What are the main objectives of a compensation policy for a multinational firm, according to Chapter 8 of the Dowling text?

  

This is MBA – International Human Resource Management course.
This textbook you may need:
Dowling, P. J., Festing, M., & Engle, Sr., A.D. (2013). International human resource management: Managing people in a multinational context (6th ed.). Mason, OH: Thomson/South-Western. ISBN-: 978-1-480-3209-1
Deliver :
Discussion this week focused on the 2 methods most MNEs currently use to develop compensation plans for overseas employees.
Chapter8 of the Dowling text discusses several factors involved in international compensation. What do you think should be the main objectives of a compensation policy for a multinational firm? Which international compensation approaches do you feel has the most problems? Why? Which has the most advantages? Why? Which way would you personally prefer if it was your salary under consideration? Why?
2 pages required.
2. There are many differing styles of management in the world. Based on your exams, it seems as if some of you believe that the western forms of management are ‘the best’.
Is this true? Do you believe that western management is always the best form of management to use? Or, do you have a more situational frame and believe that ‘it depends’? And on what would it depend?
Why do you believe as you do?
You might want to review Module 1 in the Course Documents section, including the article by Boyacigiller.
2 pages required.
This isMBA-International Human Resource Managementcourse.
Check the attachments below. Ebook, ppt and week 7 DB requirements.Use ebook and ppt forreferences. Outside reference is ok, too
This is graduate students level paper. Please write your answers professional.
Thank you.
Original work. NO Plagiarism. It must be upload to the Turnitin website.
If you don’t follow the rules, I will withdraw it.
This is MBA – International Human Resource Management course.
This textbook you may need:
Dowling, P. J., Festing, M., & Engle, Sr., A.D. (2013). International human resource
management: Managing people in a multinational context (6th ed.). Mason, OH:
Thomson/South-Western. ISBN-: 978-1-480-3209-1
Deliver :
Discussion this week focused on the 2 methods most MNEs currently use to develop
compensation plans for overseas employees.
1. Chapter 8 of the Dowling text discusses several factors involved in international
compensation. What do you think should be the main objectives of a compensation policy for a
multinational firm? Which international compensation approaches do you feel has the most
problems? Why? Which has the most advantages? Why? Which way would you personally
prefer if it was your salary under consideration? Why?
2 pages required.
2.
There are many differing styles of management in the world. Based on your exams, it seems as
if some of you believe that the western forms of management are ‘the best’.
Is this true? Do you believe that western management is always the best form of management to
use? Or, do you have a more situational frame and believe that ‘it depends’? And on what would it
depend?
Why do you believe as you do?
You might want to review Module 1 in the Course Documents section, including the article by
Boyacigiller.
2 pages required.
This is MBA-International Human Resource Management course.
Check the attachments below.
This is graduate students level paper. Please write your answers
professional.
Thank you.
Original work. NO Plagiarism. It must be upload to the Turnitin website.
If you don’t follow the rules, I will withdraw it.
CHAPTER 8
INTERNATIONA
L
COMPENSATION
Chapter Objectives
In the introductory chapter we described international HR managers as grappling with complex
issues. International managers must: (1) manage more activities from a broader perspective, (2) be
more involved in the lives of their far-flung employees, (3) balance the needs of PCNs, HCNs and
TCNs, (4) control exposure to financial and political risks, and (5) be increasingly aware of and
responsive to host country and regional influences. All of these issues and concerns are highlighted
in stark contrast in a discussion of compensation issues. In this chapter we:
l Examine
the complexities that arise when firms move from compensation at the domestic level to
compensation in an international context.
l Detail
the key components of an international compensation program.
the two main approaches to international compensation (Going Rate and Balance Sheet
l Outline
Approach) and the advantages and disadvantages of each approach.
l Introduce
a third emerging approach to international compensation: Local Plus.
l Examine
the special problem areas of taxation, valid international living cost data and the problem
of managing TCN compensation.
l Examine
recent developments and global compensation issues.
215
216 CHAPTER 8 INTERNATIONAL COMPENSATION
INTRODUCTION
Global compensation practices have recently moved far beyond the original domain of
expatri- ate pay. Compensation is increasingly seen as: a mechanism to develop and
reinforce a global corporate culture,1 a primary source of corporate control, explicitly
linking performance out- comes with associated costs,2 and the nexus of increasingly
strident, sophisticated and public discourses on central issues of corporate governance in an
international context.3
Increased complexities in global pay include the growing use of outsourced activities and
sub- sequent labor pricing needs,4 balancing centralization and decentralization of
incentives, bene- fits and pensions, given the technical capabilities of web-based human
resource information systems (HRIS),5 and balancing the need for more accurate and
detailed performance metrics on international assignees with the realities of a cost-sensitive
environment resulting from maturing global competitiveness.6
Increasingly, domestic pay practices of long standing have been questioned as firms move
into the global arena. These overt challenges to deeply held national and corporate values
and pay systems include challenges to the universal applicability of incentive pay programs7
and what some critics view as out of control executive compensation programs, often driven
by US- based multinational pay systems.8 Critiques of US-based MNE pay for executives
have recently expanded to include challenges to the effectiveness of legal and institutional
forms of corporate governance and the roles, responsibilities and pay practices of corporate
boards, compensation committees and the use of executive pay consultants.9
Greater choice, the growing ability to systematically identify and implement heretofore
novel or unrecognized pay practices, may be seen to result from increases in the
transparency of pay practices around the world due to increased global media attention and
reach, changes in corpo- rate reporting regulations, the sheer number of assignments across
borders, as well as the impact of the World Wide Web.10 It remains to be seen if this
increased choice will translate into a pre- dictable set of global pay practices.
These complexities, challenges and choices facing managers involved in global
compensation decisions do not change two primary areas of focus. These individuals must
manage highly com- plex and turbulent local details while concurrently building and
maintaining a unified, strategic pattern of compensation policies, practices and values.
For MNEs to successfully manage compensation and benefits requires knowledge of
employment and taxation law, customs, environment and employment practices of many
for- eign countries; familiarity with currency fluctuations and the effect of inflation on
compensa- tion; and an understanding of why and when special allowances must be
supplied and which allowances are necessary in what countries all within the context of
shifting political, eco- nomic and social conditions. The level of local knowledge needed in
many of these areas requires specialist advice and many multinationals retain the services of
consulting firms that may offer a broad range of services or provide highly specialized
services relevant to HRM in a multinational context.11
Because of its complexity and expense, much of the discussion in this chapter addresses
PCN compensation. However, issues relevant to TCNs and HCNs are also described
because they are becoming more important to the success of many MNEs.12 Indeed,
expatriate compensation long the preoccupation of global HR executives is increasingly
seen more as a component of a more balanced, albeit complex, system of worldwide pay.13
National and re- gional differences in the meaning, practice and tradition of pay remain
significant sources of variation in the international firm. Yet these contextual sources of
complexity must be bal- anced with strategic intent and administrative economy.14 Rather
than seeing pay as an ethno- centric extension of an essentially domestic strategy, pay
systems are increasingly becoming truly global with truly global objectives.15
CHAPTER 8 INTERNATIONAL COMPENSATION 217
Objectives of international compensation
When developing international compensation policies, an MNE seeks to satisfy several
objec- tives. 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 MNE has the greatest needs and opportunities. Thus, the policy must
be competitive and recognize factors such as incentive for foreign service, tax equalization
and reimbursement for reasonable costs. Third, the policy should facilitate the transfer of
international employees in the most cost-effective 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. 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 the cost of hous- ing, education of children, and home leave to be addressed
in the policy.
If we contrast the objectives of the MNE and the employee, we of course see the potential
for many complexities and possible problems, as some of these objectives cannot be
maximized on both sides. The war stories about problems in international compensation
that we see in HR practitioner magazines is testimony to these complexities and problems.
McNulty et al. also allude to these problems in their studies of expatriation, particularly in
the Asia Pacific region.16
However, if we take away the specialist jargon and allow for the international context, are
the competing objectives of the firm and the employee fundamentally different from that
which exists in a domestic environment? We think not. We agree with the broad thrust of an
influential article by Milkovich and Bloom17 which argues that firms must rethink the
traditional view that local conditions dominate international compensation strategy. This is
again another applica- tion of the ongoing balancing act between global standardization and
local customization. We will return to these issues at the end of the chapter after we have
covered some of the technical aspects and complexities of compensation in an international
context.
KEY COMPONENTS OF AN INTERNATIONAL
COMPENSATION PROGRAM FOR EXPATRIATES
The area of international compensation is complex primarily because multinationals must
cater to three categories of employees: PCNs, TCNs and HCNs. In this section, we discuss
key com- ponents of international compensation as follows.
Base salary
The term base salary acquires a somewhat different meaning when employees go abroad. 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 pri- mary 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)
