International Compensations

Introduction:

The design and maintenance of an enterprise's 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)