Human Capital & Careers

Multinationals Centralizing Pay: Survey

Global companies with concentrated compensation systems in place reported higher levels of effectiveness than do companies with decentralized plans.
Lisa YoonOctober 28, 2004

Multinationals with centralized compensation systems report higher effectiveness levels than those with decentralized structures, according to a new survey conducted by Watson Wyatt Worldwide, the human resources consultancy, and WorldatWork, an organization for compensation professionals.

The survey’s authors, who asked 230 multinationals about their compensation strategies and methods, found that companies with centralized pay systems report higher levels of effectiveness for their plans than do companies with decentralized plans.

Consider that of those with centralized compensation in place, 58 percent rated their payment structures as “very” or “mostly” effective. On the other hand, just 36 percent of employers with decentralized structures were as sure of their pay structures’ effectiveness. (Forty-nine percent of the companies currently have centralized compensation structures.)

Many multinational companies seem to be moving toward more centralizing compensation structures, the study also suggests. Fifty-nine percent of the companies with decentralized compensation structures expect to centralize their structures in the next two years, the study found. Further, 23 percent of companies with centralized compensation structures already in place plan to become even more centralized in the near future.

“Companies that want to use compensation to their strategic advantage need to look at the big picture,” said Anne Ruddy, executive director at WorldatWork. “Having the most competitive compensation practices in a given country or region does not guarantee success. The good news is that more companies are making these practices part of a larger, global strategy.”

As for why they’re going central with compensation strategy, employers were mostly looking to maintain a consistent link between rewards and results, according to the survey. Maintaining the organization’s position in the marketplace and promoting internal equity among employees were respectively the second and third most common reasons.

In another survey finding, 55 percent of the respondents reported that, regionally, Asia presents the most challenges in developing a global compensation system, followed by Western Europe (33 percent), and South America (24 percent).

Overall, a forward-looking pay strategy “can help differentiate a company from its competitors, promote overall internal consistency from country to country and, most importantly, drive performance,” said Robert Wesselkamper, director of international consulting at Watson Wyatt. “It’s therefore critical for a global organization to oversee the design and evaluation of its compensation plans around the world from a centralized, all-encompassing perspective.”