MGTO 630BManaging People Globally for Competitive Advantage

Network Co-ordination: Cross-boundary teams, Global Network Co-ordination: Cross-boundary teams, Global Performance Management: Development and CompensationPerformance Management: Development and Compensation

Saturday, March 15, 2003Saturday, March 15, 2003

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.

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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

3Source: John Kotter

Why Networks?

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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

S

R

Q

P O

X

W

TY

Z

B

C D

E

F

A

D

K

N

M L

H

IJ

G

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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 team’s finding to rest of class (3 minutes each).

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Source: Who Needs a Boss?, Fortune Magazine

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 Johnsonville’s 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.”

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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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Black & Decker’s ADP initiative

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

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

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International CompensationInternational Compensation

Problem: Salary levels for same job differ among

countries in which a global co. operates Objectives:

Attract & retain int’l 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 (Source:U.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 25Belrus: Minsk 20Brunei: Bandar Seri Begawan 15China: Chengdu 25China: Shanghai 10Indonesia: Jakarta 25Greece: Athens 5India: Calcutta 20Mexico: Mexico, D.F. 10Moldova: Chisinau 20Paraguay: Asuncion 5Russia: Moscow 15Saudi Arabia: Riyadh 20Venezuela: Caracas 5Yemen: 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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Int’l Compensation - cont.Int’l 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 US$80,000, tax rate: 28% in US, 70% in Belgium)

$35,000

$6,000

$22,400

$10,000

$73,400 $67,600

$9,500

$56,000

$10,000

$143,100

$32,600

$3,500

$33,600

$0

$69,700

$0$20,000$40,000$60,000$80,000

$100,000$120,000$140,000$160,000

Chicago Brussels (US $Equivalent)

Allowance

Housing and Utilities Goods and Services Taxes

Discretionary Total

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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 Cooke’s plan What alternatives can you recommend

Part C How would you deal with the Bandits?

High Technology Incorporated

International Compensation isn’t only about expatriates; it’s also about local compensating in all markets where a firm operates. Here’s 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 firm’s strategic goals

Challenge: Manage multiple deals

Here’s how PepsiCo does it…

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PepsiCo InternationalPepsiCo 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

Benefits as % of Total Compensation

30.130.8

31.6

32.4

33.2

28.0

29.0

30.0

31.0

32.0

33.0

34.0

1994 1995 1996 1997 1998

Year

Per

cent

Benefits/Perqs

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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

58%

11%

7%

14%

10%

North America Asia Middle East / Africa Latin America Europe

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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, Cont’d.

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

CORECompetitive cashBasic benefitsPerf-based payEmployabilityWork challenges

CUSTOMIZE

Base/bonus mix

Stock options

Flexible schedules

CHOICE

Assignments

Tax deferral

Benefit choices

Stock purchase

Base/bonus mix