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Presented By
Sneha-53
Shilpi-51
Jinal
Manali
Ritesh
Introduction
1–2
Introduction
• Global compensation managers
increasingly deal with two areas of
focus.
– They must manage highly complex and
turbulent local details, while
– Concurrently building and maintaining a
unified, strategic pattern of compensation
policies, practices and values.
1–3
Objectives
•• Examine
Examinethe thecomplexities
complexitiesthat
thatarise
arisewhen
whenfirms
firmsmove
movefrom
from
compensation
compensationat atthe
thedomestic
domesticlevel
levelto
tocompensation
compensationin inan
an
International
Internationalcontext.
context.
•• Detail
Detailthe
thekey
keycomponents
componentsof ofinternational
internationalcompensation.
compensation.
•• Outline
Outlinethe
thetwo
twomain
mainapproaches
approachesto tointernational
international
compensation
compensationand andthe
theadvantages
advantagesandanddisadvantages
disadvantagesof of
each
eachapproach.
approach.
•• Examine
Examinethe thespecial
specialproblem
problemareas
areasofoftaxation,
taxation,valid
valid
international
internationalliving
livingcost
costdata
data
•• Examine
Examinethe therecent
recentdevelopments
developmentsand andglobal
global
compensation
compensationissues.
issues.
1–4
Requirements for Successful
Compensation and Benefits
• Knowledge of employment and taxation law,
customs, environment and employment practices
of many foreign countries
• Familiarity with currency fluctuations and the
effect of inflation on compensation, and
• A good understanding of why and when special
allowances must be supplied and which
allowances are necessary in what countries
Allwithin
Allwithin the
the context
context of
of shifting
shifting political,
political,
economic
economic andand social
social conditions.
conditions.
1–5
Expatriate Compensation &
Benefits
Organization’s Com-
pensation Policy
Compensation
Compensation
Allowances Benefits
Benefits Economic
Conditions
6
Expatriate Costs
7
•Example:
8
Goals of an International Organization’s
Compensation Policy (1)
10
Employee Expectations and International
Organization’s Compensation Policy
11
Key Components of
International Compensation
The
Thearea
areaof
ofinternational
internationalcompensation
compensationisis complex,
complex,
primarily
primarilybecause
becausemultinationals
multinationalsmust
mustcater
catertotothree
three
categories
categoriesofofemployees:
employees:
–– PCNs,
PCNs, TCNs
TCNsandandHCNs
HCNs
–– Key
KeyComponents:
Components:
Base
Basesalary
salary
Foreign
Foreign services
servicesinducement
inducement
Hardship
Hardshippremium
premium
Allowances
Allowances
Benefits
Benefits
1–12
Key Components of International
Compensation Programme for Expatriates
• Base Salary
• The base salary is usually the main component
in international compensation, and is the main
benchmark used for other elements in an
expatriate compensation package, such as
bonuses and benefits
14
• Factors determining the hardship premium,
usually expressed in terms of an expatriate’s
base pay, are typically:
Assignment
Actual hardship
Tax consequences
Length of assignment
15
Key Components of International
Compensation Programme for Expatriates
Allowances: There are many types of allowances in
an international compensation package:
16
Key Components of International
Compensation Programme for Expatriates
Housing Allowance – Payment made to the expatriate with a
view to ensuring that he or she can maintain their home-
country living standard in the host country. Alternatively, an
organization may provide housing facilities on a mandatory or
optional basis. Also, support services may be provided to the
expatriate, for example, by helping sell or rent the expatriate’s
house in the home country
17
Key Components of International
Compensation Programme for Expatriates
Education Allowance – Payment made with a view to
supporting the education of the expatriate’s children, i.e.
tuition, language class, school enrollment fees, books and
supplies, transportation to educational establishment,
room and boarding, school uniforms etc. Problems
regarding the level of education required and adequacy of
schools in the host country, and transportation to other
localities may pose significant problems for organizations
19
Key Components of International
Compensation Programme for Expatriates
Benefits – Support rendered to an expatriate in addition to
the allowances provided. There are several types of
benefits, more prominent examples being:
20
International Costs of Living
•• Multinationals
Multinationalsusing
usingthe
the •• AArecent
recentsurvey
surveyofof
Balance
BalanceSheet
SheetApproach
Approachmust
must living
livingcosts
costsranked
ranked
constantly
constantlyupdate the
update the1010 most
most
compensation
compensationpackages
packageswithwith expensive
new expensivecities
citiesas:
as:
newdata
dataon
onliving
livingcosts,
costs,which
which 1.
isisan 1. Tokyo
Tokyo
anon-going
on-goingadministrative
administrative 2.
requirement. 2. Moscow
Moscow
requirement.
3.
3. Osaka
Osaka
•• Must
Mustalso
alsobe
beable
abletotorespond
respondtoto 4.
4. Hong
HongKong
Kong
unexpected
unexpectedevents,
events,such
suchas asthe
the
currency 5.
5. Beijing
Beijing
currencyandandstock
stockmarket
market
crash, 6.
6. Geneva
crash,which
whichsuddenly
suddenlyunfolded
unfolded Geneva
ininaanumber
numberof ofAsian
Asiancountries
countries 7.
7. London
London
ininlate
late1997.
1997. 8.
8. Seoul
Seoul
•• The
Thelevel
levelof
oflocal
localknowledge
knowledge 9.
9. Zurich
Zurich
requires
requiresspecialist
specialistadvice.
advice. 10.
10.New
NewYork
York
1–21
Maximum marginal federal tax rates
Country Maximum marginal
rate (%)
Argentina 35.00
Australia 47.00
Belgium 50.00
Brazil 27.50
Canada 29.00
China (Hong Kong) 20.00
China 45.00
France 48.09
Germany 42.00
India 33.66
Italy 43.00
Japan 37.00
Malaysia 28.00
22
Calculating International Compensation
23
The Going-Rate Approach
Based on local market rates
24
Disadvantages of the Going-Rate Approach
DISADVANTAGES
ADVANTAGES
Variation between assignments
Equality with local nationals for the same employee
25
The Balance Sheet Approach
28
Disadvantages of the
Balance-Sheet Approach
DISADVANTAGES
ADVANTAGES
Can result in considerable
Equality between assignments disparities between expatriates
and between expatriates of different nationalities
of the same nationality and between expatriates
and local nationals
Facilitates expatriate
reentry Can be quite complex
to administer (e.g. changing
Easy to communicate economic conditions,
To employees taxation)
29
Conclusion
• We have examined the complexities arising
when firms move from compensation 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:
1–30
Conclusion (cont.)
• Outlined special problem areas such as taxation, obtaining
valid international living costs data, and the problems of
managing TCN compensation.
• Presented a model of global pay that highlights the complexity
and yet familiarity of pay practices in the global context.
• The 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.
1–31
Thank you
32