International Pay Systems

Introduction

Riordan Manufacturing is an industry leader in plastic injection molding with

plants in Georgia, Michigan and China, and considering expansion into Japan. With
the company looking at expansion into other global markets, Riordan understands
that legal and regulatory protection is required. The cultural differences of the
workers and customers must also be understood. HR will work closely with the
foreign country to understand the customs and preferences of the society while
complying and enforcing copyright, privacy and intellectual property (IP) laws.
Taking into account the legal issues involved in international business ventures and
incorporating the customs and preferences of the foreign countries will help Riordan
Manufacturing meet their goal for expanded marketing and sales in the global
market. (UOP, 2007)

The Role of the Social contract in the Japanese system

The main reasons for the government’s tendency to introduce protective

measures to counterbalance the effects of market reforms are an insufficient
welfare system and Japan’s existing social contract, which does not tolerate
uncertainty and social suffering. A social contract, at a very basic level, is a
covenant, usually not codified, by which the society and state are constituted. In
particular, it addresses the question of how many services the government has to
provide in return for its right to reduce citizen’s incomes, be that through high
taxes, high prices, or other means. Reflecting significant differences in basic
societal assumptions and preferences as well as political and economic struggles
within and across nations, countries differ in how they have crafted this social
contract over the course of their histories. A social contract, grown over time and
inclusive of a country’s leading interests as well as societal norms and values, is
difficult to change, either incrementally or radically. (Olson, 1982) A change in the
covenant would require a change in fundamental values and implicit contracts in
the society – something that was not at all observable in Japan in 2003. Instead, as
the recession continued, Japanese citizens seemed to be ever more concerned with
the existing values of security, stability and certainty. Japan is not the only country,
of course, where the existing social contract has created barriers to the change
needed for a successful transition to a post-industrial society. For example, many in
the U.S. are unhappy with a system where, in spite of significant country wealth,
more than 40 million people are without health insurance. (Olson, 1982)

The Role of the Social contract on Compensation Systems Internationally

Corporations must treat employees and their human capital as a company's

"most important assets" rather than costs to be minimized and controlled. The latter
view carries over from the 20th century corporate models in which financial capital
was the dominant source of competitive advantage and corporations were viewed
primarily, or in some people's minds solely, as instruments for maximizing the
wealth of its financial investors. To do so, the firm needs to adopt strategies and
employment practices that build and sustain the trust and long-term commitment of
its human and financial investors and return fair value to both groups. Those who
participate in governing the firm need to be held accountable for creating value,
investing for a sustainable future, and distributing fairly its proceeds to the
constituent groups that help create it. This implies that all groups should have a
voice in choosing and holding accountable members of corporate boards or other
governance bodies. (Kochan and Shulman, 2007)

The Equity in Compensation between Expatriate and Nationals within the same
country

The critical issues in compensation at this first stage focus exclusively on

home country national expatriates. Issues revolve around careful negotiations - give
too many premiums and incentives and you create an international stampede and
unrest in the domestic pay system. Give too few incentives and you can not
influence people to risk foreign assignments. (Engle 2007) Issues also include
uncovering, sometimes by trial and error, the components and adjustments to
domestic pay which comprise the accounts in the "balance sheet". This stumbling to
a "balance sheet" approach has comprised much of the case-oriented research in
expatriate issues. Information on the cost of living, transportation options, children's
education, housing costs and other incentives is facilitated by consulting firms and
patterns of cost relationships are gradually standardized for the "balance sheet"
(Briscoe, 1995). Here the rapidly internationalizing firm is adjusting to the new
environments, but always on its’ own (domestic) terms.

The Effect of Trade Unions and Employee involvement in Compensation Systems for
Cross Border Organizations

By analyzing the forces affecting today's trends, we are better able to

understand tomorrow. It is important to understand how employee compensation
will be determined and what the consequences of different approaches will be. For
the way employees are compensated affects their financial well being, their skills
and knowledge and their self worth. Compensation directly impacts the economic
effectiveness of employers and the talents of a nation's human resources. Finally,
the way employees are compensated exhibits society's sense of social justice. The
trend affecting tomorrow's compensation is the shift away from responding to
negotiated or "benchmark" patterns to competitive positioning. One of the most
important relationships is that between management, employees and trade union
representatives. The central role of the national unions combined with single nation
orientation will sometimes slow or even stop the development of an international
unions bargaining capability. (Engel, 2007)

