Some of you may remember the video game and game show
“Where in the World is Carmen San Diego” (WITWICS.) It was very popular
more than a decade ago. The goal of the game was to find the villain,
Carmen San Diego, based solely on key facts about different locations
around the world. The players had to know the specific country
differences that made it possible to identify each unique location and
capture the Carmen.
Compensation around the world is as unique in size, design and
structure as were the clues to WITWICS. Unfortunately, when looking at
most companies’ equity compensation design and awards, it is often
impossible to distinguish which continent the participant is on, much
less the specific country or region. Plans that don’t include regional
differences can result in programs that aren’t effective anywhere.
As compensation professionals, we pride ourselves in the amount of
survey data we use. We spend a lot of time and money obtaining and
analyzing base pay and STI data that is specific to position and
location. We work tirelessly to ensure that our compensation is
competitive for those we want to hire, motivate and keep while still
fitting within our compensation philosophy. Unfortunately, we often skip
this process with equity compensation, especially when it comes to
global awards.
This has been a consistent issue since the explosion of global equity
plans more than 15 years ago. An engineer in County X, in State Y in
the United States makes $90,000, plus a potential bonus of 20%. The
company also offers 2,500 stock option shares. The same company pays a
similar level engineer in another country base pay of $32,000, plus a
potential bonus of 20%. Inexplicably this engineer also gets 2,500 stock
options shares. People have explained this by claiming that there is
“too little data” or consistency allows for “easier movement” if the
engineer in question has to be moved to a US location. The reality is
that, for nearly every company, this is just bad policy.
I admit it. Variable compensation is hard. Global equity is even harder. It’s variable compensation to the fourth power!
1st You have the variable nature of equity itself. (Different instruments, available shares and more.)
2nd Then you have the variability of the current stock price.
3rd Add to that the variability of currency exchange rates.
4th Add the volatile changes in unpredictable future stock prices.
Global equity also requires an understanding of constantly changing
securities laws, income and tax provisions, expatriate considerations
and other factors. Many companies look at the swirl of data and
regulations, throw their hands up and beg for mercy. A minority put a
team of people on the project and work to create a perfect solution. The
first approach works occasionally and randomly. The second approach
works more frequently, but provides no guarantees.
Just like the competitors in the game WITWICS, the best way to
determine how to find the right solution for each area is to focus on
those factors that make each location unique. Some locations have
already broadly adopted, and have a basic understanding of, equity
compensation. These locations often have accessible survey data that is
used by your international competitors to determine grant sizes. Other
locations still see equity as a novelty. Small amounts may work as an
avenue to begin their education. Still other areas do not value equity
much at all. No matter what your philosophy is, a better strategy may be
to offer a different form of compensation. Lastly, people in some
regions are simply not paid enough for equity compensation to work well
at all. If you decide to give people a nominal grant of 2% of their
annual pay and your stock is trading at $200, you may have problems with
someone who makes less than $20,000. Imagine giving that person 2
shares that vest over 4 years. Even the best communication can’t make
sense of that!
Craft the plan to meet your people’s needs and locations. Don’t force
your people to meet the needs of a tidy little plan and philosophy just
to make your own life easier. Remember that every location is as unique
as the one where your office is located. Every group of people have a
set of desires and drivers as targeted as those sitting in the building
around you. If you structure your plan to meet your locations you may
find that it works as you had hoped. Otherwise expect surprises (and not
the pleasant type.)
Dan Walter is the President and CEO of Performensation
an independent compensation consultant focused on the needs of small
and mid-sized public and private companies. Dan’s unique perspective and
expertise includes equity compensation, executive compensation,
performance-based pay and talent management issues. Dan is a co-author
of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts
a free networking group. Dan is frequently requested as a dynamic and
humorous speaker covering compensation and motivation topics. Connect
with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay