Cross-Cultural Equity Issues:US Citigroup Expatriates in

ChinaBy Team #3:Jason LimCalvin MakYao Ting NiHsien-Fang (Fiona) WuTaojune (Simon) Cheng

Presentation Overview

Fiona – Planning and Strategy

Calvin – Approaches to Compensation

Yao – Pay Gaps and Compensation

Jason – Employee Morale and Motivation

The Reasons For Choosing China

One of the fastest growing developing economies in the world

2004, 9.5% 2006-2010, 8%

One of the most lucrative markets for their foreign investments

Market of 1.3 billion people

China’s Economic Background

Prior to 1977, the government owned

everything In 1978, Economic Reforms and Open

Door Policy In 2001, World Trade Organization Today, 20 times larger

Labor Market and Expatriates Cheap

Skilled

Need parent country nationals As managersAs trainers

Compensation Plan

The going rate approach

The balance sheet approach

Calvin compensation plan

Expansion of Citigroup

There's an explosion of opportunity

Half earnings should derive from international markets by 2009

Strategies to Enter China

Alliances & partnershipsJoint-name credit card with Shanghai Pudong

Development Bank (SPDB) License

Internet banking license by Central Bank of China

Mergers & acquisitionsAcquiring stakes in China's domestic banks

Compensation Approaches

Going rate – equal pay, but hard transition from high pay country to lower pay country.

Higher of host or home – equality, but very expensive for company.

Balance sheet approach – preserves living standards, but can have great disparities.

Reference points

Balance Sheet Factors

Hardship premium Base pay Cost of Living Overseas premium Housing

Hardship Factors Housing Climate and physical conditions Pollution Disease and sanitation Medical facilities Infrastructure Physical remoteness Political violence and repression Political and social environment Crime Communications Cultural and recreation facilities Availability of goods and services

Average Rental Costs

Beijing, $1.82/square foot Shanghai, $3.02/square foot Guangzhou, $2.25/square foot Shenzhen, $1.14/square foot

Cost of Living

Most expensive cities in the world:• Beijing (11)• Shanghai (16)• Shenzhen (30)• Guangzhou (32)

2004 CPI peaked at 5.2%, ended year at 2.4%

Income tax rate 45%

Pay Gap & Compensation

Comparison of US & China pay gap

Pay Compensation

Current job market in Banking/Financial Sector in China.

US Pay Gap CEO-Worker pay gap ratio: 281:1 (2002) (BusinessWeek)

Increasing executive pay 2004 Avg. total CEO pay w/ compensation $10.7mil (+5%)

(Pearl Meyer & Partners)

Pay varies regionally (HR Benefits Manager) Northeast $94,700, West Coast $99,400, North Central $83,400, Southeast

$82,900, South Central $87,700 (HR Magazine, Nov. 2004)

China Pay Gap Executive-Employee pay gap ratio: 3-15:1

(2004) (The Development Research Center of the State Council)

Salary Range (Domestic vs. Foreign) Avg. worker salary 7,443 Rmb vs. 15,037 Rmb Avg. CEO salary 212,000 Rmb (The Beijing Labor and Social Security Bureau)

China Pay Gap Pay varies regionally

Shanghai 44,957 Rmb, Beijing 42,118 Rmb, Guangzhou 37,096 Rmb (South China Morning Post 2005)

Gender Pay Discrepancy Avg. annual income of working women in cities 7,409.7 Rmb (30%

less than men) Avg. annual income paid to female executives and professionals

(57.9% & 59.6% less than male counterparts) (The All-China Women’s Federation and the National Bureau of Statistics)

CEO Pay Components

0%

10%

20%

30%

40%

50%

60%

70%

80%

Basic Compensation 42% 76% 36% 57%

Variable Pay 63% 18% 51% 19%

Benefits 6% 3% 11% 16%

Perquisites 5% 3% 2% 8%

US China Germany Japan

Current China Job Market

Hot Banking/Financial MarketHigh turnover rates 10-20%Executive incentives: stock options (38%), home

leave & company car (52%) (CFO Asia)

What Is Motivation?

• Basic psychological process which explains why employees behave the way they do in the workplace.

• Willingness to exert high levels of effort toward organization goals, conditioned by the effort’s ability to satisfy some individual needs

Unmotivated, Unhappy Chinese Employees

Highest among State-owned companies

Smaller amount for Joint Venture, Foreign Invested Enterprises

Higher rate of leaving for high/educated level employees

What Motivates Employees?

Cash Incentive If stay in the company for entire contract length of time Reimbursing employees tuition

Treating Employees Guanxi Feelings of belonging Saving faces Loyalty

Special Training and Programs Ex: Citigroup’s Financial Education Training/Programs

Financial service Training Banking Programs

Other Motivational Factors

Career Development Promotion

Performance evaluation Include capabilities, skills, achievements and actions Employees with higher rating should promote to higher post Denied promotion to lower rating employees Avoided seniority-based promotion

Shelter Saving plans Gift certificates Rewards

Travel

Morale Factors Affecting Worker Wages Stock options

Degree of understanding about the stock option Useful in preserving employees who have worked

with a company for a few years and have seen the value of their stocks appreciate

Create sense of ownership Work more harder to obtain higher future growth

Morale Factors (Cont.)

Recognition systemsEx: Achievement in R&D prize, Improvement

proposal prize, Excellent in customer care prize

Public Recognition Allow them to compare against their colleagues For better-educated workers, this recognition can

satisfy more than financial benefits

Conclusion- Putting it Together

Thank You For Your Attention!

Any Questions?