Standardization vs Local Responsiveness of Compensation Systems - Assignment Example

Case Study Analysis Contents Introduction 3 Discussion 4 Conclusion 11 References 13 Appendices 15 Introduction This case study is centered towards a largest pharmaceutical company located in Europe, known as Healthcare. The company has acquired desirable market share in global market place. Healthcare has its headquarters located in Hamburg, Germany. This organization has a total of 200 subsidiaries around the world. There are around 30,000 employees who work for Healthcare. The company is more than 100 years of age and in its initial stage focus was more on in-house production. However in later stage products of Healthcare was distributed across many European countries and even in Germany. There was global human resource practices followed in the organization. To certain extent, practices were standardized in order to create a uniform platform for all employees. External environment has faced major discontinuities and this has enforced companies to expand their operations globally. These external forces are in the form of increased research and development activities, generic competition and cost containment resulting into price pressures. Healthcare possesses wide array of worldwide activities but it needs to be inclined towards local business activities. Local issues were mainly witnessed in European regions, Latin America, Asia Pacific and Canada/USA. The company had recruited HR manager Wolfgang Hansen on board who was supposed to design effective international human resource strategies. This study has been subdivided into two blocks like standardization versus local responsiveness in context of compensation systems and competency based versus job based competencies. Healthcare’s compensation system would be appropriately analyzed to recommend change features to top management for future human resource development. Discussion Question Block A Question1 Compensation system forms an integral part of any company’s external or internal activities. This term usually carries different meaning for employers and employees. Apart from basic pay, incentives, rewards or fringe benefits can also be stated as the compensation system of a company. Healthcare needs to restructure its overall compensation system as it is not being able to address local issues. There are various factors which tend to affect compensation system such as external environment, business strategy, selection and recruitment, performance appraisal, job analysis and culture or structure. International compensation encompasses three important approaches like going rate approach, balance sheet approach and local plus approach. Going rate approach can be considered as the most suitable theoretical tool to be applied by Healthcare. This approach do not entertain home country package for host countries as well (Schneider, 2007). The major aim of this approach is to initiate equalities amongst all nationals. Going rate approach is all about designing international compensation system based on local market rates. A survey comparison is basically exhibited in this form of approach. Additional payments are included with base benefits and pay mainly for low-pay countries. Wolfgang needs to make certain adjustments within the pay structure. Some pay elements have to be localized shifting them from standardized format. Fixed pay parameter should be localized due to differing currency value. Local issues mainly outline conflict in variable pay structure. This element needs to be shifted towards localization. Employees working in different subsidiaries of Healthcare are more concerned regarding their basic pay. This component needs to be designed as per local standards (Schuler, Dowling and DeCieri, 2003). On the other hand, short-term incentives should not be globally standardized for employees. This is simply because local conditions differ from one region to another. Incentive structure is one of the most essential motivating factors for employees. This structure needs to be shifted along T account but long term incentives can be made standardized. All team members should feel that they are being equally valued by the company irrespective of their job location. Question2 Wolfgang needs to add certain elements in the compensation structure. From the T account the HR manager should delete some components which are not suitable for local responsiveness. It can be stated that group and individual performance is not a major parameter to be included within pay structure. Performance standards should be modified region wise and it can be eliminated. In this position individual performance standards can be included in the T account. These standards will be set as per local conditions and HR policies. Local issues need to be taken into consideration while framing such performance standards. In the local adaptation segment there is a parameter called as broader context component. This factor is useful at regional level when group performance is also included in pay structure. Broader context component should be eradicated from the pay system since it results into lot of conflicts at regional level. Individual performance needs to be the only performance parameter in pay calculation for employees. A variable pay element has been outlined in the pay system of Healthcare. There are different dimensions of variable pay aspect. HR manager can effectively introduce a standard where individual’s performance will be measured on their contributions towards strategic decision making (Kandola, 2005). Those innovative ideas which are productive for the company can be incorporated and this shall be beneficial for individuals. Employees would be given additional benefits for these strategic ideas. This clause can be included in the pay system for international compensation system. From the local adaptation structure, short term incentives calculation based on pay structure needs to be eliminated. This is simply because Japanese and U.S. currency bases are given more importance in comparison to other currency bases. It would initiate wide array of local issues and this shall disrupt international compensation system of Healthcare. Short term incentives and long term incentives are an important part of compensation system and needs to be structured on basis of local regulatory standards (Zanko, 2008). The elements being introduced needs to be either standardized or localized as per current business scenario. Question3 Cultural environment plays an active role in