as well as the basis for in-service benefits and pension contributions. It may be paid in home
or local country cur- rency or a combination of both. 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. (We will return
to this issue later in the chapter.)
218 CHAPTER 8 INTERNATIONAL COMPENSATION
Foreign service inducement and hardship premium
Parent-country nationals often receive a salary premium as an inducement to accept a
foreign assignment, as well as a hardship premium to compensate for challenging locations.
Under such circumstances, the definition of hardship, eligibility for the premium, and
amount and timing of payment must be addressed. For example, where a host countrys
work week may be longer than that of the home country, a differential payment may be
made in lieu of overtime, which is not normally paid to PCNs or TCNs. In cases in which
hardship is determined, US firms often refer to the US Department of States Hardship Post
Differentials Guidelines to determine an appropriate level of payment. As a number of
researchers in this field have noted over many dec- ades18 making international comparisons
of the cost of living is problematic. It is important to note, though, that these payments are
more commonly paid to PCNs than TCNs. Foreign service inducements, if used, are usually
made in the form of a percentage of salary, usually 5 to 40 per cent of base pay, but are also
sometimes offered as a lump-sum incentive (i.e. as a one-off payment made at some point
during an assignment). Such payments vary, depending upon the assignment location, tax
consequences, and length of assignment.
Allowances
Issues concerning allowances can be very challenging to a firm establishing an overall
compen- sation policy, partly because of the various forms of allowances that exist. In this
section we will discuss the six most common allowances.
Cost-of-living allowance. The cost-of-living allowance (COLA), which typically receives
the most attention, involves a payment to compensate for differences in expenditures
between the home country and the foreign country. COLA payments are intended to
compensate for cost differentials between an expatriates home and host country, for
example, the costs of transpor- tation, furniture and appliances, medical, alcohol and
tobacco, automobile maintenance and domestic help. Family size is the predominant method
for determining COLA payments, with increments provided for each child. Often this
allowance is difficult to determine, so companies may use the services of organizations such
as Mercer (a US-based firm)19 or ECA International (based in Britain).20 These firms
specialize in providing COLA information on a global basis, regularly updated, to their
clients. The COLA may also include payments for housing and util- ities, and discretionary
items.21 Various COLA indices exist, which, for example, allow an American to live like an
American in Paris or which presume that the American will adapt to the assignment location
by adjusting to the local life style and international living costs.
Housing allowance. The provision of a housing allowance implies that employees should be
entitled to maintain their home-country living standards (or, in some cases, receive
accommoda- tion that is equivalent to that provided for similar foreign employees and
peers). The amount of housing allowance is determined predominantly by family size, and
to some extent job level. Other alternatives include company-provided housing (either
mandatory or optional); a fixed housing allowance across a particular job level, with the
expatriate topping up according to personal preferences; or assessment of a portion of
income, out of which actual housing costs are paid. Housing issues are often addressed on a
case-by-case basis, but as a firm international- izes, formal policies become more necessary
and efficient. Financial assistance and/or protection in connection with the leasing of an
expatriates former residence is offered by many MNEs, but less so for selling a house as
many MNEs encourage their employees to retain a presence in their home country real
estate market. Those in the banking and finance industry tend to be the most generous,
offering assistance in sale and leasing, payment of closing costs, payment of leasing
management fees, rent protection and equity protection. Generally, TCNs tend to receive
these benefits less frequently than PCNs.
CHAPTER 8 INTERNATIONAL COMPENSATION 219
Home leave allowances. Many MNEs also have a provision for home leave allowances
where employers cover the expense of one or more trips back to the home country each
year. The primary purpose of paying for such trips is to give expatriates the opportunity to
renew family and business ties, thereby helping them to minimize adjustment problems
when they are repatriated. Although firms traditionally have restricted the use of leave
allowances to travel home, some firms give expatriates the option of applying home leave to
foreign travel rather than returning home. Firms allowing use of home leave allowances for
foreign travel need to be aware that expatriate employees with limited international
experience who opt for foreign travel rather than returning home may become more
homesick than other expatriates who return home for a reality check with fellow
employees and friends. Without the benefit of returning home to mix with employees and
friends it is possible to idealize what they remember of their experience at work and home
and fail to come to a measured judgment of what is good and bad in both their host and
home environments. Overall, it would seem prudent for MNEs to take the view that home
leave allowances should normally be used for the purpose they are provided to give
employees and their families the opportunity to renew family and business ties, thereby
increasing the probability of reduced adjustment problems when they are repatriated.
Education allowances. The provision of education allowances for the children of expatriates
is frequently an integral part of an international compensation policy. Allowances for
education can cover items such as tuition (including language classes), application and
enrolment fees, books and supplies, meals, transportation, excursions and extra-curricular
activities, parent association fees, school uniforms and, if applicable, room and board.
Although school uniforms are not common in the USA, it is common practice (and in many
countries compulsory) for school children to wear uniforms, particularly in international
schools. PCNs and TCNs usually receive similar treatment concerning educational
expenses, but the level of education provided for and the adequacy of local public schools
versus international schools may present problems for multinationals. International schools
(e.g. United World College of South East Asia, British International School Shanghai) are
far more expensive than local public schools but are pre- ferred by many expatriates because
these schools follow the home-country curriculum and cater to a globally diverse student
body more capable of supporting third culture kids. The cost of local and international
schools for dependent children from kindergarten through to high school are typically
covered by the employer ORC reports that 95 per cent of MNEs contribute to the
educational expenses of expatriate children.22 However, there may be restrictions depending
on the age of children (pre-school, day care and university are typically not covered),
availability of school places, and their fees. In a number of countries attendance at schools
in the host loca- tion may be seen as unsuitable and the MNE may cover (or contribute
towards) the costs of children attending a private boarding school elsewhere (e.g. the costs
of room and board as well as other transportation costs to cover parental visits and school
holiday travel).23 The costs of attendance at a university may also be provided for by
multinationals, when deemed necessary, but this is rare.
Relocation allowances. Items typically covered by relocation allowances include moving,
shipping and storage charges; temporary living expenses; subsidies regarding appliance or
car purchases (or sales); and down payments or lease-related charges. Allowances regarding
perqui- sites (cars, drivers, club memberships, servants24 and so on) may also need to be
considered (usually for more senior positions, but this varies according to location). These
allowances are often contingent upon tax-equalization policies and practices in both the
home and the host countries. For example, in most Western countries a driver is considered
a luxury, only available to very senior managers. In developing economies a driver is
economical in terms of cost, effec- tiveness and safety. Apart from the expectation that
managers use drivers, parking is frequently chaotic in developing countries (especially in
large cities) and the driver also performs the func- tion of a parking attendant. In some
developing countries it is quite common for the police to
220 CHAPTER 8 INTERNATIONAL COMPENSATION
arrest drivers involved in traffic accidents and leave them in detention while responsibility
and damages are assessed. Such a risk is unacceptable to many MNEs which do not allow
their ex- patriate employees to drive at all in specific developing countries and provide local
drivers for both the expatriate and spouse.
Spouse assistance. Increasingly, many MNEs are also offering spouse assistance to help
guard against or offset income lost by an expatriates spouse as a result of relocating abroad.
Payments, on average, are capped at US$7000 per family but vary according to region.
Although some MNEs may pay a one-time allowance to make up for a spouses lost income
(averaging US$11000 per family according to ORC25), US multinationals are beginning to
focus on providing spouses with employment opportunities abroad, either by offering jobsearch assistance, career counseling, cultural orientation, resume/CV preparation, work
permit assistance and language tuition, or in more unusual cases employment in the MNEs
foreign business (subject of course to a work visa being approved by the host country
government for this purpose).
To summarize, MNEs generally pay allowances in order to encourage employees to take
international assignments and to keep employees whole (i.e. relatively comparable) to
home standards. We will present more about this concept later in the chapter.
Benefits
The complexity inherent in international benefits often brings more difficulties than when
deal- ing with compensation. Expatriate benefits includes health care, pension plans/social
security, life insurance, child allowances and profit sharing/stock option plans.
Pension plans are very difficult to deal with country-to-country as national practices vary
considerably. Transportability of pension plans/social security and medical coverage
benefits are very difficult to normalize. Therefore, MNEs need to address many issues when
considering benefits, including:
l Whether
or not to maintain expatriates in home-country programs, particularly if the multinational
does not receive a tax deduction for it.
l Whether
MNEs have the option of enrolling expatriates in host-country benefit programs and/or
making up any difference in coverage.
l Whether
expatriates should receive home-country or are eligible to receive host-country social
security benefits.
