Expatriates compensation - compensation management - Manu Melwin Joy

Expatriates compensation Compensation Management

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Expatriates compensation

• Expatriation is an expensive

option so the decision to

use an expatriate requires

careful evaluation of the

benefits that the expatriate

will bring.

Expatriates compensation• A company that decides to

transfer an employee to another country must be prepared to propose a compensation package that takes into account a number of elements such as cost of living, housing, education expenses and taxation and not just salary.

Expatriates compensation• From an organizational

perspective, thinking about expatriation often starts with thinking about expatriate compensation. Compensation packages should attract, retain and motivate employees, while at the same time balancing these costs with the expected returns for the organization, which is not an easy task.

Expatriates compensation• Though it may seem

more expensive on the surface to create an expatriate compensation package, the fact is that it is often necessary from a business point of view because that specific skill is not available locally.

Expatriates compensation

• Broadly speaking, we can

differentiate between two

different approaches to

expatriate compensation:

the balance sheet approach

and the going rate

approach.

Expatriates compensation• The balance sheet

approach is the most widely used approach by organizations and its main idea is to maintain the expatriate’s standard of living throughout the assignment at the same level as it was in his/her home country.

Expatriates compensation• Another important notion is

that the balance sheet approach implies matching the expatriate’s salary with home-country peers, not with the host-country colleagues. On top of the home-country salary, host-country cost of living adjustments are usually made.

Expatriates compensation• As argued by Sims and

Schraeder (2005) in their recent review of expatriate compensation practices, such adjustments are made using the ‘no loss’ approach: expatriate compensation is adjusted upward for higher costs of living, but is not adjusted downward if the cost of living in the host country is less than in the home country.

Expatriates compensation

• Contrary to the balance

sheet approach, there is a

second approach, the going

rate approach, which is also

known as the ‘localization’,

‘destination’ or ‘host

country-based’ approach.

Expatriates compensation

• As these names suggest, the

core of this approach lies in

linking the expatriate

compensation to the salary

structure of the host country,

taking into account local

market rates and

compensation levels of local

employees.

Expatriates compensation

• The going rate method aims

to treat the expatriate

employee as a citizen of the

host country, encouraging a

“when in Rome, do as the

Romans do” mentality.

Expatriates compensation

Expatriates compensation

• The going rate method aims

to treat the expatriate

employee as a citizen of the

host country, encouraging a

“when in Rome, do as the

Romans do” mentality.