International Compensation Trend
As per my previous articles on compensation, you will have gone through the concept of compensation, the strategy of compensation, and compensation trends in India. Now you have to know about International Compensation Trends.
Globalization is the key to the success of any business today; successful organizations are those that have expanded their business globally.
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Table of Contents 1. Introduction 2. International Compensation 3. Components of International Compensation 4. Taxation 5. Approaches to
International Compensation Design 5.1. Going Rate Approach
5.2. The Balance Sheet Approach 6. International Compensation Management 7. Issues related to repatriation 7.1. Cultural Issue 7.1. Concept of variation 8. Conclusion |
Introduction
The life of the industries and employees complement each other, employees depend on their jobs and companies depend on the employees.
Now we have to discuss the compensation trends in the world, which are rapidly changing, the HR group is to revisit the existing compensation and the working environment to be increased in the future. The global compensation trends are mixed compensation structure, shaped compensation, and the law of compensation. In the new era, the rapidly changing and high level of creativity of employees needs to be maintained.
International Compensation
International or globalization
refers to going worldwide concerning scope and application. If a company
wants to go global it means that the company wants to extend its business
operations beyond the boundaries of its domicile country.
Globalization has enabled a free
flow of information across nations, influencing the market and the people.
Companies are trying to relocate their production facilities.
Hence the business expands its plant and operation all around the world. They have to recruit people both locally and as well as depute their own employees to those countries as expatriates. An expatriate refers to the citizens of the country where the organization’s headquartered. Concept of compensation in the organizations
Compensation design for both locals
and expatriates is a big challenge. Organizations have to frame strategically
the compensation policies so they can be assigned international positions for the short
term and long term.
For example, the period assigned in
the US may be for two or three years, whereas in Japan it is usually for
five years. International compensation should be assigned to the
overall strategy, structure, and business needs of the organization.
These factors are incentives for
Foreign Service, tax equalization, and facilities to transfer international
employees most cost-effectively. International
pay is highly integrated with acceptable values and organizational culture will
always be positively associated with increased firm performance.
Components of
International Compensation
International components of the composition are salary, benefits, and incentives. The basic salary can be fixed by the policies and procedures of the country in which the expatriate works. It may be wise to keep the base salary with salaries in the home country. Concept of compensation in the organizations
Sometimes organizations align them with the home country-specific practice. For example in France, every employee is provided 25 days’ vacation per year as per law. Although an Indian citizen working in an Indian company in France is not entitled to such a vacation.
Equalization benefits refer to the
number of benefits payable to expatriates as transitional support. These
benefits are service premium, assignment completion, bonus, emergency leave,
home leave, language training, domestic staff club membership, etc.
Some additional benefits are vacation
and special leave benefits; annual home leave, usually provides airfares to
families to return to their home countries. Emergency provisions are usually
available in case of death or illness in the family. Employees
get additional leave expenses or rest and rehabilitation periods.
Taxation
An Indian employee who is a US expatriate is taxed both in India and the USA. This dual tax cost,
combined with all other expatriate costs. While designing international
compensation, HR managers need to have a global mindset and economic, social,
and political changes in the countries in which they want to operate.
For example in China local labor cost for state-owned- enterprises, and for
private and foreign organizations is different. In Japan, the size of the organization, the degree of unionization, the capital-labor ratio, and the degree of global competition play a major role while
designing employees’ compensation.
In Hungary, and in the US, political, economic, and
institutional forces are more important in designing compensation.
Approaches to
international compensation design
There are two main approaches to international compensation design: The going rate approach and the balance
sheet approach, going rate approach design of compensation is based on the market rate of the host country, and the balance sheet approach provides extra
benefits to the expatriate to adjust with the host country in respect of living
standard.
Going rate approach
In this approach, the expatriate is
paid according to the local market rate of the host country. For this purpose, the organization has to decide the basis for bench-marking its compensation
structure. This avoids the junior staff members of the host county from being
paid higher than expatriates.
The advantages are equality with local and national and simplicity. Disadvantages are Variations between
assignments for the same level of employees working in two different countries.
The balance sheet
approach
The basic purpose of this approach
is to maintain the living standard, and financial inducement to make package
alternatives. This is the most common approach followed by multinational
companies. The balance sheet approach is the international compensation designed to purchase power or employees positions that are living abroad.
The major categories of balance sheet
approaches are:
Goods and
services: Home country items such as food personal care clothing household
furnishing recreation transportation and medical. Housing allowance-related issue includes major costs associated with housing in the host country.
Relocation
allowance: Contribution to saving payments of benefits pension contributions investment education expenses social security taxes, etc.
The advantages are ensuring equity
between assignments, expatriates of the same nationality, and ease of communication. And
the disadvantages are complex to administer and prove difficult to attract
human capital.
International
Compensation Management
Globalization is the key to the success of any business today; successful organizations are those that have expanded their business globally. To explain the concepts of the variation and issues of the international compensation design, discuss approaches, and cultural issues.
Issues related to
repatriation
It is very important to manage the repatriation of employees in a very careful way. Poorly managed repatriation can be frustrating. Another issue is the change in living standards. While setting down in a foreign country they would have been offered financial incentives for the family. On returning home these are taken away and the lifestyle is rapidly reduced. Compensation Trends in India
Cultural Issues
International compensation design
also required consideration of the cultural issues of the countries. Countries, such as China, Israel, and Japan follow
the principle of collectivism, and expatriates work in these countries. On
the other hand, the UK or USA follows individualistic culture and
the design of compensation based on individual merit is very important. Hence
cultural difference both between and within the countries is important when designing international compensation.
Concept of Variation
Variation in international
compensation refers to the presence of wages-related laws in many countries. In
India wages, and related law varies from region to region. However, in some countries a
uniform set of compensation-related labor laws are applicable. Compensation
design variation is particularly in respect of multinational companies.
The US laws permit a mix of options, while Chinese laws offer comparatively fewer options. A good example of variation –is in many countries even without the existence of laws related to the variation period. In the case of Japan and Germany, the compensation structure largely follows national standards. So organizations are free to fit these specific requirements. Hence the international compensation design is more evident in such organizations.
Conclusion
Globalization is the key to the
success of any organization today. Every successful company wants to expand
its business operation globally. The company has to establish its officers and
employees in places other than its country domicile or primary area of operation.
This turn has been on the employees’ compensation management, and compensation
packages should be to the country from where the employees operate.
Companies also establish their
offices and sales outlets in other countries to capture existing markets. Hence
the organization expands the plant and operation all around the
world; they have to recruit employees to these countries as expatriates.
These are the main approaches to designing international compensation. Ongoing rate approach or market-rate
approach and the balance sheet approach, which is related to financial
inducement. The expatriates are paid as the local market rate approaches. These characteristics of approaches are linking the compensation structure
in the home country.
Related link:
Concept of compensation in the organizations
What is a strategic compensation
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