Most US PCNs typically remain under their home-country benefit plan, with the exception
of medical benefits: more than half of the MNEs surveyed by ORC assign their expatriates
to an international healthcare plan. In some countries, expatriates cannot opt out of local
social secu- rity programs. In such circumstances, the firm normally pays for these
additional costs. Euro- pean PCNs and TCNs enjoy portable social security benefits within
the European Union. Laws governing private benefit practices differ from country to
country, and firm practices also vary. Not surprisingly, multinationals have generally done a
good job of planning for the retirement needs of their PCN employees, but this is generally
less the case for TCNs.26 There are many reasons for this: TCNs may have little or no homecountry social security coverage; they may have spent many years in countries that do not
permit currency transfers of accrued benefit pay- ments; or they may spend their final year
or two of employment in a country where final average salary is in a currency that relates
unfavorably to their home-country currency. How their bene- fits are calculated and what
type of retirement plan applies to them may make the difference between a comfortable
retirement in a country of their choice or a forced and financially less comfortable
retirement elsewhere.
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
pro- vides airfares for families to return to their home countries. Rest and rehabilitation
leave is also frequently available if the conditions of the host country are clearly below the
standards of the home country. Typically, rest and rehabilitation leave provides the
employees family with paid airfares to a more comfortable location near the host country.
In addition to rest and rehabilita- tion leave, emergency provisions are available in case of a
death or illness in the family. Employ- ees in hardship locations generally receive additional
leave expense payments and rest and rehabilitation periods.
APPROACHES TO INTERNATIONAL
COMPENSATION OF EXPATRIATES
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). In this section we describe each approach
and discuss the advantages and disadvantages inherent in each approach.27
The going rate approach
The key characteristics of this approach are summarized in Table 8.1. With this approach,
the base salary for the international transfer is linked to the salary structure in the host
country. The multinational usually obtains information from local compensation surveys
and must decide whether local nationals (HCNs), expatriates of the same nationality or
expatriates of all nation- alities will be the reference point in terms of benchmarking. For
example, a Japanese bank oper- ating in New York would need to decide whether its
reference point would be local US salaries, other Japanese competitors in New York, or all
foreign banks operating in New York. With the Going Rate Approach, if the location is in a
low-pay county, the multinational usually supple- ments base pay with additional benefits
and payments.
TABLE 8.1 Going rate approach
CHAPTER 8 INTERNATIONAL COMPENSATION 221
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
There are advantages and disadvantages of the Going Rate Approach, summarized in Table
8.2. The advantages are: there is equality with local nationals (very effective in attract- ing
PCNs or TCNs to a location that pays higher salaries than those received in the home
country); the approach is simple and easy for expatriates to understand; expatriates are able
to identify with the host country; and there is often equity among expatriates of different
nationalities.
222 CHAPTER 8 INTERNATIONAL COMPENSATION
TABLE 8.2 Advantages and disadvantages of the going rate approach
The disadvantages of the Going Rate Approach include: First, there can be variation
between assignments for the same employee. This is most obvious when we compare an
assignment in an advanced economy with one in a developing country, but also between
assignments in various advanced economies where differences in managerial salaries and
the effect of local taxation can significantly influence an employees compensation level
using the Going Rate Approach. Not surprisingly, individual employees are very sensitive to
this issue. Second, there can be variation between expatriates of the same nationality in
different locations. A strict interpretation of the Going Rate Approach can lead to rivalry for
assignments to locations that are financially attrac- tive and little interest in locations
considered financially unattractive. Finally, the Going Rate Approach can pose problems
upon repatriation when the employees salary reverts to a home- country level that is below
that of the host-country. This is not only a problem for firms in devel- oping countries, but
also for MNEs from many countries where local managerial salaries are well below that of
the USA, which has long been the world market leader in managerial salaries, although the
gap between US and some European salaries has been narrowing.28
The balance sheet approach
The key characteristics of this approach (which is the most widely used approach for
interna- tional compensation) are summarized in Table 8.3. The basic objective is to keep
the expatriate whole (that is, maintaining relativity to PCN colleagues and compensating
for the costs of an international assignment29) through maintenance of home-country living
standard plus a finan- cial inducement to make the package attractive. This approach links
the base salary for expatri- ates to the salary structure of the relevant home country. For
example, a US executive taking up an international position would have his or her
compensation package built upon the US base- salary level rather than that applicable to the
host country. The key assumption of this approach is that foreign assignees should not
suffer a material loss due to their transfer, and this is accom- plished through the utilization
of what is generally referred to as the Balance Sheet Approach. According to Reynolds:
The balance sheet approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living overseas and in the home-country
and to provide incentives to offset qualitative differences between assignment locations.30
TABLE 8.3 The balance sheet approach
Advantages Disadvantages
Equality with local nationals
Simplicity
Identification with host country
Equity among different nationalities
Variation between assignments for same employee Variation between expatriates of same
nationality in
different countries
Potential re-entry problems
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
CHAPTER 8 INTERNATIONAL COMPENSATION 223 There are four major categories of outlays
incurred by expatriates that are incorporated in the
Balance Sheet Approach:
.
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.
Where costs associated with the host-country assignment exceed equivalent costs in the
parent country, these costs are met by both the MNE and the expatriate to ensure that
parent-country equivalent purchasing power is achieved.
Table 8.4 shows a typical spreadsheet for an expatriate assignment using the Balance Sheet
Approach. In this example, an Australian expatriate is assigned to a hypothetical country
called New Euphoria which has a Cost-of-Living-Index of 150 relative to Australia and an
exchange rate of 1.5 relative to the Australian dollar. In addition to a foreign service
premium, a hardship allowance is also payable for this location. Housing is provided by the
MNE, and a notional cost for this is recognized by a 7 per cent deduction from the package,
along with a notional tax deduction (we discuss taxation later in the chapter). The expatriate
can see from this spreadsheet what components are offered in the package and how the
package will be split between Austra- lian currency and New Euphoria currency.
TABLE 8.4 Expatriate compensation worksheet
Employee: Brian Smith
Position: Marketing Manager
Country: New Euphoria
Reason for change: New Assignment
Effective date of change 1 February 2013
Amount Paid in Australian Paid in local Item A$ PA dollars A$ PA currency NE$ PA
Base salary 200 000 100 000 150 000
Cost of living allowance 50 000 75 000
Overseas service premium (20%) 40 000 40 000
Hardship allowance (20%) 40 000 40 000
Housing deduction (7%) 14 000 14 000
Tax deduction 97 000 97 000
TOTAL 219 000 69 000 225 000
COLA Index 14 150
There are advantages and disadvantages of the Balance Sheet Approach, summarized in
Table 8.5. There are three main advantages. First, the Balance Sheet Approach provides
equity between all foreign assignments and between expatriates of the same nationality.
Second, repatriation of expatriates is facilitated by this emphasis on equity with the parent
country as expatriate compensation remains anchored to the compensation system in the
parent country. Third, this approach is easy to communicate, as Table 8.4 illustrates.
224 CHAPTER 8 INTERNATIONAL COMPENSATION
TABLE 8.5 Advantages and disadvantages of the balance sheet approach
Advantages Disadvantages
Equity
Between assignments
Between expatriates of the same
nationality
Facilitates expatriate re-entry
Easy to communicate to employees
Can result in great disparities
Between expatriates of different
nationalities
Between expatriates and local nationals
Can be quite complex to administer
There are two main disadvantages of the Balance Sheet Approach. First, this approach can
result in considerable disparities both between expatriates of different nationalities and
between PCNs and HCNs. Problems arise when international staff are paid different
amounts for per- forming the same (or very similar) job in the same host location, according
to their different home base salary. For example, in the Singapore regional headquarters of a
US bank, a US PCN and a New Zealand TCN may perform the same (or similar) banking
duties but the American will receive a higher salary than the New Zealander because of the
differences in US and New Zealand base-salary levels. As noted above, differences in basesalary levels can also cause difficulties between expatriates and HCNs. Traditionally, this
has referred to the problem of highly paid PCNs being resented by local HCN employees
because these foreigners are perceived as being excessively compensated (and because
they are blocking career opportunities for locals).
However, feelings of resentment and inequity can also run in the other direction. For
instance, as indicated above, the USA has the highest level of managerial compensation in
the world. Thus, a multinational that establishes a subsidiary in the USA (or acquires a US
business) may find that if it uses a Balance Sheet Approach, its expatriates may be
substantially underpaid compared to local American employees. While the logic of the
balance sheet states that being tied to the home country assists in repatriation because the
expatriate identifies with the home country, research in equity theory31 suggests that
employees do not always assess compensation issues in a detached way.
The issue of base salary differences is also a concern for US employees working for foreign
firms operating in the USA. Many non-US multinationals are reluctant to pay high US
salaries to US employees who are offered international assignments (as HCNs into the
firms home- country operations, or as TCNs in a regional subsidiary). US employees are
