Compensation Management

Expatriate costs compared to parent country salaries 29 % companies say 2 to 2.9 times salaries 50% companies say 3 to 3.9 times salaries 18 % companies say 4 to 4.9 times

Issues in designing compensation programs

Parity between HCNs and PCNs State of labor markets Relevant national laws and practices Differences in cost of living standards Employee commitment and retention

requirements
Compensation decisions are policy decisions having strategic bearing and affect organizational performance and sustainable competitive adv. It requires knowledge regarding employment and taxation laws, customs, cost of living index, environment, employment practices, labor markets and industry norms.

Knowledge of locations, Foreign exchange, political, economic, social conditions, local union strength is to be Constantly monitored and decision based on companies vision, mission, corporate HR philosophy, and strategy with concerned units life-cycle

Going rate (Market rate ) approach

The base salary on international transfer remains linked to the salary structure of the host country. A reference benchmark point is drawn. e.g. an American company in India will decide salaries with reference to local Indian salaries or Other US companies in India or all foreign companies operating in India. For low-pay country, basic salary can be supplemented. Advantages Equality with local nationals. Simple in administration and to understand Expatriates can identify with host country Equity among expatriates of different nationalities.

Going rate (Market rate ) approach

Disadvantage when similar position persons are working in developed and developing countries, salary and tax rate differences are substantial. Also creates problems for expatriates returning to developing countries. Polycentric organizations favor this approach where subsidiaries are given autonomy to decide compensation based on local laws, customs and economic conditions.

Balance sheet (build-up )approach

Most widely used - maintains PCN benchmark, compensates for costs of international assignments & maintains home country living standards. i.e. links salaries of expats and TCN to home-country structure. Salary package is divided in 4 parts.

Balance sheet (build-up )approach

Different allowance and incentives are paid for various reasons such as Physical threats due to violence, hostility, diseases, or lack of medical & other facilities. Discomfort to family arising due to difficult physical environment, geographical location, cultural /psychological isolation etc,. Inconvenience due to lack of proper facilities of education, housing, recreation, consumer goods. Hardship allowance for climatic, technological, social adjustments needed. Leave, travel, housing, training allowances and

Balance sheet (build-up )approach

Advantages A. Easy to administer and communicate. B. Advantages Provides equity for expats posted in different countries. C. No problem arises due to repatriation of PCN. D. Facilitates easy transfer from country to country. Disadvantage A. Considerable disparity may arise between nationals of host country and expatriates, resulting in de-motivation. B. Differences in PCNs & TCNs because basic pay decided according to parent country.

requirements
Following issues need special attention Hardship allowance Repatriation Tax equalization Foreign Exchange fluctuations and

Cultural aspects regarding

Power distance Individualistic / group culture Cultures with masculinity Uncertainty avoidance

Cultural aspects in compensation Design

Cultural aspect
Power distance

High
Reflect hierarchical divisions in firm, tied to job , position, status, seniority etc. Individual basis Competitiveness, aggressiveness and dominance based Structured and consistent plans, centralized pay planning without discretionary variable plans Centralized pension system with multiple

Low
Performance based

Individualistic /(group) culture Masculinity/(feminin e) culture Uncertainty avoidance

Team work basis Social benefits, quality of work life, equity based Competitive and linked to performance

Defined contribution pensions with flexibility

Design
Cultural aspect Preference

Feminine Culture

Quality of work life, family- friendly practices

Masculine with moderate to high uncertainty avoidance

Job security

Feminine with moderate to high uncertainty avoidance Individualistic and low power culture

Income security

Flexible benefit programs

Other issues
Variable pay Incentive pay should be the last thing to do. Understand your business and strategy first and sort out several intangible things for proper measurement such as 1. performance or efforts 2. individual or team 3. collaboration, 4. Judgment e.g. Allstate, an insurance group calculates 15% of annual incentive bonus based on a leadership index designed in-house. 1.

Other issues
2.

Termination of contract closure of country operations - arises if MNC or the takeover firm does not want to continue in this country. Deciding factors are a. Tradition b. law c. Union contract

A systematic plan with severance payments, relocation expenses, retraining etc. is required.