Compare and contrast Pay Systems across Countries

Pay is a status symbol within organizations and society. In less complex

societies, the status of individuals is a product of many standards of judgment; for
example, their families, friends, occupations, education levels, and religious and
political affiliations. In large, mobile societies, many of these standards are harder
to measure and become less significant. Income as a symbol of status does not
present this problem. (Atchison, Belcher, Thomsen, 2004) Organizations create
status structures of jobs. Status differences are measured by both organizations
and individuals in terms of pay and pay differences. In fact, employees learn to
place associates in the status structure of the organization according to how much
they are paid. Because pay is such a universal measure of status in organizations, it
is easy to understand why even small differences in pay assume great significance.
This is the one constant in all countries pay systems. Salary may imply a status
different from that of wage, while a yearly salary may imply a higher status than a
monthly or weekly salary. This symbolic significance adds another dimension to the
importance of compensation to individuals. (Atchison, Belcher, Thomsen, 2004)
These values operate within an organization as well as in society in general. In
designing the status structure of jobs and pay, an organization is influenced by what
pay the job commanded in the past and what other organizations are paying at
present. The force of outside influences varies with the kind of people hired, their
attachment to the organization, and the similarity of the organization's jobs to those
found elsewhere. If the organization can create unique jobs, hire only for beginning
jobs, and do its own training for higher level jobs, outside influence is minimized.
But customary relationships that are just as conservative soon arise inside the
organization. Groups within the organization struggling for status and pay bring
forces at least as powerful as traditional forces from outside the organization.
(Atchison, Belcher, Thomsen, 2004)

How would Robert Lord's how would pay as an expatriate differ from the pay of a
Japanese national of the same age?

Senior managers in the US earn a high gross salary, similar to those in Japan,
Germany and Denmark. But gross salaries alone are misleading. Once local taxation
and living costs are taken into account, we see that a US employee is much better
off than his Japanese counterpart. Sent to Japan on local terms, his buying power
would be greatly reduced although the gross salary would be higher. They spend
able income is adjusted for cost of living differences between home and host
locations. This way, the expatriate is assured of the same spending power in the
host location as enjoyed at home. The home housing and savings portion is
generally paid at home in home currency to cover the assignee's home
commitments. A number of allowances and incentives may also be added to the
host country portion. The US is one of the few countries to impose tax on the
foreign-earned income of its citizens. Many companies, however, bear this
additional tax burden through tax -equalization agreements: the employer
reimburses the employee for the extra amount incurred by the expatriate salary
package. Typically, a company withholds a hypothetical tax from each payroll
payment to the employee, based on the projected tax incurred in the notional home
salary. At the end of the tax year, after the exact tax due is calculated, the
employee or the employer must reimburse the other for over/under payment. Here,
the balance sheet approach facilitates transparent and fair remuneration, with the
employee subject to the same net tax liability regardless of the location. The
downside to such tax-equalization is that it puts US companies at a cost
disadvantage, undermining their competitiveness. This is causing a trend for US
companies to try and fill their key managerial positions abroad with local staff. (eca
international, 2004)

Evaluate the Effect of Trade Unions and Employee involvement on the Japanese
National Compensation System

In Japan, with bargaining conducted exclusively at company level and no

mechanisms for the extension of agreements beyond the signatories, bargaining
coverage exactly matches union density. (eurofound, 2005) In Japan, given difficult
economic conditions, the spring wage negotiations have been difficult for trade
unions over the past few years as they have been forced to choose between
maintenance of employment levels and pay rises. Furthermore, since 1999 in
particular, employers have been seeking to prioritize lump-sum bonuses and
incentives over 'base-ups' (pay revisions that reflect an upward trend in the prices
index or the company's business performance) and 'regular' pay increases (wage
rises based on the individual employee’s ability, age or length of service)

The estimated trade union organization rate in Japan fell from 20.2% in 2002 to
19.6% in 2003, continuing a downward trend that has been in evidence for 28
consecutive years. (eurofound, 2005)

Conclusion

Expatriates face substantial uncertainty regarding their new role in the

organization when they first arrive in their new location. Any information they gain
regarding the new job, the organization, and the larger cultural environment will
help them learn what to expect, how to interpret various stimuli they encounter
day-today, and what the appropriate behavior is in a given situation. Especially at
culturally challenging environments, with social networks, which are also are also
very rich informational networks, the expatriates may be left out of important
decisions and information if they are unable to penetrate existing informational
networks. The steps a multinational company should take in order to avoid or
minimize all the unwillingness of the local staff to help and support the expatriates
are:

At the headquarters of the organization:

1. Change Existing Compensation Policies – Pay expatriates salaries more in line

with local employees

2. Select More Carefully – Ensure that expatriates are qualified to perform the jobs
expected of them at a level consistent with the pay they will receive.