setting compensation structure. The Harvard model of human resource management comprises of certain elements. This model is outlined in figure 1 in appendix. As per figure1, human resource management policies are based on certain external factors. Stakeholder’s interest needs to be included while structuring pay systems. HRM policy choice is dependent on situational factors. These factors comprise of labor market conditions, workforce characteristics, business conditions and strategic development, management philosophy, laws, etc. Organizational effectiveness is largely dependent on long term consequences of human resource management policies. The existing pay system of Healthcare is more inclined towards global workforce management. There are different parameters included in the pay system but it comprises of standard elements. These elements firstly need to be modified since Harvard model states that stakeholder’s interests play a major role (Kazmi and Ahmad, 2001). On the other hand, T account highlights or gives more importance to some parameters. There is a need to alter percentages of such parameters encompassed within T account structure. The percentage given to short term incentives should be reduced to a desirable level. This is simply because it is an additional cost for the company which is not entertained by most of the stakeholders. Its presence is vital for employees but should constitute a small percentage in overall context. On the contrary, long term incentives shall be given more importance in the pay structure. The major reason behind this is it facilitates maintaining a large base of talented individuals. Employees would believe that effective measures are adopted by organizations in long term perspective. More emphasis or percentage allocation needs to be done on group performance rather than individual performance (Paauwe, 2009). This is because team work can be enhanced through this approach which would increase overall organizational productivity. Percentage allocation needs to be shifted from currency base calculation of incentive structure. Local adaptation factor should be enforced on other elements of pay system. Question Block B Question1 The leadership set of competencies comprise of critical competencies which should be possessed by employees. These competencies can be divided into various sub categories such as achievement orientation, change and innovation, and decision making characteristics. Healthcare group’s set of competencies are inclined towards achieving a balance between benefits and risks. Business related competencies are completely different from that of people related competencies. In the later phase, focus is mainly on team leadership, relationship building, influence and impact, and capability development. On the other hand, personal competencies majorly revolve around self-development, possessing a thorough business understanding and having capability of analytical thinking. These competencies should be standardized across all subsidiaries of Healthcare. Different concepts on international human resource management highlight the need for standard competencies in geographically dispersed organizations. These approaches can be defined as ethnocentric, polycentric, geocentric and regiocentric. Healthcare Group is strongly aligned with geocentric approach. In this approach importance is given to all subsidiaries irrespective of their nationalities (Crawford, 2004). Since all of the subsidiaries unique contribution is encouraged so competency communication plays a critical role. The company can communicate these competencies through selected executives appointed at each of the subsidiaries. They would directly report to the headquarters and maintain a level of competencies within all the subsidiaries. Geographically dispersed executives can be influenced to follow such competencies by involving them into decision making process and gathering their innovative ideas in terms of enhancing level of competencies within organizational system. Technology based communication channels can prove to be an effective media for communicating necessary competencies and simultaneously measuring them for all subsidiaries. Question2 In Multinational Corporation, human resource management practices need to incorporate strategic elements. These elements are enhanced through efficient contribution of team members. It can be stated that competencies possessed by team members increase the level of organizational efficiency. Strategic human resource management approach is greatly contributed through organizational and external factors. The concept of strategic HRM has been outlined in figure 2 in appendix. As per figure 2, the overall performance of a firm can be classified into financial performance, social performance and enterprise resilience. Purely competency based approach can be considered as most flexible approach in organizational system. Organizational performance as per figure 2 is increased through effective contribution of team members. Employees are able to contribute towards an organization only when they possess sufficient competency set. Hence to great extent competency plays a major role in enhancing organizational performance and effectiveness. Healthcare in the current scenario is trying to incorporate competency based approach within its system. It shall initiate flexibility within the business system. This is simply because individual’s performance would be based on their set of competencies (Wilson and Iles, 2009). These competencies in turn shall be rewarded or appraised. It would even serve as a platform for all team members since they can contribute their innovative ideas towards organizational development. Competency based system is regarded as most flexible structure because it gives liberty to employees to take their decisions which is later regulated by top management. Question3 Staffing is an important human resource management function. It is important for all organizations to recruit talented individuals on board. Staffing can be defined as hiring right individuals who are able to address organizational goals. There are certain common recruitment methods used by all organizations like parent country nationals, third country nationals and host country nationals. Healthcare has adapted parent country nationals as their recruitment procedure. On basis of this approach the company is being able to maintain their organizational control on employees. International exposure is only given to those managers who have gathered enough