International Compensation Trend


               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.

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 


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.


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. Concept of compensation in the organizations

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. Compensation Trends in India

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.   


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:

 Compensation Trends in India

Concept of compensation in the organizations

What is a strategic compensation








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