Compensation is the remuneration received by an employee in returns of their contribution to the organization. Compensation is extrinsic reward for an employee. Extrinsic rewards include praise from a superior, salary, employee benefits, career progression etc. Show International compensation refers to all forms of financial returns and tangible benefits that employees of an international organization receive from their employer in exchange for providing their labor and commitment. Almost all the employees accept jobs in MNC’s take-up assignments in various countries, & take-up the risk, bear inconveniences & discomforts in foreign assignments mostly based on the compensation package. Objectives:
Internal Variables Affecting International Compensation Strategy Goal orientation: UK-based foam manufacturer Zotefoam, where equality is a key aspect of HRM in the company’s mission, the only perks that differentiate executives from other workers are private health insurance and a car allowance MD of the firm sees the internationalizing firm as one with minimal status differences between levels in the org. hierarchy. Capacity to pay: Cost constraints on the enterprise Competitive strategy: If for eg., as part of the MNC competitive strategy, the IHRM strategy is to be a market leader in employee compensation in order to compete for the most competent candidates, then the levels of compensation might well be higher than if the competitive strategy is based on, say, the provision of secure employment. Organization culture: It also influences the degree to which employees are compensated on the basis of seniority, in contrast to personal connections or performance. Workforce characteristics: Age, education level, qualifications and experience, along with workforce tastes and preferences, and labor relations factors such as nature of employment relationship (level of TU involvement within MNCs) will result in different international compensation approaches. External Variables Affecting International Compensation Strategy Nationality of the parent country: In terms of culturally determined values and attitudes towards compensation policy and practices; local culture influences international compensation strategy through the dominant societal values, norms, attitudes and beliefs concerning for eg. bases for compensation differences (performance, family connections, gender), degrees of compensation differences between managerial and non- managerial employees, and the propensity for using particular types of compensation (pay incentives and benefits). Labor market characteristics of supply and demand: Education and skill levels, ages and experiences of those in the labor market. Role of home and host country government in labor relations affect the level of govt. regulation of the labor market and employment relationship, including compensation of the workforce. Industry type
Competitors’ strategies Even if the MNC is not seeking to be a market leader in international compensation, it generally cannot afford to fall behind market rates across its locations, as it will risk losing valuable employees to competitors. Objectives The objectives of compensation package of MNCs are presented in Figure below MNCs manage the compensation and benefits with the following objectives.
Importance of International Compensations
Components of International Compensation ProgramBase salary: For expatriates, the term base salary means the primary component of a package of allowances which are: (a) Foreign service premium (b) Cost-of-living allowance (c) Housing and utility allowance (d) Basis for in-service benefits and pension contributions. Base salary may be paid in home or local currency or in some hard currency like pound or dollar. Foreign Service inducement/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. Such payments vary depending upon the assignment, actual hardship, tax paid to foreign governments and length of the assignment. Education Allowances for Children: Education allowances are given towards fees for the education of expatriates’ children. Education allowances include items such as tuition, language class tuition, books, transportation and uniforms. Relocation Allowances and Moving: Relocation allowances usually cover moving, shipping; temporary living expenses, and down payments or lease-related charges. Tax Equalisation Payments: Many international compensation plans attempt to protect the expatriate from negative tax consequences by using a tax equalisation plan. Under this plan, the company adjusts an employee’s base income so that the expatriates will not pay any more or less tax than if they had stayed in the home country. Allowances: Various allowances are paid to expatriates depending upon the assignment. They include: (a) The cost-of-living allowance (COLA): It involves a payment to compensate the differences in expenditures between the home country and the foreign country. (b) Housing allowance: Implies that employees should be entitled to maintain their home-country living standards (or, in some cases, receive accommodations) (c) Home leaves and travel allowances: Is given to cover the expense of trips (usually once in a year) back home. These trips allow the expatriates the opportunity to renew family and business ties, thereby helping them to avoid adjustment problems when they are repatriated. Spouse Assistance: To help guard against or offset income lost by an expatriate’s spouse as a result of relocating abroad. Multinationals generally pay allowances in order to encourage employees to take up international assignments. What are the four common components of a compensation package?This refers to the mix of the four basic components of compensation—base pay, wage add-ons, incentives, and benefits—that we employ. We must divide available funds among the components. 4. Pay for performance or longevity.
Which is included in the compensation of an expatriate?The expat package is the combination of basic salary plus benefits in kind offered to a prospective assignee to undertake an overseas assignment. This can be made up of all different types of benefits, from additional living and housing costs to healthcare cover and international schooling fees for dependants.
What are the components of a compensation system explain?Compensation is the combination of salaries, wages and benefits that employees receive in exchange for them doing a particular job. It can include an annual salary or hourly wages combined with bonus payments, benefits, and incentives.
What are the main approach of international compensation?It relies on comparisons of surveys of the local nationals, expatriates of same nationality and expatriates of all nationalities' pay packages. In this approach, the compensation is based on the selected survey comparison. The base pay and benefits may be supplemented by additional payments for low pay countries.
|