equally reluctant to accept the lower salaries paid in the firms home country. Thus, the
Balance Sheet Approach can produce disparities and may also act as a barrier to staff
acceptance of international assign- ments. A second problem with the Balance Sheet
Approach is that while this approach is both el- egant and simple as a concept, it can
become quite complex to administer. Complexities particularly arise in the areas of tightly
integrated private and government fund transfers (e.g. taxes and pensions).
A third emerging approach to international compensation:
Local Plus
Over the past decade, a third approach to international compensation, summarized in Table
8.6, and called Local Plus has begun to emerge, particularly in the Asia Pacific region. A
Local Plus approach is one in which expatriate employees are paid according to the
prevailing salary levels, structure, and administration guidelines of the host location, plus
provided expatriate- type benefits such as assistance with transportation, housing, and
dependents education in rec- ognition of the employees foreign status. Benefits may be
paid in-kind (directly by the MNE) or as add-ons to local salary levels at a grossed-up rate
to account for host taxes. Local Plus
CHAPTER 8 INTERNATIONAL COMPENSATION 225
compensation does not typically include tax equalization, COLA, mobility premiums,
hardship allowances, familiarization visits, home leave, cross-cultural training and other
pre-departure programs, or spouse assistance. Pension benefits are optional depending on
the nature of the assignment and whether the transfer is temporary or permanent.
The driving force behind a Local Plus approach for many MNEs is to reduce their international assignment costs. Developing low-cost alternative salary packages, such as Local
Plus, is one way to achieve this. With many companies also seeing an increase in the
number of develop- mental assignees,32 many expatriates (especially junior and middle
management staff) are often willing to accept a reduced package such as Local Plus in
return for the international experience that will enhance their future careers. Typically,
Local Plus is used for long-term assignments, permanent transfers, intra-regional transfers
(e.g. such as in Asia Pacific), and for assignments from low to high wage locations.
In many respects, Local Plus compensation is a hybrid version of both the Balance Sheet
(home based) and Going Rate (host based) Approaches, often containing the optimum
benefits of both. As such, it is a compensation approach that can frequently solve some of
the problems encountered in more traditional compensation approaches and therefore has
some unique bene- fits. For example, because the expatriate benefits of a Local Plus
package are not fixed as in the Balance Sheet Approach, there is considerable flexibility to
tailor each plus component (i.e. add or a remove a benefit) according to a variety of
individual and corporate objectives. This is advantageous for a number of reasons. First, if
we take the Balance Sheet Approach, this is based on the notion that expatriate employees
can identify a home country, but with more expatriates undertaking multiple assignments,
often back to back, and frequently over a decade or more (some with no intention to return
or retire there), identifying home is becoming increasingly difficult. Using a Balance Sheet
approach under these circumstances does not make sense, but a Local Plus approach does.
Second, companies that recruit employees from locations where it has no presence (e.g.
TCNs) and therefore no payroll facilities will find it very difficult to administer either a
home or host based approached. Again, a Local Plus approach will solve this problem by
offering plus benefits based on what is appropriate given the employees expe- rience and
skills rather than where they come from or where they are going to.
The benefits of the Local Plus approach can be seen in the increasing use of this type of
com- pensation in Asia Pacific.33 AIRINC reports that companies headquartered in Asia are
more likely to have a formal Local Plus policy in place, and have more assignees on a Local
Plus pol- icy, than in any other region in the world.34 This may be due in large part to Asias
economic growth over the past decade that is fuelling the demand for a more globalized
workforce;35 as such, MNEs must entice hundreds of thousands of expatriates to the region
while also facilitat- ing the transfer of international employees in the most cost-effective
manner.
Although the benefits of Local Plus compensation are numerous, there are also some
disadvan- tages for firms that use the approach. In a recent study of expatriates views about
international assignments across five regions, McNulty and colleagues found that Local Plus
compensation tends to shift the power balance in the employment relationship in
expatriates favor.36 This is because, by its nature, Local Plus compensation has a more
normalizing effect on how expatriates live in a host-country in comparison to expatriates
on more generous salary packages. It means that the lifestyle of expatriates on Local Plus
compensation is generally more closely aligned with the lifestyle and socio-economic habits
of locals in the host-country, i.e., the disparity in purchas- ing power between themselves
and HCNs is marginal given that the choices they make about their standard of living
(where to live, which schools to attend) are determined less by the MNE. As a result of their
greater sacrifice and being forced to rely less on the organization to support some of their
fundamental employment needs, which is often not compensated for in other non-financial
ways (e.g. through improved career management support), Local Plus compensation can
impact on expatriates job embeddedness in terms of commitment and loyalty. In sum,
Local Plus com- pensation tends to decrease the ties that bind expatriates to their firm.
The shift in power in the employment relationship in favor of expatriates can have
significant implications for MNEs. The most significant problem is expatriate retention. For
instance, if
226 CHAPTER 8 INTERNATIONAL COMPENSATION
Local Plus compensation is ideally suited to expatriates willing to accept a reduced salary
pack- age in exchange for the opportunity to acquire valuable international skills, it is
necessary to also consider that once these skills have been acquired, employees
marketability on the interna- tional labor market will likely increase. As Local Plus
expatriates are less reliant on firms to fund their expatriate lifestyle, and because they are
living a largely local lifestyle to begin with, their willingness to consider other job offers
that may afford them even an incremental increase in their current salary is higher. This may
be because they feel pushed to find better employment opportunities, or because they have
(or are developing) a self-initiated career orientation (i.e., pursuing a protean, global or
boundaryless career as discussed in chapter 7) that prompted them to initially accept a
local-plus package. Either way, there is an increased risk of losing expatriates to
competitors, particularly during an international assignment, which can have a devastating
effort on MNEs broader global staffing objectives. See Table 8.6 for a comparison of some
long-term assignment options we have discussed.
TABLE 8.6 Compensation approaches and strategies for long-term international assignments
Policy Name Strategy Description of Policy Purpose Used For
Full International
Development
based on balance sheet (home) approach
targeted at executives for career development or on international track who possess universal
skills and considered high potential
often used for cadre approach to develop careers of elite group of high performers whose
permanent mobility is long-term strategic
full bells and whistles, i.e.
generous remuneration
(including bonus and
incentives) and benefits
(including cost of living
allowance, housing,
education, spousal
allowance, car, home
leave, and club goal
memberships)
designed to ensure
employees lifestyle not disadvantaged as result of international relocation
mainly used for retention purposes where goal is to repatriate to corporate headquarters or
business group headquarters
used sparingly and as reward for key individuals
Expat Lite
Skills/ Secondment
based on reduced balance
expatriates with deep technical skills or competencies needed in another location
specific goal is to transfer skills and knowledge for duration of assignment only (no more than 2
years)
expatriate relocates for fixed period and repatriates with no intention to relocate again unless a
specific skill need arises
often used to service clients in location where local skills not available
sheet (home) approach reduced version of full bells and whistles, i.e.
generous remuneration with/without bonus and incentives, and inclusion of some benefits (e.g.
housing, education, car, home leave) but not others (e.g. club memberships, spousal allowance, cost
of living)
(Continued)
(Continued )
CHAPTER 8 INTERNATIONAL COMPENSATION 227
Policy Name Strategy Description of Policy Purpose Used For
Local Plus
Cost savings
based on going rate (host) approach
provides some benefits of developmental policy but on greatly reduced basis
expatriates often localized with some additional benefits provided to sustain retention
no ongoing allowances (e.g. cost of living)
initial allowances typically phased out over period of assignment (100% benefit year one, 50%
benefit year two, 20% benefit year three)
combination of developmental and skills/secondment expatriates, but generally targeted at middle
management executives who are specialized, functional people, or broad business managers and/or
generalists who move between variety of different positions (and locations) throughout their career
typically offered to managers initiating relocation or indicating willingness to relocate
Localization
Cost savings, functional
turnover & retention
based on going rate (host) approach
initial allowances from any of above strategies phased out over period of assignment (100%
benefit year one, 50% benefit year two, 20% benefit year three) to achieve full local remuneration
typically offered to managers initiating a relocation or indicating willingness to relocate, and longterm assignees who have exceeded term of contract (i.e. beyond initial 3 or 5 year assignment) but
who wish to remain in location or firm does not wish to repatriate
One-Way International
Self-initiated transfers
based on going rate (host) approach
one way relocation package to host- destination
salary, incentives and benefits paid from local payroll
self-initiated/employee-initiated relocation
Source: Table 8.6 was created by the author team specifically for this textbook.
Taxation
Taxation is probably the one aspect of international compensation that causes the most
concern to HR practitioners and expatriates because taxation generally evokes emotional
responses.37 No one enjoys paying taxes, and this issue can be very time consuming for both
the MNE and the expatri- ate. To illustrate the potential problems, an assignment abroad for
a US expatriate may result in being taxed in the country of assignment and in the USA. This
dual tax cost, combined with all of the other expatriate costs, makes some US multinationals
think twice about making use of expatri- ates. It is important to note that Section 911 of the
