Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16International Human Resource ManagementManaging people in a multinational contextvIHRM Chapter 72In this chapter we:•Examine the complexities that arise when firms move from compensation at the domestic level to compensation in an international context.•Detail the key components of an international compensation program.•Outline the two main approaches to international compensation and the advantages and disadvantages of each approach.•Examine the special problem areas of taxation, valid international living cost data and the problem of managing TCN compensation.•Examine recent developments and global compensation issues. Chapter Objectivesv Terms3IHRM Chapter 7HRISrepatriationbase salarybenefitsTax equalizationTax protectionglobal corporate cultureInternational base paygoing rate approachbalance sheet approachallowances: COLAhousinghome leaveeducationrelocationspouse assistancev Issues when considering benefits4IHRM Chapter 71. Whether or not to maintain expatriates in home-country programs, particularly if the firm does not receive a tax deduction for it.2. Whether firms have the option of enrolling expatriates in host-country benefit programs and/or making up any difference in coverage.3. Whether expatriates should receive home-country or host-country social security benefits.v5IHRM Chapter 7Table7-1Going 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 countriesv6IHRM Chapter 7Table7-2Advantages and disadvantages of the Going Rate ApproachAdvantages• Equality with local nationals• Simplicity• Identification with host country• Equity amongst different nationalitiesDisadvantages• Variation between assignments for same employee• Variation between expatriates of same nationality in different countries• Potential re-entry problemsv7IHRM Chapter 7Table7-3The Balance Sheet Approach• Basic objective is maintenance of home-country living standard plus financial inducement• Home-country pay and benefits are the foundations of this approach• Adjustments to home package to balance additional expenditure in host country• Financial incentives (expatriate/hardship premium) added to make the package attractive• Most common system in usage by multinational firmsvFour Balance Sheet Approach categories8IHRM Chapter 71. Goods and services – home-country outlays for items such as food, personal care, clothing, household furnishings, recreation, transportation and medical care.2. Housing – the major costs associated with housing in the host country.3. Income taxes – parent-country and host-country income taxes.4. Reserve – contributions to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc.v9IHRM Chapter 7Table7-4Expatriate compensation worksheetv10IHRM Chapter 7Table7-5Advantages and disadvantages of the Balance Sheet Approachv11IHRM Chapter 7Table7-6Maximum marginal federal tax ratesCountryArgentinaAustraliaBelgiumBrazilCanadaChina (Hong Kong)ChinaFranceGermanyIndiaItalyJapanMalaysiaMaximum marginalrate (%)35.0047.0050.0027.5029.0020.0045.0048.0942.0033.6643.0037.0028.00vSome issues when considering benefits12IHRM Chapter 71. Keep expatriates in home-country programs, particularly if the company does not receive a tax deductions for it?2. Enroll expatriates in host-country benefit programs and/or making up coverage differences?3. Does host-country legislation regarding termination affects benefit entitlement?4. Do expatriates receive home-country or host-country social security benefits?5. Should benefits be maintained on a home-country or host-country basis? Who is responsible for the cost? Should other benefits offset any shortfall in coverage? Should home-country benefit programs be exported to local nationals in foreign countries?v13IHRM Chapter 7Table7-7Social security contributions by employers and employeesv14IHRM Chapter 7Table7-8Range of working times required to buy one Big Macv15IHRM Chapter 7Complexity, challenges and choices in global payFigure7-1v Discussion Questions16IHRM Chapter 71. What should be the main objectives for a multinational firm with regard to its compensation policies?2. Describe the main differences in the Going Rate and Balance Sheet Approaches to international compensation.3. What are the key differences in salary compensation for PCNs and TCNs? Do these differences matter?4. What are the main points that MNEs must consider when deciding how to provide benefits?5. Why is it important for MNEs to understand the compensation practices of other countries?6. Explain how balancing the interests of global and local, occupational and functional perspectives might play out in a compensation decision