INTERNATIONAL COMPENSATION

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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.

ISBN-10: 1408032090© Cengage Learning

INTERNATIONAL COMPENSATION

Chapter 8

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Click on an item to go to its section.

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Chapter 8

Vocabulary Objectives Introduction Components of an international compensation program

for expatriates Approaches to international compensation

of expatriates Tentative conclusions:

patterns in complexity, challenges, & choices

INTERNATIONAL COMPENSATION

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compensation HRIS = HR information system base salary hardship premium foreign service inducements COLA = cost-of-living allowance housing allowance home leave allowances education allowances relocation allowances spouse assistance balance sheet, going rate, & local plus approaches tax equalization tax protection, ad hoc & laissez-faire approaches international base pay pay strategies

Vocabulary

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In this chapter we:

1. Examine the complexities caused by moving compensation from a domestic to an international context

2. Detail components of a international compensation program

3. Outline the two main approaches to international compensation & the advantages/disadvantages of each

4. Introduce a third emerging approach: local plus5. Examine the special problem areas of taxation, valid

international living cost data, & the problem of managingTCN compensation

6. Examine recent developments & issues

Objectives

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Introduction

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Compensation is increasingly seen as Mechanism to

develop & reinforcea global corporate culture

Primary source of corporate control

Explicitly linkingperformance outcomeswith associated costs

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Internationalcompensation complexities Pay

Taxes Cost of living

Housing Safety Transportation Education of children Length of stay

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Objectives ofinternational compensationThe policy … should be consistent with overall strategy, structure,

& business needs of the MNE

must attract & retain staff in areas where the MNE has the greatest needs & opportunities

should facilitate the transfer of international employees in the most cost-effective way for the firm

must give due consideration to equity& ease of administration

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International employee expectations1. Financial protection in terms of benefits, social

security, & living costs in the foreign location2. Opportunities for financial advancement through

income & savings3. Housing, children’s education, & recreation will be

addressed4. Career will be advanced

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Components of international compensation for expatriates

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Key components for expatriates1. Base salary

2. Foreign service inducement& hardship premium

3. AllowancesCOLA, housing, home leave, education, relocation, spouse assistance

4. Benefits

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Approaches to international compensation of expatriates

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Three approaches to international compensation1. Going rate approach

2. Balance sheet approach

3. Local plus

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Going rate approachTable 8.1

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Advantages & disadvantages of the going rate approachTable 8.2

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The balance sheet approachTable 8.3

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4 balance sheet approach categories1. Goods & services

2. Housing

3. Income taxesPC & HC income taxes

4. Reservecontributions to savings, payments for benefits, pension contributions, investments, education expenses, S.S. taxes, etc.

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Local plus approachThe expatriate employee is paid according to prevailing salary levels, structure, & administrative guidelines of the home country …

expatriate-type benefits in recognition of foreign status

Does not typically include:COLA, mobility premiums, hardship allowances,familiarization visits, home leave, cross-culturaltraining, other pre-departure or spouse assistance

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Expatriation compensation worksheetTable 8.4

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Advantages & disadvantages of the balance sheet approachTable 8.5

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Compensation approaches & strategies for long-term international assignmentsTable 8.6a

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Compensation approaches & strategies for long-term international assignmentsTable 8.6b

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Compensation approaches & strategies for long-term international assignmentsTable 8.6c

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Compensation approaches & strategies for long-term international assignmentsTable 8.6d

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MNE approaches to international taxation Tax equalization

MNE withholds tax obligation & then pays all taxes in HC

Tax protectionEmployee pays up to amount s/he would pay on compensation in HC

Ad hoc – each expatriate handled differently Laissez-faire – each is on their own

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Maximum marginal federal tax ratesTable 8.7

CountryMax. marginal % rate

Australia 45.00

Belgium 50.00

Canada 29.00

Chile 40.00

Denmark 26.48

France 40.00

Germany 45.00

Italy 43.00

Japan 40.00

Korea 35.00

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CountryMax. marginal % rate

Mexico 28.00

Netherlands 52.00

New Zealand 39.00

Poland 40.00

Spain 27.13

Sweden 25.00

Switzerland 11.50

Turkey 35.00

United Kingdom 40.00

United States 35.00

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City 1 Big Mac in minChicago, Tokyo, Toronto 12London, Los Angeles, Miami 13Hong Kong, New York, Sydney 14Dublin, Frankfurt, Luxembourg, Montreal, Zurich 15

Copenhagen, Geneva, Vienna 17Dubai, Nicosia 18Amsterdam, Auckland, Berlin, Brussels 19

Lyon, Munich, Paris, Stockholm, Taipei 20

Barcelona, Moscow, Oslo 21Lisbon 23Tel Aviv 24Manama 25Johannesburg 26

Working time required to buy one Big MacTable 8.7a

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Working time required to buy one Big MacTable 8.7b

1 Big Mac in minHelsinki, Madrid, Milan, Rome, Seoul 27Athens, Shanghai, Tallinn 30Warsaw, Doha 31Ljubljana 34

Singapore 34Prague 38São Paulo 40

Kuala Lumpur, Vilnius 41

Bucharest, Riga 42Beijing 44Bangkok, Kiev 45Istanbul 48Delhi 49Río de Janeiro 51

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Working time required to buy one Big MacTable 8.7c

1 Big Mac in minSofia 56

Buenos Aires 57Bogotá, Lima 58Budapest 59

Mumbai 61Bratislava 62Santiago de Chile 69

Cairo 82

Manila 88Caracas 126Mexico City 129Jakarta 136Nairobi 158

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Issues to considerfor expatriate benefits Keep expatriates in home-country programs,

particularly if the firm receives no tax deduction for it?

Option to enroll expatriates in host-country benefit programs &/or make up any difference in coverage?

Do expatriates receive home-country or are eligible to receive host-country social security benefits?

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Social security contributions by employers & employeesTable 8.8

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Tentative conclusions:patterns in complexity, challenges, & choices

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ISBN-10: 1408032090© Cengage Learning C

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Figure 8.1

INTERNATIONAL COMPENSATION

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