US Internal Revenue Service Code contains pro- visions permitting a substantial deduction
on foreign-earned income, but US expatriates must file with the IRS and usually also with
the host-country tax office during their period of foreign service. This requirement is more
onerous than for citizens of some other OECD countries who are not required to declare
their total global income to their home-country taxation authority.
228 CHAPTER 8 INTERNATIONAL COMPENSATION
Multinationals generally select one of the following approaches to handling international
taxation:
l Tax
equalization. Firms withhold an amount equal to the home-country tax obligation of the
expatriate, and pay all taxes in the host country
l Tax
protection. The employee pays up to the amount of taxes he or she would pay on
compensation in the home country. In such a situation, the employee is entitled to any windfall
received if total taxes are less in the foreign country than in the home country. In her classic review
of global compensation, Stuart38 adds two other approaches: (1) ad hoc (each expatriate is handled
differently, depending upon the individual package agreed to with the MNE); and
(2) laissez-faire (employees are on their own in conforming to host-country and home-country
taxation laws and practices). However, neither of these approaches are recommended and we shall
focus on tax equalization and tax protection, as these are the most common approaches.
Tax equalization is by far the more common taxation policy used by multinationals.39 Thus,
for an expatriate, tax payments equal to the liability of a home-country taxpayer with the
same income and family status are imposed on the employees salary and bonus. Any
additional pre- miums or allowances are paid by the firm, tax-free to the employee. As
multinationals operate in more and more countries, they are subject to widely discrepant
income tax rates. For exam- ple, if we look at selected maximum federal marginal tax rates
(see Table 8.7) the top five high- est taxation countries are The Netherlands, Belgium,
Germany, Australia and Italy. The USA is significantly below the rates for these five
countries.40
TABLE 8.7 Maximum marginal federal tax rates
Country Maximum marginal rate (%)
Australia 45.00
Belgium 50.00
Canada 29.00
Chile 40.00
Denmark 26.48
France 40.00
Germany 45.00
Italy 43.00
Japan 40.00
Korea 35.00
Mexico 28.00
Netherlands 52.00
New Zealand 39.00
Poland 40.00
Spain 27.13
Sweden 25.00
Switzerland 11.50
Turkey 35.00
United Kingdom 40.00
United States 35.00
Source: Adapted from the Organization for Economic Cooperation and Development (OECD). Table 1.1
Personal Income Tax Rates, 2008. Reproduced with permission.41
CHAPTER 8 INTERNATIONAL COMPENSATION 229
Many MNEs have responded to this complexity and diversity across countries by retaining
the services of international accounting firms to provide advice and prepare host-country
and home-country tax returns for their expatriates. Increasingly, multinationals are also outsourcing the provisions of further aspects of the total expatriate compensation packages
including a variety of destination services in lieu of providing payment in a package.42
When multinationals plan compensation packages, they need to consider to what extent
specific practices can be modified in each country to provide the most tax-effective,
appropriate rewards for PCNs, HCNs and TCNs within the framework of the overall
compensation pol- icy of the MNE.
As one international HRM manager noted some years ago, the difficulties in international
compensation are not compensation so much as benefits. Pension plans are very difficult
to compare or equalize across nations, as cultural practices vary considerably.
Transportability of pension plans, medical coverage and social security benefits are very
difficult to normalize.43 This observation remains relevant today and MNEs need to actively
monitor a range of issues when considering benefits, including:
l Whether
or not to maintain expatriates in home-country programs, particularly if the MNE does
not receive a tax deduction for it.
l Whether
MNEs have the option of enrolling expatriates in host-country benefit programs and/or
making up any difference in coverage.
l Whether
host-country legislation regarding termination affects benefit entitlement.
l Whether
expatriates should receive home-country or host-country social security benefits.
l Whether
benefits should be maintained on a home-country or host-country basis, who is
responsible for the cost, whether other benefits should be used to offset any shortfall in coverage,
and whether home-country benefit programs should be exported to local nationals in foreign
countries.
Differences in national sovereignty are also at work in the area of mandated public and
private pension schemes, what many nations refer to as social security programs. Table 8.8
highlights the differences in mandated degree of contribution (ranging from a low of 0 per
cent to a high of over 60 per cent) as well as the mix of employer-employee contribution.
For many international firms, expatriate assignments are likely to increase in distance, number and duration over an employees career, and more and more firms may create cadres of
per- manent international assignees called globals by some firms. The inherent
complexity and dynamism of culturally embedded and politically volatile national tax and
pension processes promise to tax the resources, time and attention of international human
resource managers for the foreseeable future. Seamless networks of global firms, their
specialist consultants and local and regional public and private interests are a goal rather
than a reality.
International living costs data
Obtaining up-to-date information on international living costs is a constant issue for
multina- tionals. As we noted at the beginning of this chapter, the level of local knowledge
required in many areas of IHRM requires specialist advice. Consequently, many MNEs
retain the services of consulting firms that may offer a broad range of services or provide
highly specialized services relevant to HRM in a multinational context. With regard to
international living costs, a number of consulting firms offer regular surveys calculating a
cost-of-living index that can be updated in terms of currency exchange rates. A recent
survey of living costs45 in selected cities ranked the ten most expensive cities (including
rent) as New York, Oslo, Geneva, Zurich, Tokyo, Dubai, Copenhagen, Singapore, Toronto
and London. The first US city in the index was New York,
230 CHAPTER 8 INTERNATIONAL COMPENSATION
TABLE 8.8 Social security contributions by employers and employees
Employer contribution Employee contribution Total contribution Country rate (%) rate (%) rate (%)
Australia 0 0 0
Belgium 34.47 13.07 47.54
Canada 7.37 6.68 14.05
Chile 0 7.00 7.00
France 40.8** 21.46** 62.26
Germany 19.56 20.71 40.27
Italy 32.08** 10.49** 42.57**
Japan 12.605 12.175 24.78
Korea 9.81 4.50 14.31
Mexico 7.64** 1.65** 9.29**
Netherlands 11.88 31.15 43.03
Poland 18.43 13.71 32.14
Singapore 0.00* 0.00* 0.00*
Spain 29.95 6.35 36.3
Sweden 31.42 7.00 38.42
Switzerland 11.05 11.05 23.00
Turkey 16.50 15.00 31.50
United Kingdom 12.80 11.00 23.80
United States 13.85 6.20 20.05
*When the contributions are at zero, they are funded out of the General Tax Revenue and range from zero to
very high values
**Varies idiosyncratically.
Source: Adapted from the Organization for Economic Cooperation and Development (OECD). Table 3.1 and
3.2 Social Security Contribution Tables, 2009. Reproduced with permission.44
ranked as the most expensive city including rent costs, but only the sixth most expensive
city if you exclude rent costs. The least expensive city was Mumbai in India (formerly
known as Bombay). Price differentials between Eastern and Western Europe closed in 2009
to an average of 26 per cent higher prices in Western Europe.
MNEs using the balance sheet approach must constantly update compensation packages
with new data on living costs which is an ongoing administrative requirement. This is a very
impor- tant issue to expatriate employees and forms the basis of many complaints if
updating substan- tially lags behind any rise in living costs. Multinationals must also be able
to respond to unexpected events such as the currency and stock market crash that suddenly
unfolded in a number of Asian countries in late 1997. Some countries such as Indonesia
faced a devaluation of their currency (the Ruphiah) by over 50 per cent against the US
dollar in a matter of weeks. This event had a dramatic impact on prices, the cost of living
and the cost of servicing debt for Indonesian firms with loans denominated in a foreign
currency such as the US dollar.
There is also much debate about what should be in the basket of goods which consulting
firms use as the basis for calculating living costs around the world. For example, the Swiss
Bank UBS uses the Big Mac Index to measure living costs around the world.46 According
to Table 8.9, it takes almost three hours for the average worker in Nairobi to earn enough
for a Big Mac. In Los Angeles, Chicago and Hong Kong, the global burger can be bought
for less than 15 minutes effort.47
TABLE 8.9 Range of working times required to buy one Big Mac
CHAPTER 8 INTERNATIONAL COMPENSATION 231
City 1 Big Mac in min
Chicago, Tokyo, Toronto 12
London, Los Angeles, Miami 13
Hong Kong, New York, Sydney 14
Dublin, Frankfurt, Luxembourg, Montreal, Zurich 15
Copenhagen, Geneva, Vienna 17
Dubai, Nicosia 18
Amsterdam, Auckland, Berlin, Brussels 19
Lyon, Munich, Paris, Stockholm, Taipei 20
Barcelona, Moscow, Oslo 21
Lisbon 23
Tel Aviv 24
Manama 25
Johannesburg 26
Helsinki, Madrid, Milan, Rome, Seoul 27
Athens, Shanghai, Tallinn 30
Warsaw, Doha 31
Ljubljana 34
Singapore 36
Prague 38
Sa o Paulo 40
Kuala Lumpur, Vilnius 41
Bucharest, Riga 42
Beijing 44
Bangkok, Kiev 45
Istanbul 48
Delhi 49
Rio de Janeiro 51
Sofia 56
Buenos Aires 57
Bogota ,Lima 58
Budapest 59
Mumbai 61
Bratislava 62
Santiago de Chile 69
Cairo 82
Manila 88
Caracas 126
Mexico City 129
Jakarta 136
Nairobi 158
Notes: Price of one Big Mac divided by weighted average hourly pay across 14 professions Source: UBS,
Prices and Earning 2009.48
232 CHAPTER 8 INTERNATIONAL COMPENSATION
It is also possible to take a wider view and focus on business costs rather than living costs
for expatriates, because the multinational firm is interested in the overall cost of doing
business in a particular country as well as the more micro issue of expatriate living costs.
The Economist Intelligence Unit49 calculates such indices, which measure the relative costs
of doing business in different economies by compiling statistics relating to wages, costs for
expatriate staff, air travel and subsistence, corporation taxes, perceived corruption levels,
office and industrial rents and road transport. Generally the developed countries tend to rank
as more expensive than develop- ing countries because their wage costs are higher.
Differentiating between PCNs and TCNs
As we have indicated, one of the outcomes of the balance sheet approach is to produce
differen- tiation between expatriate employees of different nationalities because of the use
of nationality to determine the relevant home-country base salary. In effect, this is a
differentiation between PCNs and TCNs. Many TCNs have a great deal of international
experience because they often move from country to country in the employ of one
