazine
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Obstacles to Effective Teams

• Weak sense of direction
• Infighting
• Shirking of Responsibilities
• Lack of Trust
• Critical Skills Gaps
• Lack of External support

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Overcoming the Obstacles
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The role of appraisal and development in building
effective cross-boundary teams

• Black Deckers ADP initiative

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Performance Management is more than just
appraisal and development compensation is also
important
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International Compensation

• Problem
• Salary levels for same job differ among countries
  in which a global co. operates
• Objectives
• Attract retain intl employees
• Facilitate transfers between foreign affiliates
• Maintain consistent relationships at home
  abroad
• Provide reasonable compensation relative to
  competitors

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Expat Compensation Package

• Core compensation
• Base pay
• Incentive compensation
• Foreign service premium (10 - 30 of base pay)
• Hardship allowance (5 - 25 of base pay)
• Danger pay (5 - 25 of base pay)
• Mobility premium (single lump sum payment)

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Hardship Locations Differentials (SourceU.S.
Department of State 2002, The U. S. Department
of State indexes of living costs abroad, quarters
allowances, and hardship differentials April
2000, Washington, DC. U.S. Government Printing
Office. On-line. Available http//www.state.gov
.)
Country City Differential ()
Afghanistan Kabul 25
Belrus Minsk 20
Brunei Bandar Seri Begawan 15
China Chengdu 25
China Shanghai 10
Indonesia Jakarta 25
Greece Athens 5
India Calcutta 20
Mexico Mexico, D.F. 10
Moldova Chisinau 20
Paraguay Asuncion 5
Russia Moscow 15
Saudi Arabia Riyadh 20
Venezuela Caracas 5
Yemen Sanaa 25
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Expat Compensation Package

• Fringe compensation
• Standard benefits
• Protection programs (e.g., pension programs,
  health care, life insurance)
• Pay for time not worked (e.g, vacation, sick
  leave, emergency leave)
• Enhanced benefits
• Relocation assistance
• Educational reimbursement for expat children
• Home leave and travel reimbursement
• minimum stay of 6 12 months before return home
• Rest and relaxation leave allowance

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Intl Compensation - cont.

• 3 types of expat. compensation plans
• Localization - use when home-country exp. is
  limited or with permanent or indefinite
  transfers
• Higher of home or host compensation
• Balance sheet

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Balance Sheet Approach to Expatriate Compensation
Source Adapted from C. Reynolds, Compensating
Globally Mobile Employees (Scottsdale, AZ
American Compensation Association, 1995), 9.
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US expat in Belgium (Annual salary US80,000, tax
rate 28 in US, 70 in Belgium)
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High Technology Incorporated

• Part A
• What are the most important issues facing Cooke?
• How would you define home country?
• How should past service be handled?
• Recommend a revision to the current benefits
  policy that would address the issues presented
• Part B
• What are the pros and cons of Cookes plan
• What alternatives can you recommend
• Part C
• How would you deal with the Bandits?

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International Compensation isnt only about
expatriates its also about local compensating
in all markets where a firm operates. Heres how
PepsiCo does it.
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Strategic Objective

• Customize compensation systems to help create a
  culture attract a workforce that has the values
  and KSAs that support the firms strategic goals
• Challenge Manage multiple deals
• Heres how PepsiCo does it

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PepsiCo International

• Total Compensation Planning survey in 1997
• Compensation practice NOT aligned with business
  strategy
• Performance based variable compensation
  relatively small portion of total compensation in
  local markets
• Benefit costs increasing faster than direct
  compensation
• Perquisites competitively positioned against
  local practices

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PepsiCo Spain
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1998 Total Compensation Planning Recommendations

• Align compensation strategy with business
  portfolio strategy
• Consider region executive pay programs
• Evaluate appropriateness of mix of fixed and
  variable pay in all markets
• Develop specific plans to mitigate growth in
  benefit plan costs

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Aligning Compensation Strategies Against PepsiCo
Portfolio Strategy

• Emerging Markets (Asia)
• Leadership Markets (Middle East)
• Critical Mass Markets (US)
• Sub-scale Markets (EU)
• Compensation strategy based on analysis of (a)
  labour market dynamics (b) PepsiCo labour issues
  (c) PepsiCo HR objectives

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PepsiCo Worldwide Beverage Volume
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Emerging Markets (e.g., India)

• Labour Market Dynamics
• Shortage of skilled workers
• Rapidly changing compensation practices regional
  not national in scope
• Labour regulations often unclear
• Market pricing information not readily available,
  not reliable

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Emerging Markets (e.g. India)

• PepsiCo Labour Issues
• Hiring needs high
• Labour costs either do or will play a significant
  role in operating margins
• HR objectives
• Build stable, trained workforce

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Emerging Markets (e.g. for India) Recommendations

• Develop tailored market specific compensation
  strategies for each emerging market
• Compensation design principles
• Aggressive strategy to attract and retain
  employees
• Target local Q3 total compensation for all levels
  in organization
• Tailor compensation design to maximize local
  attraction and retention value
• Create more highly leveraged compensation system

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Emerging Markets (e.g. for India)
Recommendations, Contd.

• Compensation design principles
• Incorporate local market retention elements in
  compensation design
• Maintain local market cost flexibility
• Continue to selectively use expats during
  start-up and skill transfer phase (preferably
  Third Country National (TCN) rather than US)

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Your recommendations for

• Leadership markets
• Critical mass markets
• Sub-scale markets

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Strategic Flexibility
CHOICE Assignments Tax deferral Benefit
choices Stock purchase Base/bonus mix
CUSTOMIZE Base/bonus mix Stock options Flexible
schedules
CORE Competitive cash Basic benefits Perf-based
pay Employability Work challenges