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Unit 8: International Compensation

Multinational firms need to match their compensation policies with their staffing policies and Notes
general HR philosophy.
1. If a firm has an ethnocentric staffing policy, its compensation policy should be one of
keeping the expatriate whole (that is, maintaining relativity to PCN colleagues plus
compensating for the costs of international services).

2. If the staffing policy follows a geocentric approach, there may be no clear ‘home’ for the
TCN, and the firm will need to consider establishing a system of international base pay
for key managers paid in a major reserve currency, such as the U.S. dollar or the Deutsche
Mark.
Nationality influences on managing compensation and reward systems internationally, and
propose a strategic model as:

Figure 8.1: Strategic Flexibility Model of International Compensation

CHOICE
Assignments Stock Purchase

CUSTOMIZE

CORE Base/
Competitive Cash Bonus Mix
Basic Benefits
Performance Based
Employability
Work Challenges
Flexible Stock
Schedules Options

Benefit Choices
Tax Deferral Base/Bonus Mix

Source: Compensation and Benefits Review, 1995 (30 no. 1) p. 22
This model groups consist of total compensation into three sets: core, crafted, and choice.
1. Specific practices in the core section may vary according to market and local conditions
but must be consistent with the core policies.
2. Crafted set of compensation elements assumes that regional managers have discretion to
choose from a menu of compensation forms.
3. Alternatives in the choice set of offer flexibility for employees to select among various
forms of compensation.

The model supports the performance management approach. This model has the potential to
overcome the problems identified in both the Going Rate and Balance Sheet approaches to
international compensation because firms may be able to utilise aspects of both approaches that
suit particular circumstances.

8.2.4 International Living Costs Data

Obtaining up-to-date information on international living costs is a constant issue for
multinationals. Many multinationals retain the services of consulting firms that may offer a
broad range of services or provide highly specialised services relevant to HRM in the
multinational context. With regard to international living costs, a number of consulting firms

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