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Unit 8: International Compensation

HR executives in global firms spend a great deal of time and effort in designing and managing Notes
compensation programmes because of their high costs and impact on corporate performance,
commitment of employees and their retention. Compensation influences organisational culture,
recruitment and selection of competent employees, motivation and performance. So, there are
issues in designing compensation programmes, such as parity between HCNs and PCNs, state
of the labour market and relevant national laws and practices.
1. Objectives of the international compensation plan: Compensation decisions are strategic
decisions and play a key role in achieving performance and sustainable competitive
advantage for international firms. Following are the objectives of designing the
compensation plan:
(a) These policy decisions should be consistent with the overall strategy, structure and
business needs of the multinational.
(b) The policy should attract and retain the best staff in those areas where the firm has
greatest needs and opportunities and where its core competency lies.

(c) The policy must facilitate the transfer of international employees in a cost effective
manner.
(d) The policy should give due consideration to equity and ease of administration.

(e) They should reduce cost of operations and enhance commitment of employees and
facilitate international posting and transfer of employees.
These policy decisions regarding compensation and benefits require the knowledge of
employment and taxation laws, customs, cost of living index, environment, employment
practices of various countries. Without such comprehensive knowledge and database, the
corporate HR executive will not be able to advise expatriates regarding avoidance of
double taxation or to reimburse the actual costs or decide about incentives that will
encourage employees to take up foreign assignments.
The knowledge of labour markets and industry norms regarding benefits and
compensation is also necessary. To ensure equity with PCNs, the salary of expatriates has
to be adjusted for foreign currency fluctuations of the two countries unless they are paid
full salary and allowances in the home country currency. If the expatriates are paid in local
currency, then their salary should also be adjusted for rise in the cost of living in that
country from time to time. So, HR managers have to continuously watch foreign exchange
rate fluctuations and monitor rate of inflation or cost of living index in different countries.
2. Employee aspirations from the compensation policy: International employee will also
have a number of objectives that need to be achieved from the firm’s compensation policy.
They are:

(a) They will expect the policy to offer financial protection in terms of benefits, social
security, and living costs in the foreign location.
(b) They will expect that a foreign assignment will offer opportunities for financial
advancement through income and/or savings.
(c) They will expect that issues such as housing, education of children, and recreation
will be addressed in the policy.

Did u know? In Japan, compensation is based on the traditional Oyabun-Kobun, or parent
– child relationship, in which pay and promotions are determined almost entirely by
seniority.

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