Page 152 - DMGT548_GLOBAL_HRM

Unit 8: International Compensation

2. Foreign Service Inducement/Hardship Premium: Parent-country nationals often receive a Notes
salary premium as an inducement to accept a foreign assignment as compensation for any
hardship caused by the transfer. Under such circumstances, the definition of hardship,
eligibility for the premium, and amount and timing of payment must be addressed. These
payments are more commonly paid to PCNs than TCNs. Foreign service inducements are
usually made in the form of a percentage of salary, usually 5 to 40% of base pay. Such
payments vary, depending upon the assignment, actual hardship, tax consequences, and
length of assignment.
3. Allowances: Issue concerning allowances can be very challenging to a firm establishing
an overall compensation policy because of the various forms of allowances that exist. The
Cost-of-living Allowance (COLA) involves a payment to compensate for differences in
expenditures between the home country and the foreign country.
(a) Housing allowance provision implies that employees should be entitled to maintain
their home-country living standards. Such allowances are often paid on either an
assessed or an actual basis. Other alternatives include company-provided housing,
either mandatory or optional; a fixed housing allowance; or assessment of income,
out of which actual housing costs are paid. Financial assistance and protection in
connection with the sale or leasing of an expatriate’s former residence are offered by
many multinationals. Those in the banking and finance industry tend to be the most
generous, offering assistance in sale or leasing, payment of closing costs, payment
of leasing management fees, rent protection, and equity protection.
(b) Home leave allowances allows the employers to cover the expense of one or more trips
back to the home country each year. The purpose of paying for such trips is to give
expatriates the opportunity to renew family and business ties, thereby helping
them to avoid adjustment problems when they are repatriated.
(c) Educational allowances for expatriate’s children are an integral part of any international
compensation policy. Allowances for education can cover items such as tuition,
language class tuition, enrolment fees, books and supplies, transportation, room
and board, and uniforms. The level of education provided for, the adequacy of local
schools, and transportation of dependents who are being educated in other locations
may present problems for multinationals. The employer typically covers the cost of
local or boarding school for dependent children, although there may be restrictions,
depending on the availability of good local schools and on their fees.
(d) Relocation allowances usually cover moving, shipping, and storage charges, temporary
living expenses, subsidies regarding appliance or car purchases (or sales), and down
payments or lease-related charges. Allowances regarding perquisites (cars, club
memberships, servants, etc.) may also need to be considered (usually for more
senior positions, but this is according to location). These allowances are often
contingent upon tax-equalisation policies and practices in both the home and the
host countries.
(e) Spouse assistance allowance: This is provided by many multinational firms as it help
guard against or offset income lost by an expatriate’s spouse as a result of relocating
abroad. Although some firms may pay an allowance to make up for a spouse’s lost
income, U.S. firms are beginning to focus on providing spouses with employment
opportunities abroad, either by offering job-search assistance or employment in the
firm’s foreign unit.
4. Benefits: International benefits bring more difficulties while dealing with compensation
for the employees. Pension plans are very difficult to deal with country to country because

LOVELY PROFESSIONAL UNIVERSITY 147