International Human Resource Management

Managing people in a multinational context

v IHRM Chapter 7 2
In this chapter we:
Examine the complexities that arise when firms move from
compensation at the domestic level to compensation in an
international context.
Detail the key components of an international compensation
program.
Outline the two main approaches to international compensation
and the advantages and disadvantages of each approach.
Examine the special problem areas of taxation, valid
international living cost data and the problem of managing TCN
compensation.
Examine recent developments and global compensation issues.
Chapter Objectives
v
Terms
3 IHRM Chapter 7
HRIS
repatriation
base salary
benefits
Tax equalization
Tax protection



global corporate culture
International base pay



going rate approach
balance sheet approach
allowances: COLA
housing
home leave
education
relocation
spouse assistance
v
Issues when considering benefits
4 IHRM Chapter 7
1. Whether or not to maintain expatriates in
home-country programs, particularly if the
firm does not receive a tax deduction for it.
2. Whether firms have the option of enrolling
expatriates in host-country benefit programs
and/or making up any difference in coverage.
3. Whether expatriates should receive home-
country or host-country social security
benefits.

v 5 IHRM Chapter 7
Table
7-1
Going Rate Approach
Based on local market rates

Relies on survey comparisons among:
- Local nationals (HCNs)
- Expatriates of same nationality
- Expatriates of all nationalities

Compensation based on the selected survey comparison

Base pay and benefits may be supplemented by
additional payments for low-pay countries
v 6 IHRM Chapter 7
Table
7-2
Advantages and disadvantages of the Going Rate Approach
Advantages

Equality with local nationals
Simplicity
Identification with host
country
Equity amongst different
nationalities
Disadvantages

Variation between assignments for
same employee
Variation between expatriates of same
nationality in different countries
Potential re-entry problems
v 7 IHRM Chapter 7
Table
7-3
The Balance Sheet Approach
Basic objective is maintenance of home-country living
standard plus financial inducement

Home-country pay and benefits are the foundations of this approach

Adjustments to home package to balance additional
expenditure in host country

Financial incentives (expatriate/hardship premium) added
to make the package attractive

Most common system in usage by multinational firms
v
Four Balance Sheet Approach categories
8 IHRM Chapter 7
1. Goods and services home-country outlays for
items such as food, personal care, clothing,
household furnishings, recreation, transportation
and medical care.
2. Housing the major costs associated with housing in
the host country.
3. Income taxes parent-country and host-country
income taxes.
4. Reserve contributions to savings, payments for
benefits, pension contributions, investments,
education expenses, social security taxes, etc.

v 9 IHRM Chapter 7
Table
7-4
Expatriate compensation worksheet
v 10 IHRM Chapter 7
Table
7-5
Advantages and disadvantages of the Balance Sheet Approach
v 11 IHRM Chapter 7
Table
7-6
Maximum marginal federal tax rates
Country


Argentina
Australia
Belgium
Brazil
Canada
China (Hong Kong)
China
France
Germany
India
Italy
Japan
Malaysia
Maximum marginal
rate (%)

35.00
47.00
50.00
27.50
29.00
20.00
45.00
48.09
42.00
33.66
43.00
37.00
28.00
Maximum marginal
rate (%)

33.00
52.00
40.00
22.00
40.00
35.00
29.16
26.00
11.50
40.00
40.00
35.00
34.00
Country


Mexico
Netherlands
Poland
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
United Kingdom
United States
Venezuela
v
Some issues when considering benefits
12 IHRM Chapter 7
1. Keep expatriates in home-country programs, particularly if
the company does not receive a tax deductions for it?
2. Enroll expatriates in host-country benefit programs and/or
making up coverage differences?
3. Does host-country legislation regarding termination affects
benefit entitlement?
4. Do expatriates receive home-country or host-country social
security benefits?
5. Should benefits be maintained on a home-country or host-
country basis? Who is responsible for the cost? Should other
benefits offset any shortfall in coverage? Should home-
country benefit programs be exported to local nationals in
foreign countries?

v 13 IHRM Chapter 7
Table
7-7
Social security contributions by employers and employees
v 14 IHRM Chapter 7
Table
7-8
Range of working times required to buy one Big Mac
v 15 IHRM Chapter 7
Complexity, challenges and choices in global pay
Figure
7-1
v
Discussion Questions
16 IHRM Chapter 7
1. What should be the main objectives for a multinational
firm with regard to its compensation policies?
2. Describe the main differences in the Going Rate and
Balance Sheet Approaches to international compensation.
3. What are the key differences in salary compensation for
PCNs and TCNs? Do these differences matter?
4. What are the main points that MNEs must consider when
deciding how to provide benefits?
5. Why is it important for MNEs to understand the
compensation practices of other countries?
6. Explain how balancing the interests of global and local,
occupational and functional perspectives might play out in
a compensation decision scenario.