Cross-Cultural Equity Issues: US Citigroup Expatriates in China

1. Cross-Cultural Equity Issues:US Citigroup Expatriates in China By Team #3: Jason Lim Calvin Mak Yao Ting Ni Hsien-Fang (Fiona) Wu Taojune (Simon) Cheng

2. Presentation Overview • Fiona – Planning and Strategy • Calvin – Approaches to Compensation • Yao – Pay Gaps and Compensation • Jason – Employee Morale and Motivation

3. 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

4. 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

5. Labor Market and Expatriates • Cheap • Skilled • Need parent country nationals • As managers • As trainers

6. Compensation Plan • The going rate approach • The balance sheet approach • Calvin compensation plan

7. Expansion of Citigroup • There's an explosion of opportunity • Half earnings should derive from international markets by 2009

8. Strategies to Enter China • Alliances & partnerships • Joint-name credit card with Shanghai Pudong Development Bank (SPDB) • License • Internet banking license by Central Bank of China • Mergers & acquisitions • Acquiring stakes in China's domestic banks

9. 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

10. Balance Sheet Factors • Hardship premium • Base pay • Cost of Living • Overseas premium • Housing

11. 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

12. Average Rental Costs • Beijing, $1.82/square foot • Shanghai, $3.02/square foot • Guangzhou, $2.25/square foot • Shenzhen, $1.14/square foot

13. 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%

14. Pay Gap & Compensation • Comparison of US & China pay gap • Pay Compensation • Current job market in Banking/Financial Sector in China.

15. 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)

16. 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)

17. 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)

18. CEO Pay Components

19. Current China Job Market • Hot Banking/Financial Market • High turnover rates 10-20% • Executive incentives: stock options (38%), home leave & company car (52%) (CFO Asia)

20. 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

21. 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

22. 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

23. 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

24. 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

25. Morale Factors (Cont.) • Recognition systems • Ex: 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

26. Conclusion- Putting it Together

27. Thank You For Your Attention! Any Questions?