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MGTO 630B Managing People Globally for Competitive Advantage


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Title: MGTO 630B Managing People Globally for Competitive Advantage

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
By the end of today class, you should be able to
  • Apply the concept of network to the transnational
  • 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

Why Networks?
Source John Kotter
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

The Importance of Networks
Figure 7-2. Coordination Mechanisms
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?

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).

  • 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
Obstacles to Effective Teams
  • Weak sense of direction
  • Infighting
  • Shirking of Responsibilities
  • Lack of Trust
  • Critical Skills Gaps
  • Lack of External support

Overcoming the Obstacles
The role of appraisal and development in building
effective cross-boundary teams
  • Black Deckers ADP initiative

Performance Management is more than just
appraisal and development compensation is also
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
  • Provide reasonable compensation relative to

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)

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//
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
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

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

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

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

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

PepsiCo Spain
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

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

PepsiCo Worldwide Beverage Volume
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

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

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
  • 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

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)

Your recommendations for
  • Leadership markets
  • Critical mass markets
  • Sub-scale markets

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