Page 149 - DMGT548_GLOBAL_HRM

Global HRM

Notes Where costs associated with the host-country assignment exceed equivalent costs in the parent
country, these costs are met by both the firm and the expatriate to ensure that parent-country
equivalent purchasing power is achieved.

Table 8.1: Expatriate Compensation Worksheet
Employee: Brian Smith
Position: Marketing Manager
Country: New Euphoria
Reason for change: New Assignment
st
Effective date of change: 1 February 1998
Item Amount Paid in Paid in local
A$ PA A$ PA currency NE$ PA
Base salary 135,000 67,500 101,250
Cost of living allowance 33,750 50,625
Overseas service premium (20%) 27,000 27,000
Hardship allowance (20%) 27,000 27,000
Housing deduction (7%) -9,450 -9,450
Tax deduction -51,079 -51,079
Total 162,221 60,971 151,875
COLA Index = 1500
Exchange Rate = 1.5 Authorized / Date

In this example, an Australian expatriate is assigned to a country called New Euphoria which has
a COLA index of 150 relative to Australia, and an exchange rate of 1.5 relative to the A$. In
addition to a Foreign Service premium, a hardship allowance is also payable for this location.
Housing is provided by the firm, and a national cost for this is recognised by a 7% deduction
from the package, along with a national tax deduction. The expatriate can see from this spreadsheet
what components are offered in the package and how the package split between Australian
currency and Net Euphoria currency.
Advantages of the Balance Sheet Approach: Following are the advantages of the balance sheet
approach:
1. There is equity between assignments and expatriates of the same nationality.
2. It facilitates the re-entry of the expatriates.
3. It is easy to communicate to the employees.

Disadvantages of the Balance Sheet Approach: Following are the disadvantages of the balance
sheet approach:
1. It is quite difficult and complex to administer.

2. It can result in great disparity between expatriates of different nationalities and between
the expatriates and local nationals.

8.2.3 Differentiating between PCNs and TCNs

One of the outcomes of the balance sheet approach is to produce differentiation between expatriate
employees of different nationalities because of the use of nationality to determine the relevant
home-country base salary. This is a differentiation between PCNs and TCNs. Many TCNs have
a great deal of international experience because they often move from country to country in the
service of one multinational (or several) headquarters in a country other than their own (example,
and Indian banker may work in the Singapore branch of a U.S. bank).

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