Dear Workforce We Strike Deals with Expert Traders Overseas. How Do We Compensate Them So the Business Remains After They Le

Dear Immediate Future:

This situation is a good microcosm of the issues that I find companies face in many overseas jurisdictions, particularly in developing countries. When faced with the task of using compensation to motivate certain behavior, workforce-management professionals in the United States tend to start such a compensation analysis with a job description and a comparison of competitors’ compensation for that job. However, this classic competitive model breaks down in many situations. The breakdown can happen in the United States, but it really falls apart in many overseas locations.

In the domestic area, a good parallel is building a shopping center. After you have your location, financing, marketing plans, etc., you need a developer. Do you look up what you should pay the developer in some compensation survey? Not usually; you look to the projected profitability of the shopping center, and in the give-and-take of business negotiation, you give up some of this profitability to the developer. This really is a kind of partnership.

Move this little scenario outside the United States, and you find that, in many markets, the skill set needed for the successful person in the job is hard to nail down with a simple job description. How do you do a job match for a commodity trader in sub-Saharan tobacco markets? What competitive data do you have for rural lumber-brokers in China or flower wholesalers in Ecuador? The compensation structure to motivate these individuals may really be a partner structure, sharing in the value you both create in that market.

To add to the complexity, suppose that you don’t expect to make money there, but nevertheless, it’s a strategic imperative to enter that market. Maybe you move from the partner model to a “star” model, where you essentially put a price tag on your strategic need rather than on any competitive or profitability analysis.

Set your compensation philosophy for the particular business need (“partnership” or “star,” for example) after you know your local delivery expectations and requirements—taxes, payroll charges, mandatory benefits, in-kind payments, perks and so on. With this model, you can get the significant commitment needed to motivate someone to build a business for you, one that will run and prosper after the individual moves on.

SOURCE: Jim Klein, principal in the Global Compensation & Benefits practice,Deloitte & Touche, New York, New York, February 27, 2004.

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