multinational (or several) headquartered in a country other than their own (for example, an
Indian banker may work in the Singapore branch of a US bank). As Reynolds50 long ago
observed, there is no doubt that paying TCNs according to their home-country base salary
can be less expensive than paying all expatriates on a PCN scale particularly if the
multinational is headquartered in a country which has both high managerial salaries and a
strong currency. However, justifying these differences to TCNs can be difficult. Clearly,
many MNEs take the view that a significant reduction in expenses out- weighs the difficulty
of justifying any negative pay differentials. However, as MNEs expand and international
revenue becomes more significant, TCN employees often become more valuable. A focus
on retaining talented TCNs often requires rethinking the existing approach to compensating TCNs.
As a starting point, multinationals need to match their compensation policies with their
staff- ing policies and general HR philosophy. If, for example, an MNE has an ethnocentric
staffing policy, its compensation policy should be one of keeping the expatriate whole (that
is, maintain- ing relativity to PCN colleagues plus compensating for the costs of
international service). If, however, the staffing policy follows a geocentric approach (that is,
staffing a position with the best person, regardless of nationality), there may be no clear
home for the TCN, and the multinational will need to consider establishing a system of
international base pay for key man- agers, regardless of nationality, that is paid in a major
reserve currency such as the US dollar or the Euro. This system allows MNEs to deal with
considerable variations in base salaries for managers.
TENTATIVE CONCLUSIONS: PATTERNS IN
COMPLEXITY, CHALLENGES AND CHOICES
While so far, some of this chapter has concentrated on expatriate compensation we will now
draw conclusions for the larger group of (international) managers in MNEs. As outlined at
the opening of the chapter, international compensation administration may be more complex
than its domestic counterpart, but is only slowly and fitfully evolving from a dominant
domestic state of origin.51 Domestic pay patterns that is norms and assumptions, pay
strategies and practices, as well as pay forms and administration are increasingly
challenged as executives in MNEs are exposed to alternative pay forms, varying legal and
institutional contexts and the rapidly chang- ing realities of global competitiveness.
Recent developments in the study of global pay issues may be seen to operate at three distinct vertical levels: the basic level of cultural values and assumptions; the intermediate
level of pay strategy, practices and systems design; and the surface (artifact) level of pay
administration and form52 see Figure 8.1. On a second, horizontal level, firms must
individually determine how to strike a balance between traditional, internally based models
and explanations of pay and those more externally focused models and explanations of pay
that comprise a global challenge to the status quo.53 Globalizing firms must individually
choose between internally and externally focused assumptions, strategies and practices. This
combined choice is the com- plex context of pay for any given multinational. Pay context
is the pivotal center column in Figure 8.1.
On the level of basic explanations, firms can choose to emphasize firm-specific theories of
job worth (such as resource-based views of the firm,54 behavioral theory55 or new institutional economics models)56 or they may emphasize firm external theories of job worth (such
as cultural and institutional perspectives).57 These theories may be implicit and not
articulated by pay practitioners, and yet these assumptions may indirectly drive all other pay
processes. On the more explicit, and more widely investigated, level of norms and values,
pay strategy may be seen as some combination of internal, corporate norms (derived from
and consistent
FIGURE 8.1 Complexity, challenges and choices in global pay.
CHAPTER 8 INTERNATIONAL COMPENSATION 233
LEVEL 3
Artefacts
LEVEL 2
Norms and values
LEVEL 1
Basic expla- nations
Research paradigms
Internal context
Firm-internal variables reflecting norms & values Examples:
Corporate/
business unit strategy
Corporate culture
HR Strategy
Employment
relationships (long-term vs. short- term employment relationships)
Mainly firm-internal perspectives Examples:
Resource-based view
Resource Dependence
Theory
Behavioral Theory
New Institutional
Economics
Mainly firm-external perspectives Examples:
Cultural perspectives Institutional
perspective
Pay context
Pay strategy
Possible Basis for pay:
Job vs. Skill
Performance vs. Seniority
Individual vs. Group
Performance
Short vs. Long Term
Orientation
Risk Aversion vs. Risk Taking
Corporate vs. Division
Performance
Hierarchical vs. Egalitarian
Qualitative vs. Quantitative
Performance Measures
Internal vs. External Equity
Universalist Contextualist
External context
Visible firm-internal variables
Examples:
Size
Organizational/ Product Life Cycle
Level of internationalization
Organizational structure
Practices in global pay
Pay mix
Pay level
Standardization vs. localization
of pay practices
Visible firm-external variables
Examples:
Industry
Local product market conditions
Local labor market conditions
Legal environment
Unions
Firm-external variables reflecting norms & values Examples:
Institutional forces
(e.g. industrial relations system, educational systems)
Cultural norms and values
234 CHAPTER 8 INTERNATIONAL COMPENSATION
with pay strategy, IHRM strategy and traditional employment relationships practiced psychological contracts) and external, environmental norms (derived from labor unions, educational systems, and local or regional institutional sources) that may vary significantly by
geographic region.
Pay strategy may be defined in terms of a series of interlocking strategic choices on: basis of
pay (job versus skill, performance versus seniority),58 unit of aggregation (paying
individuals, groups, organizations, short- versus long-term orientation to pay),59 patterns of
variation in pay (variability or risk in pay, hierarchical versus egalitarian pay orientation),60
and an overall focus on internal equity as captured by job evaluation systems as opposed
to external equity as captured by market surveys.61 Universal pay systems may be
preferred by corporate pay plan- ners rather than having to deal with myriad local systems.
Ease of administration and the standardization of practices are attractive and can contribute
to simplicity in global assign- ments, resolving disputes related to perceived inequities or
policy inconsistencies, etc. However, local or regional host contexts and/or MNE strategy
may influence senior managers to com- promise these global preferences and strategically
align pay practices more or less in conform- ance with local or regional requirements.62
Strategic necessity and contextual requirements may incrementally grudgingly move pay
practices away from a universalized and toward a more localized character.63
It should be noted that in the center column of Figure 8.1, under possible basis for pay, a
number of levels of analysis have emerged to supplement or augment traditional job-based
pay. Firms may provide an individual employee with personal choice in pay and pay for
his/her skills or competencies.64 Alternately, a firm may pay at the traditional job level,
realizing that even standard jobs may vary tremendously across geographic regions. Firms
may also pay at the task group or plant level of aggregation.65 Finally, firms may provide
customized pay at the national level, or provide standardized core pay for all employees
in the global firm.66 Increas- ingly, we may combine pay packages across these vertical
levels of analysis and pay for a combi- nation of personal, job, group, national or corporate
purposes.67 These composite pay systems are more complex, but they are also more flexible
and responsive to diverse employee demands and changing global business conditions.
MNEs face global challenges to executive compensation practices and forms of corporate
governance.68 These challenges may be seen as an ongoing debate between advocates of pay
systems that value competitive individualism and result in hierarchical pay systems with
large pay differentials for executives, market sensitive professions and other critical
employee groups69 and the advocates of pay systems that value cooperative collectivism and
result in more egalitarian pay systems with smaller pay differentials and more shared
group or firm-wide reward practices.70 Increasingly, multinationals that violate corporate or
local norms in one location in order to respond to local norms in a second location do so at
their own risk.71
At the final level of pay form and administration (artifacts) MNEs may determine that pay
practices such as pay mix (between base pay, the nature and extent of benefits, use of longterm and short-term incentives, etc.), overall level of pay, and the degree to which pay is
standardized across all units or customized to local conditions should be the result of
internal or external influences.72 Firm specific realities (such as operating in a monopolistic
industry, a low degree of internationalization, and simple organizational design) may
mitigate for standardized pay practices. Conversely, strongly held local values, institutions
and regulations, an advanced level of internationalization and decentralized organizational
designs may mitigate for more flexible, localized pay practices.73
CHAPTER 8 INTERNATIONAL COMPENSATION 235
SUMMARY
In this chapter, we have examined the complexities that arise when firms move from
compensa- tion at the domestic level to compensation in an international context. It is
evident from our review that compensation policy becomes a much less precise process than
is the case in the domestic HR context. To demonstrate this complexity, we have:
l Detailed
the key components of an international compensation program.
l Outlined
the two main approaches to international compensation (the Going Rate and the Balance
Sheet) and introduced a third new approach to compensation Local Plus and explained
components as well as its advantages and disadvantages.
l Outlined
special problem areas such as taxation, obtaining valid international living costs data and
the problems of managing TCN compensation.
l Presented
a model of global pay that highlights the complexity and yet familiarity of pay practices
in the global context. It is this combination of pay decisions based on strategic global
standardization and sensitivity to changing local and regional conditions that characterizes the state
of international pay practices.
l Posited
that a strategic yet sensitive balance can only be achieved by creating and maintaining
professional networks, comprised of home office and local affiliate HR practitioners, outsourcing
selected activities through specialist consultants, and a close cooperation with local and regional
governments and other key local institutions.
Chapter 8
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
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Chapter 8
Vocabulary
Objectives
Introduction
Components of an international compensation program
for expatriates
Approaches to international compensation
of expatriates
Tentative conclusions:
patterns in complexity, challenges, & choices