3. Use Transparent Pay and Promotion Policies – Develop pay policies that are
viewed as fair and that are clear to all involved.

At the host country site:

4. Emphasize Favorable Referents – Identify alternative referent persons for host

country national comparisons instead of the expatriate manager.

5. Breed Organizational Identification – Build a single organizational identity instead

of allowing an “us vs. them” mentality to develop.

6. Prepare Local Staff – The local employees should be trained and oriented to deal
with the incoming expatriates in much the same way as expatriates are often
trained to deal with locals.

7. Use and Reward Local Mentors – Identifying mentoring expatriates as part of the
local employee’s job, and then rewarding such behavior will make it more likely to
occur.

Local staff is important and must be recognized as such by multinational

companies. Many organizations come to recognize this and act accordingly, but
there is much more that can be done. The effective management of local staff will
be a key component of effective competition in the coming years. (Milkovich,
1992)

References

Atchison, T, Belcher, D & Thomsen, D ERI Economic Research Institute Copyright ©

2000 – 2004. Retrieved December 14, 2008 from
http://www.eridlc.com/index.cfm?fuseaction=textbook.chpt01

Briscoe, D. R. (1995) International human resource management. Englewood Cliffs,

N.J.: Prentice Hall Publishing.
Engle, Allen D (2007) Eastern Kentucky University. Retrieved December 14, 2008
from http://people.eku.edu/englea/GSC.html

European Working Conditions Surveys (2005) Retrieved Devember 14, 2008 from

http://www.eurofound.europa.eu/ewco/surveys/

Kochan, T and Shulman, B (2007) A New Social Contract Restoring Dignity and
Balance to the Economy. Retrieved December 14, 2008 from
http://www.sharedprosperity.org/bp184.html

Milkovich, G (1992) Tomorrow’s Compensation and Rewards Shaped by Today’s

Choices CAHRS Working Paper Series Cornell University. Retrieved December
14, 2008 from ProQuest Database

Olson, Mancur, 1982, The Rise and Decline of Nations: Economic Growth,
Stagflation, and Social Rigidities. New Haven: Yale UP. Retrieved December 14,
2008 from ProQuest Database

A consequence of the change appears to be a decrease in employee satisfaction and morale.

Annual employee surveys indicate that employees are dissatisfied with their jobs overall,

especially in the compensation and benefits area. The leaders of Riordan are now attempting to

determine the causes of the employee dissatisfaction.

Riordan is an organization with a lot of diversity among its employees, spanning a number of

generations. The age groups have “radically different perspectives on rewards and motivation,

valuing everything from interesting work to bigger paychecks” (U of P, 2005). The leaders in the

organization are facing significant difficulties in determining what will motivate all employees.
Much of the effort will involve researching compensation, “[The] potential to influence

employees’ behaviors, and subsequently the productivity and effectiveness of the organization,

makes the study of compensation worth [the] time.” (Milkovich & Newman, 2004). The employee

surveys will be critical in assessing the importance of compensation to employees at Riordan.

The opportunity to come together as a fully effective and powerful leadership team also exists in

this scenario. Riordan’s leaders are so concerned with their own individual interests that they

are missing out on what is important to each other and the employees. Because of the wide age

range in Riordan’s workforce, different things are important to many different employees. As

stated in one reading, employees value not only monetary compensation, but also, “relational

returns from … recognition and status, employment security, challenging work, and

opportunities to learn.” (Milkovich & Newman, 2004). Riordan’s leaders need to place the focus

on the needs of the employees during this time of change, rather than their own agendas.

Creating individual reward systems in the organizations will benefit the employees as long as

the employee surveys have been properly assessed and proper actions have been taken to

provide compensation for Riordan’s diverse employee workforce. A con to this alternative would

be if the compensation was perceived as unfair. Riordan could only benefit from this alternative

if the employee data were assessed carefully and appropriately in order to design multiple

compensation packages.