Professional Documents
Culture Documents
Dr.Yogananthan
Introduction
Global compensation managers (that is,
everyone involved at any level in payrelated decisions) increasingly deal with
two areas of focus. They must manage
highly complex and turbulent local details
while concurrently building and
maintaining a unified, strategic pattern of
compensation policies, practices and
values.
(cont.)
Introduction (cont.)
Objectives of international
compensation
When developing international compensation
policies, a firm seeks to satisfy several
objectives. First, the policy should be
consistent with the overall strategy, structure
and business needs of the multinational.
Second, the policy must work to attract and
retain staff in the areas where the multinational
has the greatest needs and opportunities.
Hence the policy must be competitive and
recognize factors such as incentive for foreign
service, tax equalization and reimbursement
for reasonable costs.
(cont.)
Objectives of international
compensation (cont.)
Third, the policy should facilitate the transfer
of international employees in the most costeffective manner for the firm. Fourth, the
policy must give due consideration to equity
and ease of administration.
The international employee will also have a
number of objectives that need to be achieved
from the firms compensation policy. First, the
employee will expect the policy to offer
financial protection in terms of benefits, social
security and living costs in the foreign location.
(cont.)
Objectives of international
compensation (cont.)
Second, the employee will expect a foreign
assignment to offer opportunities for financial
advancement through income and/or savings.
Third, the employee will expect issues such as
housing, education of children and recreation
to be addressed in the policy. (The employee
will also have expectations in terms of career
advancement and repatriation, as discussed in
Chapters 3, 5 and 7.)
(cont.)
Objectives of international
compensation (cont.)
If we contrast the objectives of the
multinational and the employee, we see, of
course, the potential for many complexities
and possible problems, as some of these
objectives cannot be maximized on both sides.
Firms must rethink the traditional view that
local conditions dominate international
compensation strategy.
Base salary
In a domestic context, base salary denotes the amount of cash
compensation serving as a benchmark for other compensation
elements (such as bonuses and benefits).
For expatriates, it is the primary component of a package of
allowances, many of which are directly related to base salary
(e.g. foreign service premium, cost-of-living allowance, housing
allowance) and also the basis for in-service benefits and
pension contributions. It may be paid in home or local-country
currency.
The base salary is the foundation block for international
compensation whether the employee is a PCN or TCN. Major
differences can occur in the employees package depending on
whether the base salary is linked to the home country of the
PCN or TCN, or whether an international rate is paid.
Benefits
The complexity inherent in international benefits often
brings more difficulties than when dealing with
compensation.
Pension plans are very difficult to deal with country-tocountry, as national practices vary considerably.
Transportability of pension plans, medical coverage and
social security benefits are very difficult to normalize.
Benefits (cont.)
In some countries, expatriates cannot opt out of local
social security programs. In such circumstances, the
firm normally pays for these additional costs.
European PCNs and TCNs enjoy portable social security
benefits within the European Union.
Key components of an
international compensation
program (cont.)
Benefits (cont.)
In addition to the already discussed benefits,
multinationals also provide vacations and special
leave.
Included as part of the employees regular vacation,
annual home leave usually provides airfares for
families to return to their home countries.
Rest and rehabilitation leave, based on the conditions
of the host country, also provides the employees
family with free airfares to a more comfortable
location near the host country.
Emergency provisions are available in case of a death
or illness in the family.
Employees in hardship locations often receive
additional leave expense payments and rest and
Approaches to international
compensation
There are two main options in the area of international
compensation the Going Rate Approach (also referred to
as the Market Rate Approach) and the Balance Sheet
Approach (sometimes known as the Build-up Approach).
The Going Rate Approach
Approaches to international
compensation (cont.)
The Going Rate Approach (cont.)
Approaches to international
compensation (cont.)
The Going Rate Approach (cont.)
Approaches to international
compensation (cont.)
The Balance Sheet Approach
Approaches to international
compensation (cont.)
The Balance Sheet Approach (cont.)
The approach links the base salary for PCNs and TCNs
to the salary structure of the relevant home country.
Approaches to international
compensation (cont.)
The Balance Sheet Approach (cont.)
Approaches to international
compensation (cont.)
The Balance Sheet Approach (cont.)
Approaches to international
compensation (cont.)
Approaches to international
compensation (cont.)
The Balance Sheet Approach (cont.)
Approaches to international
compensation (cont.)
Taxation
Approaches to international
compensation (cont.)
Taxation (cont.)
Whether benefits should be maintained on a homecountry or host-country basis, who is responsible for
the cost, whether other benefits should be used to
offset any shortfall in coverage and whether homecountry benefit programs should be exported to local
nationals in foreign countries.
Approaches to international
compensation (cont.)
Approaches to international
compensation (cont.)
International living costs data
Approaches to international
compensation (cont.)
Differentiating between PCNs and TCNs
Approaches to international
compensation (cont.)
Differentiating between PCNs and TCNs (cont.)
Approaches to international
compensation (cont.)
Differentiating between PCNs and TCNs (cont.)
Reference
IBUS 618 Dr. Yang, web article
Semere Haile, Grambling State
University, Challenges in
International Benefits and
Compensation Systems of
Multinational Corporation