I recently had the pleasure to meet Professors Andrey G. Medvedev (Professor of Corporate Finance and International Business) and Tatyana Kovalyova (Director for Corporate Programmes and Associate Professor of the General Management and HR Management Chair) of the International Management Institute of St Petersburg (IMISP) in their home town of St. Petersburg, Russia (Prof. Medvedev is now with the Graduate School of Management at St. Petersburg State University). We discussed Human Capital Management and Payroll Administration in Russia.
Russian payroll resembles Western European payrolls in structure. Labor is governed by a labor code with additional laws/rules. Social packages and pensions are prevalent. Each company pays approximately 26% on top of the gross salary for social protection. A 13% flat rate tax is withheld from the gross salary at the source. Due to the soviet history, compensation is in most cases determined by a tariff system similar to what we find for public service compensation in France, Germany and other countries.
Symptoms of liberalization can be noticed in Russia. Employees are now less protected than they used to be in the Soviet Union when it was impossible to terminate employees. Strikes are now possible in Russia (recently, Ford and Coca-Cola). However, larger companies still carry some inertia from the Soviet times. A state-assisted society and a liberal society coexist. Pay in state-assisted organizations is very low. For instance, teachers are not well paid, so that many young teachers leave for industry jobs. In the Soviet Union, company departments for training, recruitment, compensation etc. were all totally separated. In some large companies this structure is still in existence.
The recognition of the importance of HCM is growing. For example, Severstal sees HCM as a competitive advantage, and the Severstal CEO is personally monitoring the company’s efforts in this area. The association of IT Directors in Russia operates an HCM Forum. Since October 2004, the non-profit partnership АRMC, the National Personnel Managers’ Union, organizes conferences, exhibitions and surveys. Yet, HCM clubs for Russian and international companies are still mostly separate.
Companies are quite open to outsourcing if they can benefit from a standard solution that fits their needs. Recruiting companies are moving into outsourcing services. Large consulting companies seem to have less influence now than at the beginning of the free market economy.
As for HCM systems, large Russian companies in most cases use SAP (popular) and Oracle as ERP solutions, often in conjunction with their old payroll system. International partners of the ERP providers, who came with the Western companies in 1992 when the free market economy started, generally provide the integration services. A characteristic example is Gazprom (also an important client of IMISP).
International companies generally bring their own systems to Russia when they start a greenfield operation in the country. But they tend to keep an existing system in place when they acquire a Russian company. For example, Carlsberg acquired Baltika, the Russian brewer, and after a careful investigation decided to continue using the Russian ERP system Monolith that was highly tailored to their production requirements.
Smaller and newer companies often use 1C’s product odin C, a Russian ERP built around an accounting system. Microsoft Navision and Axapta are also popular with small and medium enterprises.
In conclusion, the Russian HCM and payroll landscape is not that different from the Western European countries. Russian companies are open to foreign software, open to Western methods and business, and open to outsourcing — yet they also put the emphasis conservatively on proven solutions that work.