International compensation

management
 Compensation
• Rewards
– Intrinsic
– Extrinsic
– Compensation is extrinsic
 Complexities
• Salary vary from country to country

• Cost of living

• Facilities – advanced countries / developing and

under developed countries

• Varying salary level of expatriates in their

respective home countries (Singapore – India
and Philippines)

• Foreign currency fluctuation

• Varying tax rate (0% in Arab – 54% n Sweden)

 OBJECTIVES
• Recruitment and retention of suitable employees
• Consistency and equity
• Facilitate mobility
• Adaptability to foreign cultures
• Cost of staff vs ability to pay
• Simplify collective bargaining
• Organisational performance
• Competitive and comparable compensation
 Basic salary

An employee's initial rate of compensation, excluding extra lump sum

compensation or increases in the rate of pay. An employee's base pay can be
expressed as a base hourly rate of pay or as an annual salary.

•Different From MNC To MNC

•Some MNC Provide Basic to All Categories of Employees
PCN, TCN, HCN
•These organisation pay Inter. Market allowances for
foreign employees
•For domestic pay domestic market allowances
•Some MNCs pay equal pay to PCN and TCN and pay
additional allowances to hardship etc.
 Base salary
• Base salary is a fixed amount of money paid to an employee by

an employer in return for work performed. Base salary does not

include benefits, bonuses or any other potential compensation from

an employer.

• It will differ from MNC to MNC

• make up the largest portion of an employee’s total compensation

• Primary objective

– To establish a structure for equitable compensation of

employees, depending on their jobs and level of performance in

their jobs

– Determining relative worth of different jobs to the organization

 COLA
• Cost of Living Allowance
• Differs from city to city of the same country &
period to period
• MNC determine based on cost of living allowances
• Its necessary to protect bargaining power of
employees.
• There is difference in DA=70.8 to 79.9 (2006 to
2006)
• Cost of living data (House rent, educational,
medical, recreational,
Tax equalisation allowances
 International Market Allowances

• Employees with distinctive skill and skills of short

supply,
• MNC in order to attract such employee pay
competitive salary
• Public sector – TELIKOM (PNG LTD)
• MNCS – DIGICEL, DELLOITTEE, (in addition to
housing and educational allowances
 Housing allowances
• House rent i some countries are exorbitant
• Employees can’t afford

• Hence, MNC pay house rent on behalf

employees or
• Lease the house
 Educational allowances
• E.A for expatriates include cost of language to
the employee and the family.
• Its a continuous
• Its necessary – school –uni – fee – exorbitant
in UK and USA.
•
 RELOCATION ALLOWANCES
• Temporary closing up family activities &
professional activity.
• Transferring children’s school,
• Payment of advance taxes
• Rent, visa, freight charges,

• Thus employee involves dislocation and

relocation costs.
 Settling in and settling out
• Reduce employee’s financial burden

• When they arrive – goods/ services

• Settling out -
 Hardship
• Locations like – afghanistan and iraq –highly
critical and dangerous
• Taliban militants
• Recent abduction of uni professors
• South korean health workers – kidnapped
• Problems in Kashmir
• War in - iran-iraq, iraq-kuwait
 Exchange protection allowances
• F E P greatly determine the repatriation
amount,
 Insurance allowances
• Health
• Prescription
• Dental
• Vision insurance
• Travel
• Life
• Vehicle
• House
• Stock options
• Bonus
• Gratuity
• Pension
• Other fringe benefits
APPROACHES TO INTERNATIONAL
COMPENSATION
 Salary level in host country
• Its called as localisation approach
• Under this approach – salary levels for similar
jobs in comparable organisation
• HSBC IN INDIA PAYS
• Indians – (HCN)
• China ( PCN)
• American (TCN)
• Pay salary levels in indian banks like ICICI, IDBI,
HDFC
 Negotiation/ Bargaining Approach
• Through mutual negotiation
• It is possible when,
• No of expat less
• Company and employee have full knowledge
about on going salary
• Skill employee short supply
 Lumpsum approach
• MNC determine total package in money value
that covers the base salary & benefits.
• The employee provided with freedom of
allocating the money and deciding upon
quality of house, medical, educational, self
and employee, air, tax, etc
 Buffet Approach
• Paying less cash and providing more benefits
in the compensation so as to reduce tax
burden.
• Total salary is decided by MNC
• Employees given choice to determine cash
component and benefit component
• Employee normally select more benefits
component
 Cluster system approach
• MNC segment the countries/ cities into cluster
based on the cost of living and other factors
like hardship and danger issues.
•
 Global approach
• Skills, Knowledge, talents and competency
requirements of certain jobs are similar througout the
globe.
• Employees fit for such jobs are globally mobile.
• Under this method pay scales are applicable uniformly
for all categories of employees including HCN
• National pay scale + climate allowances
• Climate change – AP
• Danger allowance – Kashmir
• War – Iraq
 Performance based
• It provide an opportunity for best performer
to earn the highest salary irrespective of
nationality including HCN.
• However, this type provide a minimum and
guaranteed base salary to meet the family
requirements.
Double home country salary and living
compensation at the HC approach
• MNC determine the package in such a way
that expats get the best domestic salary and
living host country compensation.
• Normally, MNC arrange to pay this component
of competitive/ double home country in home
country currency.
•
 Balance sheet approach
• Balance sheet approach