experience. Parent country nationals are usually regarded as best individuals since they possess special experiences and skills. Through this approach Healthcare ensures all team members that subsidiaries will be given equal importance like that of home country set up. To a certain extent in such scenario competency based system is most suitable. Flexibility is facilitated when business operations are totally based on competencies. However standardization tends to reduce the level of flexibility in organizational system (Swailes, 2002). Through job descriptions the company has encouraged standardization in staffing activities but it needs to be eradicated. Standardization needs to be done in selection procedure but job roles or responsibilities should have enough flexibility. This can be done through evaluating performance of team members on basis of their competency level. Competencies possessed by employees can only provide an organization with competitive advantage. Healthcare needs to standardize this aspect within its system so as to develop a base of competent individuals. Question4 Wolfgang has a major responsibility in terms of analyzing whether standardization shall be profitable for an organization or local responsiveness. There are some features which need to be standardized such as staffing activities in order to maintain uniformity throughout organizational operations. It is important for Healthcare group to determine contribution of employees towards organization. This can be exhibited through designing behavioral indicators based on competency based elements. The case study mainly highlights three main types of competencies like business related competencies, people related and personal competencies. Global performance level can be enhanced only when all these competencies are appropriately evaluated (Mir and Mir, 2005). Management can conduct group meetings of respective departments so as to initiate strategic decision making. There would be prior parameters set to determine contribution of team members in terms of innovative ideas. Group activities can also be formed by management. Behavioral indicators in these activities would be in the form of leadership skills, team work or collective decision making capabilities. Team members will be ranked on their patience or tolerance level, and ways of communication. Personal competency set initiate an indicator like track record of overall performance in specific time frame. This shall highlight effective contributions made by employees towards Healthcare. In local context, these indicators should address local culture and dimensions. For instance risk uncertainty might be low for some cultures and high for another. Individual performance record would then be altered as per cultural constructs. Wolfgang needs to standardize those processes which are directly associated with company’s objectives like recruitment and selection. However compensation system which occupies an essential part of selection process needs to be localized. Employee related activities can be localized whereas external business conditions can be standardized. This would enable Wolfgang to seek a balance between local relevance and standardization. Conclusion As per the study, Healthcare has been able to secure strong market position due to its wide array of global operations. The company has set its mark in pharmaceutical industry and is now planning to reframe its overall human resource management strategies. Wolfgang as a HR manager has been given responsibility to eliminate local issues related to compensation system. The management in earlier years had opted for a framework which would separate variable pay from basic pay. This resulted into conflicts since employees in different regions were not in favor of this strategic decision. There was a great need to standardize certain components but equal focus had to be given on localization. Local responsiveness would make employees feel that they are being valued by the organization. Staffing activity should always be standardized since it leads to complexity within organizational system. This study highlights that compensation structure should be as per local conditions, to retain talents in the system. Healthcare needs to separate variable pay from basic pay structure. A larger portion would be allocated to basic pay since it plays a key role in employee motivation. Global subsidiaries can be managed efficiently only when employees are aligned with common business objectives and local conditions are taken into consideration by management. References Crawford, L., 2004. The effect of organizational culture and leadership style on job satisfaction and organizational commitment: A cross-national comparison. Journal of Management Development, 23 (4), pp.321-338 Harris, L. C. and Ogbonna, E., 2002. The unintended consequences of culture interventions: a study of unexpected outcomes. British Journal of Management, 13(1), pp.31-49. Kandola, R., 2005. Managing diversity: new broom or old hat? International Review of Industrial and Organizational Psychology, 10 (1), pp.101-102. Kazmi, A. and Ahmad, F., 2001. Differing approaches to strategic human resource management. Journal of Management Research, 1 (3), pp.133-140. Mir, A. and Mir, R., 2005. Producing the governable employee: the strategic deployment of workplace empowerment. Cultural Dynamics, 17 (1), pp.51-72. Paauwe, J., 2009. HRM and performance achievements: methodological issues and prospects. Journal of Management Studies, 46(1), pp 129-142. Schneider, B., 2007. The people make the place. Personnel Psychology, 40 (3), pp.437–456. Schuler, R. S., Dowling, P. J. and DeCieri, H., 2003. An integrative framework of strategic international human resource management. International Journal of Human Resource Management, 5(3), pp.717–764. Swailes, S., 2002. Organizational commitment: a critique of the construct and measures. International Journal of Management Reviews, 4(2), pp.155-178. Truss, C., Gratton, L., Hope-Hailey, V., McGovern, P. and Stiles, P., 2007. Soft and hard models of human resource management: a reappraisal. Journal of Management Studies, 34 (1), pp. 53–73. Wilson, E. M. and Iles, P. A., 2009. Managing diversity – an employment and service delivery challenge. The International Journal of Public Sector Management, 12(1), pp. 27–49. Zanko, M., et al., 2008. Innovation and hrm: absences and politics. International Journal of Human Resource Management, 19(4), pp. 562-581. Appendices Figure 1: Harvard Model Figure 2: Strategic HRM Read More