Final ion for Int's Compensation

8/9/2019 Final ion for Int's Compensation

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International Compensation

Presented By:-

AMRENDRA KUMARAMARDEEP KUMAR


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Compensation

Compensation may be defined as the

financial remuneration the employees

receive in exchange for their labour.

Compensation may be deals with wages,

salaries, pay increase, and other monetary

issue.


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Compensation decision should

achieve Six objectives Be legal

Be adequate

Be motivating Be equitable

Provide security

Be cost-benefit effective


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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


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The Firms objectives for Intl

Compensation Consistent

Competitive

Cost-Effectivefacilitation of

transfers

Equitable Administratively

manageable


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Key Components of an Intl

Compensation Program Base Salary

Foreign Service Inducement / Hardship Premium

Allowances COLA (Cost of living) Housing

Home Leave Allowance

Education Allowance

Relocation Allowance Spousal Assistance

Benefits


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Base Salary

In a domestic context, base salary denotes the amount ofcash compensation serving as a benchmark for other

compensation elements (such as bonuses and benefits).

For expatriates, many allowances are directly related to

base salary (e.g. foreign service premium, cost-of-living

allowance, housing allowance) It is the basis for in-service benefits and pension

contributions may be paid in home or local-country

currency.

The base salary is the foundation block for international

compensation whether the employee is a PCN or TCN. Major differences can occur in the employees package

depending on whether the base salary is linked to the home

country of the PCN or TCN, or whether an international rate

is paid.


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Foreign Service Inducement and

Hardship Premium

Parent-country nationals often receive a salary premium

as an inducement to accept a foreign assignment or as

compensation for any hardship caused by the transfer.

Foreign service inducements are usually made in theform of a percentage of salary, 5-40% of base pay. Such payments vary, depending upon the assignment, actual hardship,Such payments vary, depending upon the assignment, actual hardship,

tax consequences and length of assignment.tax consequences and length of assignment.

More commonly paid to PCNs than to TCNs.


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Allowances

Housing Allowance Permits executive to live at same standard as at home

Cost-of-Living Allowance Based on differences in price of food, utilities,

transportation, entertainment, clothing, personal

services, and medical expenses as compared to home

Allowances for Tax Differentials

Ensures expatriates will not have less after-tax pay athome


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Allowances

Education Allowances Insures children receive education equal to that at home

Moving and Orientation Allowances Household effects and language instruction


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Cost-of-living Allowances(COLA)

COLA receives the most attention, to compensate fordifferences in expenditures between the home countryand the foreign country (e.g., to account for inflationdifferentials, currency fluctuations, etc.).

The COLA may also include payments for housing andutilities, personal income tax or discretionary items.

The provision of a housing allowance implies thatemployees should be entitled to maintain their home-country living standards (or, in some cases, receive

accommodation that is equivalent to that provided forsimilar foreign employees and peers).

International comparison of cost of living is difficult andcan be problematic.


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Benefits

In addition to the already discussed benefits,

multinationals also provide vacations and special

leave.

Annual home leave usually provides airfares for families to

return to their home countries. Rest and rehabilitation leave, based on the conditions of the

host country, may provide the employees family with

airfares to a more comfortable location near the host

country.

Emergency provisions are available in case of a death orillness in the family.

Employees in hardship locations often receive additional

leave expense payments or rest and rehabilitation periods.


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Issues Concerning Benefits

Very difficult to deal with country-to-country, as nationalpractices vary considerably: Transportability of pension plans

Medical coverage

Social security benefits

Firms need to address many issues, including: Whether or not to maintain expatriates in home-country benefit

programs, particularly if the firm does not receive a taxdeduction for it.

Whether firms have the option of enrolling expatriates inh

ost-country benefit programs and/or making up any difference incoverage.

Whether expatriates should receive home-country or host-country social security benefits.


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Issues Concerning Benefits(cont.)

Laws governing private benefit practices differ from

country to country, and firm practices also vary.

In some countries, expatriates cannot opt out of local

social security programs. In such circumstances, thefirm normally pays for these additional costs.

European PCNs and TCNs enjoy portable social

security benefits within the European Union.

Multinationals have generally done a good job of

planning for the retirement needs of their PCNs, but this

is generally less the case for TCNs.


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Total compensation Costs for Sending an

Expatriate American Manager to Russia


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Approaches to Intl compensation:

The Going Rate Approach Based on local market rates

Relies on survey comparisons among:

Local nationals (HCNs)

Expatriates of same nationality Expatriates of all nationalities

Compensation based on the selected

survey comparison

Base pay and benefits may be

supplemented by additional payments for

low-pay countries


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The Going Rate Approach (cond)(Advantages & Disadvantages, adapted from Text Table 6-2)

Advantages Disadvantages

Equality with local

nationals

Simplicity

Identification with host

country

Equity amongst different

nationalities

Variation between

assignments for same

employee

Variation between

expatriates of samenationality in different

countries

Potential re-entry

problems


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The Balance Sheet Approach

Popularity: Most common system in usage by MNCs

Basis: Home-country pay + benefits are the foundations of this

approach

Objective: Maintenance ofhome-country living standard +

financial inducement Home package is adjusted to balance additional expenditure needed in

hostcountry

Financial incentives (hardship/expatriate premium) are added to make

the package more attractive

Main Categories of Outlays:

1. Goods & Services

2. Housing

3. Income Taxes

4. Reserve


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The Balance Sheet Approach (cond)

Advantages Disadvantages

Equity between foreign

assignments for same employee

Equity between expatriates of

same nationality in different

countries

Repatriation is facilitated by the

fact that expat compensation

remains anchored to the parent-country compensation system

Simple to communicate

Not necessarily equality amongst

different nationalities PCNs may

get paid more than local nationals

(HCNs) or TCNs (expats of

different nationalities) for doing the

same work

Not necessarily simple to

administer Unclear whether it promotes

identification with home or host

country


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Four Special Problem Areas

1. Taxation

Tax Equalization

Tax Protection Not-recommended Variations: Ad-hoc

Laissez-faire

2. Pension & Other Benefits Issues


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Four Special Problem Areas

(cond)3. Valid intl living cost data (COLA)

(vs. Cost of doing business)

4. Managing TCN compensation


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Final ion for Int's Compensation

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