Milkovich/Newman: Compensation, Ninth Edition

International Pay
Systems

Chapter 16

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Topics
Managing Variations:

The Global Guide

The Social Contract

Culture
Trade Unions and Employee Involvement
Ownership and Financial Markets
Managerial Autonomy

16-2

Chapter Topics (cont.)

Comparing Costs
Comparing Systems
National Systems-Comparative Mind-Set
Strategic Market Mind-Set
Expatriate Pay
Borderless WorldBorderless Pay? Globalists
Your Turn: Coke and IBM

16-3

Understanding
international
compensation begins with
recognizing variations
(differences and
similarities) and figuring
out how best to manage
them.
16-4

Managing Variations
How people get paid around the world depends

on differences (and similarities) in the following

general factors
Economic
Institutional
Organizational
Employee

16-5

Exhibit 16.1: Guide to International Compensation

16-6

Variation in International Pay Practices

Social contracts
Cultures
Trade unions
Ownership and financial markets
Managers autonomy

16-7

The Social Contract

Viewed as part of the social contract

Employment relationship is more than an exchange

between an individual and an employer
It includes
The government
All enterprise owners
All employees

Relationships and expectations of these parties

form the social contract

16-8

Exhibit 16.3: Social Contracts

and Pay Setting

16-9

Culture
Shared mental programming rooted in values,

beliefs, and assumptions shared in common by a

group of people

Influences how information is processed

16-10

Culture and Managing International Pay

Assumption that pay systems must be designed

to fit different national cultures is based on the

belief that most of a countrys inhabitants share
a national character

Job of a global manager

Search for national characteristics whose influence

is assumed to be critical in managing international
pay systems

16-11

Culture Matters, but So Does Cultural

Diversity
How useful is the notion of a national culture

when managing international pay?

Only a starting point
Can be thought of as the average

Provides some information about what kinds of pay

attitudes and beliefs you are likely to find in an area
Over reliance on the average can seriously mislead

16-12

Culture Matters, but So Does Cultural

Diversity (cont.)
Interplay among various conditions within each

nation or region, taken as a whole, form distinct

contexts for determining compensation
Economic
Institutional
Organizational
Individual

16-13

Factors Affecting International Pay

Ownership and capital markets

Managers autonomy

16-14

Comparing Costs
Factors affecting wage comparisons

Standard of living
costs
Purchasing power
Working time required
16-15

Exhibit 16.8: Strategic Similarities and Differences: An

Illustrated Comparison

16-16

Strategic Market Mind-Set

Localizer: Think Global, Act Local
Designs pay systems to be consistent with local
conditions
Business strategy is to seek competitive
advantage by providing products and services
tailored to local customers
Operate independently of corporate headquarters

16-17

Strategic Market Mind-Set (cont.)

Exporter: Headquarters Knows Best
Basic total pay system designed at headquarters and
is exported world-wide for implementation at all
locations
Exporting a basic system makes it easier to move
managers and professionals among locations
One plan from headquarters gives all managers
around the world a common vocabulary and a clear
message what the leadership values
16-18

Strategic Market Mind-Set (cont.)

Globalizer: Think and
Act Globally and Locally
Seek a common system to be used as part of glue
to support consistency across all global locations
Headquarters and operating units are heavily
networked to shared ideas and knowledge
Performance is measured where it makes sense for
the business
Pay structures are designed to support business

16-19

Types of Expatriates
Expatriates - Individuals whose citizenship is that

of employers base country

Third country nationals (TCNs) - Individuals
whose citizenship is neither employers base
country nor location of subsidiary
Local country nationals (LCNs) - Individuals who
are citizens of country in which subsidiary is located
Advantages of hiring LCNs
Advantages of bringing in expats or TCNs
16-20

Exhibit 16.9: Why Expatriates Are Selected

16-21

Exhibit: 16.10 Common Allowances in

Expatriate Pay Packages

16-22

Elements of Expatriate Compensation

Salary

Housing

Taxes

Allowances
and
Premiums
16-23

Common Allowances in Expatriate Pay

Packages
Financial Allowances

Social Adjustment Assistance

Family Support

16-24

Balance Sheet Approach

Premise Employees on overseas assignments should

have same spending power as they would in their
home country

Home country is standard for all payments

Objectives
Ensure cost effective mobility of people to global
assignments
Ensure expatriates neither gain nor lose financially
Minimize adjustments required of expatriates
16-25

Exhibit 16.11: Balance Sheet Approach

16-26

Other Approaches: Compensation for

Expatriates

Negotiation

Localization

Modified balance sheet

Decrease allowances

Lump-sum/cafeteria plan
16-27

Expatriate Systems Objectives?

How the expatriate pay system affects

competitive advantage, customer satisfaction,

quality, or other performance concerns

Lack of attention to aligning expatriate pay with

organization objectives

Employee Preferences

16-28

Borderless World--Borderless Pay?

Corporations attempting to become globally

integrated enterprises, are creating cadres of

globalists:
Managers who operate anywhere in the world in a
borderless manner

To support a global flow of ideas and people,

companies are also designing borderless, or at

least regionalized, pay systems
Testing ground for this approach - European Union
16-29