Chapter 6

Compensation
IBUS 618 Dr. Yang

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Chapter Objectives
In the introductory chapter we described IHR managers as grappling with complex issues:
 Manage more activities from a broader perspective,
 Be more involved in the lives of their far-flung employees  Balance the needs of PCNs, HCNs and TCNs
 Control exposure to financial and political risks and
 Be increasingly aware of and responsive to hostcountry and regional influences.
In this chapter, all of these issues and concerns are brought out in a discussion of compensation issues. (cont.)
IBUS 618 Dr. Yang

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Chapter Objectives (cont.)
 Examine
Examinethe
thecomplexities complexitiesthat thatarise arisewhen whenfirms firmsmove movefrom from compensation compensationat atthe thedomestic domesticlevel levelto tocompensation compensationin inan an International
Internationalcontext.
context.
 Detail
Detailthe
thekey keycomponents componentsof ofinternational internationalcompensation. compensation.  Outline
Outlinethe
thetwo twomain mainapproaches approachesto tointernational international compensation compensationand andthe theadvantages advantagesand anddisadvantages disadvantagesof of each eachapproach. approach.
 Examine
Examinethe
thespecial specialproblem problemareas areasof oftaxation, taxation,valid valid international internationalliving livingcost costdata dataand andthe theproblem problemof ofmanaging managing
TCN
TCNcompensation. compensation.  Examine
Examinethe
therecent recentdevelopments developmentsand andglobal global compensation compensationissues. issues. IBUS 618 Dr. Yang

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Introduction
 Global compensation managers

increasingly deal with two areas of focus. They must manage highly complex and turbulent local details, while
 Concurrently building and maintaining a unified, strategic pattern of compensation policies, practices and values.


IBUS 618 Dr. Yang

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Requirements for Successful
Compensation and Benefits
 Knowledge of employment and taxation law,

customs, environment and employment practices of many foreign countries
 Familiarity with currency fluctuations and the effect of inflation on compensation, and
 A good understanding of why and when special allowances must be supplied and which allowances are necessary in what countries

Allwithin
Allwithin the the context context of of shifting shifting political, political, economic economic and and social social conditions. conditions. IBUS 618 Dr. Yang

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Objectives of International
Compensation
Should be consistent with the overall strategy, structure and business needs of the multinational.
Must work to attract and retain staff in the areas where the multinational has the greatest needs and opportunities, hence must be competitive and recognize factors such as incentive for foreign service, tax equalization and reimbursement for reasonable costs.
Should facilitate the transfer of international employees in the most cost-effective manner for the firm.
Must give due consideration to equity and ease of administration. IBUS 618 Dr. Yang

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Expatriate Expectations
 Financial protection in terms of benefits,

social security and living costs in the foreign location.
 Opportunities for financial advancement through income and/or savings.
 Issues such as housing, education of children and recreation to be addressed in the policy.
 Career advancement and repatriation.
IBUS 618 Dr. Yang

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Key Components of International
Compensation
The
The area area of of international international compensation compensation isis complex, complex, primarily primarily because because multinationals multinationals must must cater cater to to three three categories categories of of employees: employees:  PCNs,
PCNs,TCNs
TCNs and andHCNs HCNs
 Key
KeyComponents:
Components:

Base
Basesalary
salary

Foreign
Foreignservices
servicesinducement inducement 
Hardship
Hardshippremium premium 
Allowances
Allowances

Benefits
Benefits

IBUS 618 Dr. Yang

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Base Salary