International Compensations
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Introduction:
The design and maintenance of an enterprises total reward system are always responsibilites of HR manager. In international assignments the HR manager has to deal with the compensations and benifits of the mobile employees-or those who cross borders as part of their employment with the MNE , either as short-term international assignees or as long-term expatriates.
Key components:
The key components for any international compensation are.
BASE SALARY
FOREIGN SERVICE INDUCEMENT
ALLOWANCES
BENEFITS
TAXATION
Objective:
The main objective of any international compensation is attraction and retention of the best qualified talent who are qualified for international assignments.
Facilitation of transfers between the various employment location within the MNE.
Different approaches for international compensations:
There are various approaches for international compensations. But the most commonly used approaches are
1. The going rate approach
This is based on the local market rates
Surveys among local nations, exparities of same nations and exparities of all other nations
For low pay countries the base pay and benefits are supplemented by additional payments
Advantages
Disadvantages
Equality with local nationals
Simplicity and identification with host country
Equity among different nationalities
Variation between assignments for same employees
Variation between exparities of same nationalities in different countries.
Re-entry problems
2. Balance sheet approach:
This approach is mainly used for the maintenance of home country living standards and financial inducements
The basic foundations are home country pay and benefits.
Home country packages are adjusted to balance additional expenditure in host country.
To make it attractive financial incentives are added.
This approach is most commonly used by multinational firms.
Advantages
Disadvantages
Equality between assignments
There exists equality between expatriates of the same nation
Facilitates re-entry for the exparities
Easy to communicate to employees
Disparities between expatriates of different nations
Disparities between expatriates and local
Nationals
Complex to administer
The compensation package of international assignees must meet certain objectives in order to be effective
They must providing incentives to leave the home country for a foreign assignment.
Maintaining a given standard living.
Taking into consideration career and family needs.
They must facilitate for the re-entry into the home country at the end of the foreign assignment.
Organizations expanding their operations globally often send employees on temporary assignments to other countries to form strategic alliances, market products and services, and start new ventures. A variety of factors can impact the total cost of supporting international assignees and how their pay plans are designed.
There are some facts about compensation policies round the world:
90%4 of companies pay expatriates allowances and special reimbursements to compensate for additional expenses from living and working in a foreign country.
48%4 of companies pay expatriates an additional premium or incentive for international work assignments.
71 %3 of all MNCs use home country approach (diagram 1)
45%3 of companies use one single policy of compensation for all countries and there is no matter about how long expatriate will stay in the country (diagram 2)