Healthcare is a large successful global player in the pharmaceutical market, which is over 100 years old. Their headquarters is located in Germany and today there are 200 subsidiaries and roughly 30 000 employees worldwide. Healthcare concentrates on a few business areas such as oncology or dermatology. Within these business areas the firm is recognised globally as one of the industry’s leaders.
Wolfgang Hansen is the newly recruited HR manager at Healthcare. He has been placed in charge of global compensation policies. His first project is reviewing existing policies and practices. He has been asked to make a series of recommendations on further coordination of global pay systems at the next meeting of the board directors.
Healthcare’s aim was to have the same compensation policy in each country. They wanted to have the highest possible degree of standardisation in order to make transnational processes easier and more efficient. They planned to split the salary in two parts: 65 per cent fixed income and 35 per cent variable income depending on individual performance. The plan was to introduce the system not only for managers but also for all employees.
In designing the compensation system, Healthcare’s management board had only considered economic issues, while disregarding existing, yet unspoken cultural frames of reference and perceptions. As a consequence, several regional HR managers and employees vocally opposed the system and implementation was never realised.
Wolfgang knew he had to be careful to avoid oversimplification and an over standardisation, and develop a more country-specific system which could be adjusted to local characteristics. He knew how important it was to include his HR counterparts from the different countries and regions in the process of further developing the HR policies and systems.
Wolfgang’s task is to find the right mixture of standardisation and flexibility. On the one hand, he has to implement a new compensation system in order to reduce costs. On the other hand he has to take into account the traditional HR practices.
Broadly, there are two main HRM issues that Wolfgang needs to address:
• Standardisation vs. local responsiveness of compensation systems
• Job-based vs. competency based compensation
Standardisation vs. local responsiveness of compensation systems
According to Dowling (2013) the aim of global standardisation of HRM practices is ‘to reach consistency, transparency and an alignment of a geographically fragmented workforce around common principles and objectives’. Dowling also states that the aim of realising local responsiveness is ‘to respect local cultural values, traditions, legislation or other institutional constraints such as government policy and/or education systems regarding HRM and work practices’.
However, Dowling mentions that attempting to implement methods and techniques that have been successful in one environment can be inappropriate in another. Therefore it is essential to understand the importance of balancing standardisation with local responsiveness.
Figure 2 demonstrates how Healthcare ‘balances’ global integration (standardisation) and local responsiveness in their current compensation strategy.
In order to reduce costs, Healthcare should continue its global performance system for top managers worldwide and their standardised bonus system for top executives to strengthen the performance culture in the company and facilitate a common orientation for all managers. However, for all other employees, individual performance aspects should be locally adapted. In regards to this, the proportion between the fixed and variable part of the total compensation package should also be adapted to the country specific conditions. The need for this relates to different cultures having varying levels of risk aversion. Hofstede (2011) describes how values in the workplace are influenced by culture. Uncertainty