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compensation
HRIS = HR information system
base salary
hardship premium
foreign service inducements
COLA = cost-of-living allowance
housing allowance
home leave allowances
education allowances
relocation allowances
spouse assistance
balance sheet, going rate, & local plus approaches
tax equalization
tax protection, ad hoc & laissez-faire approaches
international base pay
pay strategies
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
3 of 31
Chapter 8
Vocabulary
Objectives
In this chapter we:
1. Examine the complexities caused by moving compensation
from a domestic to an international context
2. Detail components of a international compensation program
3. Outline the two main approaches to international
compensation & the advantages/disadvantages of each
4. Introduce a third emerging approach: local plus
6. Examine recent developments & issues
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
4 of 31
Chapter 8
5. Examine the special problem areas of taxation, valid
international living cost data, & the problem of managing
TCN compensation
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
5 of 31
Chapter 8
Introduction
Compensation is increasingly seen as
Mechanism to
develop & reinforce
a global corporate culture
Primary source of corporate control
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
6 of 31
Chapter 8
Explicitly linking
performance outcomes
with associated costs
International
compensation complexities
Pay

Housing
Safety
Transportation
Education of children
Length of stay
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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Chapter 8
Taxes
Cost of living
Objectives of
international compensation
The policy
should be consistent with overall strategy, structure,
& business needs of the MNE
must attract & retain staff in areas where the MNE has
the greatest needs & opportunities
must give due consideration to equity
& ease of administration
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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Chapter 8
should facilitate the transfer of international employees
in the most cost-effective way for the firm
International employee
expectations
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
9 of 31
Chapter 8
1. Financial protection in terms of benefits, social
security, & living costs in the foreign location
2. Opportunities for financial advancement through
income & savings
3. Housing, childrens education, & recreation will be
addressed
4. Career will be advanced
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
10 of 31
Chapter 8
Components of international
compensation for expatriates
Key components for expatriates
1. Base salary
2. Foreign service inducement
& hardship premium
3. Allowances
COLA, housing, home leave, education,
relocation, spouse assistance
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
11 of 31
Chapter 8
4. Benefits
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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Chapter 8
Approaches to international
compensation of expatriates
Three approaches to
international compensation
1. Going rate approach
2. Balance sheet approach
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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Chapter 8
3. Local plus
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
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Chapter 8
Table 8.1
Going rate approach
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
15 of 31
Chapter 8
Table 8.2
Advantages & disadvantages of the going rate approach
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
16 of 31
Chapter 8
Table 8.3
The balance sheet approach
4 balance sheet approach categories
1. Goods & services
2. Housing
3. Income taxes
PC & HC income taxes
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
17 of 31
Chapter 8
4. Reserve
contributions to savings, payments for benefits,
pension contributions, investments, education
expenses, S.S. taxes, etc.
Local plus approach
The expatriate employee is paid according to prevailing
salary levels, structure, & administrative guidelines of
the home country
Does not typically include:
COLA, mobility premiums, hardship allowances,
familiarization visits, home leave, cross-cultural
training, other pre-departure or spouse assistance
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
18 of 31
Chapter 8
expatriate-type benefits in recognition of foreign status
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
19 of 31
Chapter 8
Table 8.4
Expatriation compensation worksheet
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
20 of 31
Chapter 8
Table 8.5
Advantages & disadvantages of the balance sheet approach
Table 8.6a
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
21 of 31
Chapter 8
Compensation approaches & strategies for long-term international assignments
Table 8.6b
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
22 of 31
Chapter 8
Compensation approaches & strategies for long-term international assignments
Table 8.6c
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
23 of 31
Chapter 8
Compensation approaches & strategies for long-term international assignments
Table 8.6d
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
24 of 31
Chapter 8
Compensation approaches & strategies for long-term international assignments
MNE approaches to
international taxation
Tax equalization
MNE withholds tax obligation & then pays all
taxes in HC
Tax protection
Employee pays up to amount s/he would pay on
compensation in HC
Ad hoc each expatriate handled differently
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
25 of 31
Chapter 8
Laissez-faire each is on their own
Table 8.7
Country
Max. marginal
% rate
Country
Max. marginal
% rate
Australia
45.00
Mexico
28.00
Belgium
50.00
Netherlands
52.00
Canada
29.00
New Zealand
39.00
Chile
40.00
Poland
40.00
Denmark
26.48
Spain
27.13
France
40.00
Sweden
25.00
Germany
45.00
Switzerland
11.50
Italy
43.00
Turkey
35.00
Japan
40.00
United Kingdom
40.00
Korea
35.00
United States
35.00
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
26 of 31
Chapter 8
Maximum marginal federal tax rates
Table 8.7a
Working time required to buy one Big Mac
1 Big Mac in min
Chicago, Tokyo, Toronto
12
London, Los Angeles, Miami
13
Hong Kong, New York, Sydney
14
Dublin, Frankfurt, Luxembourg, Montreal, Zurich
15
Copenhagen, Geneva, Vienna
17
Dubai, Nicosia
18
Amsterdam, Auckland, Berlin, Brussels
19
Lyon, Munich, Paris, Stockholm, Taipei
20
Barcelona, Moscow, Oslo
21
Lisbon
23
Tel Aviv
24
Manama
25
Johannesburg
26
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
27 of 31
Chapter 8
City
Table 8.7b
Working time required to buy one Big Mac
Helsinki, Madrid, Milan, Rome, Seoul
27
Athens, Shanghai, Tallinn
30
Warsaw, Doha
31
Ljubljana
34
Singapore
34
Prague
38
So Paulo
40
Kuala Lumpur, Vilnius
41
Bucharest, Riga
42
Beijing
44
Bangkok, Kiev
45
Istanbul
48
Delhi
49
Ro de Janeiro
51
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
28 of 31
Chapter 8
1 Big Mac in min
Table 8.7c
Working time required to buy one Big Mac
Sofia
56
Buenos Aires
57
Bogot, Lima
58
Budapest
59
Mumbai
61
Bratislava
62
Santiago de Chile
69
Cairo
82
Manila
88
Caracas
126
Mexico City
129
Jakarta
136
Nairobi
158
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
29 of 31
Chapter 8
1 Big Mac in min
Issues to consider
for expatriate benefits
Keep expatriates in home-country programs,
particularly if the firm receives no tax deduction for it?
Option to enroll expatriates in host-country benefit
programs &/or make up any difference in coverage?
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
30 of 31
Chapter 8
Do expatriates receive home-country or are eligible to
receive host-country social security benefits?
Table 8.8
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
31 of 31
Chapter 8
Social security contributions by employers & employees
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
32 of 31
Chapter 8
Tentative conclusions:
patterns in complexity,
challenges, & choices
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
Cengage Learning
33 of 31
Chapter 8
Complexity, challenges & choices in global pay
Figure 8.1

