Page 147 - DMGT548_GLOBAL_HRM

Global HRM

Notes In the new European Community (EC), efforts are progressing to establish Europay, by
which member nations would develop common policies regarding employment practices,
especially compensation.

Self Assessment

State whether the following statements are true or false:
1. Compensation is the financial remuneration the employees receive in exchange for their
labour.

2. Compensation management deals with wages, salaries, pay increase, and other monetary
issues.
3. Compensation has no influence on organisational culture, recruitment and selection of
competent employees, motivation and performance.
4. The knowledge of labour markets and industry norms regarding benefits and
compensation is not necessary.

8.2 Approaches to International Compensation

Whenever the employee is send abroad for the assignment, it is preceded by the fresh negotiations
between the employer and the employee for its compensation.
There are two main approaches in the area of international compensation: Going Rate Approach
and Balance Sheet Approach.

8.2.1 Going Rate Approach

In this approach, the base salary for international transfer is linked to the salary structure in the
host country. The multinational obtains information from local compensation surveys and
must decide whether local nationals (HCNs), expatriates of the same nationality, or expatriates
of all nationalities will be the reference point terms of benchmarking.

Example: A Japanese bank operating in New York would need to decide whether its
reference point would be local U.S. salaries, other Japanese competitors in New York, or all
foreign banks operating in New York. With the Going Rate Approach, if the location is in a low-
pay country, the multinational usually supplements base pay with additional benefits and
payments.
Features of the Going Rate Approach: Following are the features of the going rate approach:
1. Based on local market rates.
2. Relies on survey comparisons.

(a) Local nationals (HCNs).
(b) Expatriates of same nationality.
(c) Expatriates of all nationalities.

3. Compensation based on the selected survey comparison.
4. Base pay and benefits may be supplemented by additional payments for low-pay countries.

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