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International Compensation

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Simranjeet Kaur
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213 views17 pages

International Compensation

Uploaded by

Simranjeet Kaur
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© © All Rights Reserved
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Compensation and Benefits Rewards can be intrinsic and extrinsic. Intrinsic reward is a feeling of pride of a job well done and achievement. Extrinsic rewards include praise from a superior, salary, employee benefits, career progression, etc. Compensation is extrin i'd for an employee. International compensation is a key issue in international human resource management. ‘Compensation is the amount of remuneration paid to an employee by the employer in return to the employee's services to the company. Almost allthe employees accept jobs in MNCs, take up assignments in various countries, and take up the risk, bear inconveniences and discomforts in foreign assignments ‘mostly based on the compensation package. However, some employees may accept the foreign assignments based on the expected compensation package for the future jobs. Thus, compensation package plays a pivotal role in international human resource management as the employees eave their comfortable current {jobs, home, relatives, friends and society at the home country to earn more finance and for better future prospects. Some employees even sacrifice the family life in order to make good money in the shortest span of time. As such, international human resource managers prioritize the compensation management function cover other functions, though it is more critical over other HR functions. “293 INTRODUCING THE CONCEPT OF INTERNATIONAL PAY SYSTEMS The rapid growth of international_business over the past two By expatriates is here “decades has led to an increased demand for expatriate talents. meant all kinds mplayoesithat ore teen By expatriates is here meant all kinds of employees that move ‘one country to employment to employment in, | another country and are assigned in another country and are jong-term assignments, in other words for more than one year. assigned long-term \né-term assignm assignments, in other words The Global compensation managers increasingly deal with two for more than one year. ‘areas of focus" 1. They must_manage highly complex and turbulent locaj details, while 2. Concurrently building and maintaining a unified, strategic pattern of compensation policies, practices and values. Requirements for Successful Compensation and Benefits entails the following; 1. Knowledge of employment and taxation_law, customs, environment and employment practices of many foreign countries 2. Familiarity with currency fluctuations and the effect of inflation on compensation, and 3. A good understanding of why and when special allowances must be supplied and which allowances are necessary in what countries te enational Pay Systems/Exptite Pay THE OBJECTIVES OF EXPAT PAY ‘Any international compensation should fulfil the following objectives; 1. At the outset, it should be consistent with the overall strategy, Structure and. business rieeds of the multinationy| ‘organization. 2. Secondly, it must work to attract and. fn the areas Shere. the “multinational has the greatest needs and ‘opportunities; hence it must be competitive and recognise factors such as incentive for foreign service, tax equalization and reimbursement for reasonable costs. 3. Thirdly, it should facilitate the transfer of intemational employees in the most cost-effective manner for the firm, 4 4. Last but not the least it must give due consideration to equity and ease of administration. ‘Any compensation package is designed to ensure equitable rewards to the executives which should be able to achieve the most Important objectives of at{racting, retaining and motivating the executives. This becomes all the more significant when it comes to ‘compensating the expatriate executive ‘According to Cherrington the six most critical objectives are; + Be legal: compensation decisions should be consistent with the federal, state and JocaLlaws and regulations, + Be adequate: any compensation should be Osjects ot expat pay "iain the requisite people in the organization. le to attract and sila objectives re: ¢ » Be motivating: it should be able to motivate the executives to pa give their best to the organization, aes + Be equitable: it should be perceived as equitable both internally as well ag externally by the executives, - a * Provide security: it should be able to provide adequate security to [the executives and his family both nancial as well as non + Be cost effective: the compensation system should be administered effectively ie a THE ELEMENTS / COMPONENTS OF EXPAT PAY tional compensation is complex, primarily Sougaymeoseer "because multinationals must cater to three categories of emplonees the Base eslry ana RAMely the parent country national’s. [PCNg), “ihe bene coat ce vee, ationals CLCNS) and The host country nationals (NEN) - indecemert" and’ The The Key Components of an expat pay would be; Hardship premium 1. The Base salar onus 3. The Alowarces a iene i a= Foreign services inducement and The Hardship premium aa nomenon ae ae four mane See eee a ¥ znational Pay Systems/Expatriate Pa 3. The Allowances 4, The Benefits, 1. The Base Salary and Bonuses Jn 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, many allowances aze directly related to base salary fog, foreign service ‘remium, costo ving dlowance, housing allowance) It is the basis for in-service benefits and pension contributions ~ ‘may be paid in home or local-country currency. ‘The base_salary is the foundation block for international compensation whether the employee is a PCN or TCN. Major diferences can occur in the employee's package depending on whether the base salary is linked to the home country of the PCN or TCX, or whether an international rat is pid Jn particular, the determination of the base salary lev influenced by the compensation approach followed by the company ie whether it is following the home country or the host country approach. oF (a) When the home-country approach is followed, ‘The first step is to determine a home gross salary. ‘The next step would be to deduct home tax, social security and any other regular compulsory payments ‘such as pension contributions. After that, one can contrast the net salary in the home country with that of the host country. is (0) When the Réie-country approach is followed, ‘The company must first of all collec information about the local salary-level. In these cases the role of host-units is important since they have a better understanding ofthe local environment. One additional concern in expat te compensation is the seleclion of the currency or currencies in which the salary is paid. Here the major concern is the exchange-rate risk. Due to this, the compensation package design can include some protection against cexthangeraie_risk or at least the risks related to currency rates shouldbe discussed with the expatriate. The bage salary is usually paid either in the home curreney in the hhome country or in the host-country currency, However, it is not very uncommon for expatriates to have thelr salary paid pary’in focal currency and partly i ther home currency. a International ay Sytem y Bonuses In many countries bonuses are compensation package. cir amount and variety vary a lot like all other fy conipensation across. counties, fr examples expatriates rant sranted performance bonuses or senior bonuse& ‘Although in particular performance Bonuses are common se, the determination of these bonuses on the basis_of performance involves many complexities and thus enough attention shoulg

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