Introduction:

MBA-International Human Resource Management course focuses on the management of human resources in a multinational context. The course teaches students about the challenges and complexities involved in managing employees across different countries and cultures. One of the critical aspects of managing international employees is creating an effective compensation policy that balances the financial needs of employees and the organization. This week’s discussion is centered around the two most commonly used methods by multinational enterprises (MNEs) in developing compensation plans for overseas employees.

Description:

The discussion this week revolves around two essential methods used by MNEs to create compensation plans for their international employees. This topic is discussed in Chapter 8 of the Dowling text, which covers various factors involved in international compensation. The aim of this discussion is to identify the main objectives of a compensation policy for an MNE and determine which international compensation approach has the most advantages and disadvantages. Additionally, we will explore personal preferences for compensation policies and explore the reasons behind them.

The second topic of discussion this week is about the different styles of management present globally. The question will be asked if western management styles considered the best. Or if a more situational frame, dependent on different factors is important and why it is important to consider. This topic will explore different management styles present in the world and analyse their effectiveness in various situations. The article by Boyacigiller in Module 1 of the Course Documents section is a great resource to understand the various types of management styles. Through this discussion, students will gain insights into the importance of understanding diverse management styles in a global context.

Objectives:

1. To understand the factors involved in developing compensation policies for multinational firms.
2. To analyze the advantages and drawbacks of different international compensation approaches.
3. To evaluate the main objectives of an effective compensation policy for multinational firms.
4. To identify the most suitable approach to compensation for employees in an international context.

Learning Outcomes:

1. Analyze the factors that impact international compensation policies.
2. Evaluate the advantages and disadvantages of different international compensation approaches.
3. Develop a comprehensive understanding of the main objectives of an effective compensation policy for multinational firms.
4. Determine the most suitable compensation approach for overseas employees based on their unique needs and circumstances.
5. Critically analyze the role of western management styles in the global business environment.
6. Evaluate the situational applicability of western management styles in different international contexts.
7. Identify the factors that influence the choice of management style in an international context.
8. Develop a comprehensive understanding of the importance of context and culture in the choice of management style.

Heading 1: International Compensation Policy Objectives

Objective: To understand the factors involved in developing compensation policies for multinational firms.

Learning Outcomes: Analyze the factors that impact international compensation policies. Develop a comprehensive understanding of the main objectives of an effective compensation policy for multinational firms.

Heading 2: International Compensation Approaches

Objective: To analyze the advantages and drawbacks of different international compensation approaches.

Learning Outcome: Evaluate the advantages and disadvantages of different international compensation approaches. Determine the most suitable compensation approach for overseas employees based on their unique needs and circumstances.

Heading 3: Western Management Styles

Objective: To critically analyze the role of western management styles in the global business environment.

Learning Outcome: Critically analyze the role of western management styles in the global business environment. Evaluate the situational applicability of western management styles in different international contexts.

Heading 4: Management Style Choice in an International Context

Objective: To identify the factors that influence the choice of management style in an international context.

Learning Outcome: Identify the factors that influence the choice of management style in an international context. Develop a comprehensive understanding of the importance of context and culture in the choice of management style.

Solution 1: Developing Compensation Policies for Multinational Firms

Introduction: Compensation policies for multinational firms are complex and multifaceted. In this solution, we will discuss the main objectives of a compensation policy for a multinational firm, identify the most problematic international compensation approaches, list the most advantageous approaches, and provide personal preferences.

Main Objectives of a Compensation Policy: A compensation policy for a multinational firm should accomplish three critical objectives: attract local talent, retain top employees, and ensure a equitable compensation package. Firms must attract local talent to remain competitive in the local market. Retaining top talent is also critical for long-term success and reducing turnover costs. Finally, an equitable compensation package helps create a work culture that encourages local employees to work and collaborate with expats.

Problematic International Compensation Approaches: The localization approach is problematic since it fails to address the issue of expatriate compensation and does not retain top talent. The balance sheet approach can be problematic since it may lead to the creation of inequitable compensation packages and resentment between local and expat employees.

Most Advantageous International Compensation Approaches: The Going Rate Approach is the most beneficial since it aligns with local norms, retains local talent, and ensures fair compensation for both local and expat employees. The local-plus approach is also advantageous since it allows firms to provide a premium for expat employees while maintaining equity.

Personal Preferences: If it were our salary under consideration, we would prefer the Going Rate Approach. This approach aligns with local norms and allows for retention of local talent in addition to fair compensation.

Solution 2: Western Management vs. Non-Western Management Styles

Introduction: Management styles differ worldwide, and it is essential to determine which approach is more effective, western or non-western. In this solution, we will examine the effectiveness of Western Management styles, situational factors that influence the effectiveness of these styles, and the importance of balancing traditional and western management styles.

Effectiveness of Western Management Styles: Western Management Styles are effective in many respects; they promote efficiency, productivity, and accountability. Western Management Styles also tend to follow a scientific approach to management, which seeks to optimize and improve organizational performance continually.

Situational Factors: The effectiveness of Western Management styles varies based on situational factors, such as the cultural context, type of industry, level of education, and management goals. In some non-western cultures, democracy and equality are not highly valued, so it could lead to low performance if western management styles are fully integrated.

Balancing Traditional and Western Management Styles: It’s crucial to find a balance between traditional and western management styles, especially in non-western cultures. Managers must recognize the importance of cultural differences and tailor the management style accordingly. They must develop an approach that fosters cultural sensitivity and promotes innovation and efficiency.

Conclusion: Western management styles are effective in many cultures; however, managers need to recognize that they are not universally applicable. The situational context and cultural values must be considered when deciding which management approach to follow. Balancing traditional and western management styles creates an environment that fosters innovation, cultural sensitivity, and productivity, thereby contributing to the success of an organization.

Suggested Resources/Books:
1. ‘Global Compensation: Foundations and Perspectives’ by Luis R. Gomez-Mejia and Steve Werner
2. ‘International Human Resource Management: A Multinational Company Perspective’ by Monir Tayeb
3. ‘Managing International Assignments: The Strategy for Success’ by Chris Brewster and Wolfgang Mayrhofer

Similar asked questions:
1. What are the key challenges faced by multinational companies when designing compensation policies for their international employees?
2. How do cultural differences influence the effectiveness of international compensation policies?
3. What are the different approaches that multinational companies can adopt to manage the compensation of their expatriate employees?
4. How do compensation policies impact employee motivation and retention in a multinational company?
5. What are the ethical considerations that multinational companies need to take into account when designing compensation policies for their international workforce?

Answer 1:
Main objectives of a compensation policy for a multinational firm should be to attract, retain, and motivate employees. Compensation policies should support the company’s global strategy and align with local practices and cultural expectations. The two methods most MNEs currently use to develop compensation plans for overseas employees are ‘balance sheet approach’ and ‘localization approach’. The ‘balance sheet approach’ has the advantage of ensuring that the expatriate is neither better nor worse off financially than they would have been if they had stayed in their home country. However, it can also create a sense of inequity among local employees. The ‘localization approach’, on the other hand, can create significant savings for the company, but it may fail to provide expatriates with sufficient incentive to accept international assignments. In my opinion, a hybrid approach that combines elements of both strategies is likely to yield the most benefits.

Answer 2:
There is no one-size-fits-all style of management that is universally applicable. The effectiveness of management styles depends on a range of factors, including the company culture, industry, country culture, and employee demographics, among others. While Western management practices have been widely adopted by companies worldwide, this does not necessarily mean that they are ‘the best’. The choice of management style needs to be situational and align with the strategic goals of the organization. In some cases, a more decentralized, participative approach may be more effective, while in others, a more authoritarian style may be required. The key is to adopt a flexible approach to management that can adapt to changing circumstances and achieve the desired outcomes.

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