Multinationals are increasingly looking to take pay, bonus and benefits plans global. That can be tricky. Cautionary tales include hefty fines for neglecting to translate documents into a local language and court rulings holding discretionary language lost due to verbal commitment.
How can such unwelcome surprises be avoided? As Churchill put it, ”It is one thing to see the forward path and another to be able to take it.” To achieve the vision, there is much work to be done to understand, and therefore avoid, local pitfalls.
1. Understand Aftereffects
The risks of not tailoring to accommodate all of the international audiences are numerous and, frequently, costly. There is no one size fits all approach; a global plan requires a fine balance of the differing ways each location addresses compensation. The first thing to address is which company entity is leading the way. When deciding which entity will be responsible, a dangerous trap is to assume the parent. This may expose that entity to material risks, not only in the employment sphere (such as joint employer status), but also from tax and regulatory perspectives (such as permanent establishment). A possible solution is a “shadow payroll” where the local entity awards its own participants, then the parent funds and reimburses the local office.
2. Draft Precisely
Some countries like Belgium, France, Turkey and Saudi Arabia have mandatory translation requirements. Even if countries do not, compensation terminology can differ so much that it may seem like it requires translation. For example, particularly in Europe and Latin America, pay terminology can roll up base pay, bonuses, benefits and extras like vacation, overtime and 13th or even 14th month pay into the term “total compensation”. A poster child for this risk is the current line of case law in Europe concerning the elements that must be included in holiday pay. If you have not had recent experience with cross-cultural misinterpretation or need comic relief in your translation struggles, watch the Dirty Hungarian Phrasebook scene from Monty Python again.
3. Beware of Contractual Rights
Equally important is identifying jurisdictions where employees can acquire contractual rights even when a plan is “discretionary” or “one off”. In many countries, no matter how clearly terms are drawn, courts can interpret a plan to be contractual in practice. For example; if an ad hoc payment is repeated over a number of years, employees may acquire a right to ongoing payments. Employees may also argue that, although a scheme was discretionary, a certain sum was nevertheless promised. Brazil and Mexico have particular risks, changes that have a negative impact on employee compensation cannot be implemented, even if consent is obtained. To mitigate such risks, companies should: [A] ensure that discretion is actually exercised when making awards and payments do vary; [B] exercise caution when improving terms as this can be a route of no return; and [C] educate management to avoid verbal commitments or assurances that could undermine discretionary plans.
4. Consider Termination
In the United States, set off and claw back provisions are commonly triggered by certain employment terminations. Elsewhere, however, enforcing such termination-related clauses can be difficult, if not unlawful. Companies must also clarify whether payments will be made if participants are under “notice” of termination (as most jurisdictions outside the United States have statutory termination notice periods). Likewise, it is necessary to determine whether employees on garden leave are legally entitled to payments and whether pro rating payments or restricting participation of a specific group of employees (such those on protected leave or part-timers) is permitted under local law or forbidden as discriminatory.
5. Avoid Failure to Launch
Once the drafting is settled and the plan is vetted under the local laws of each country where it will be implemented, don’t get too comfortable. Implementation may require more work in each jurisdiction. For instance, consultation with trade unions, works councils, employee forums or individual employees is often required to roll out a new plan or to change an existing one.
We all know from Burns what can happen to the “best-laid schemes o’ mice an’ men”. There is no magic wand nor sprinkles of fairy dust to make global compensation plans instantaneously workable. Each requires an understanding of local impact. Fail to invest this time and such schemes can often go awry due to unexpected fines and adverse judicial rulings.