McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved International Pay Systems Chapter 16

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exh. 16.3: Social Contracts and Pay Setting Localized Highly Centralized SOCIAL CONTRACT Local Systems Nationwide Systems Sector/Industry -wide Systems Argentina Brazil Canada France Hong Kong Mexico Singapore U.K. U.S.A. Czech Republic Germany India Israel Japan Korea Slovakia Slovenia PAY SETTING SYSTEMS Austria Belgium Cuba Hungary Poland Sweden

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Hofstede’s Cultural Dimensions  Power Distance  Uncertainty Avoidance  Individualism – Collectivism  Masculinity – Femininity  Long-term – Short-term

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 16.5: Union Density

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 16.6: Employment Practices Differ Among Nations: The Cost of an Employee 14.8%$2.00$13.47Britain $ %$2.85$16.52Japan $ %$3.90$14.34United States $ %$7.34$20.94Germany $ %$5.61$12.36France $17.97 What those extra costs are as a percentage of salary.... and what an employer pays in social insurance and labor taxes.... is made up from the salary paid directly to the worker before deductions... The hourly cost of a production worker in manufacturing...

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 16.11: Strategic Similarities and Differences: An Illustrated Comparison JapanUnited StatesGermany Objectives Long-term focus High commitment Egalitarian – internal fairness Flexible workforce Control cash flow with bonuses Short / intermediate focus High commitment Performance – market – meritocratic Flexible workforce Cost control; varies with performance Long term High commitment Egalitarian – fairness Highly trained Cost control through tariff negotiations Internal Alignment Person based: age, ability, performance determines base pay Many levels Small pay differences Work based: jobs, skills, accountabilities Fewer levels Larger pay differences Work based: jobs and experience Many levels Small pay differences

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved JapanUnited StatesGermany External Competitiveness Monitor age – pay charts Consistent with competitors Market determined Compare on variable and performance-based pay Tariff based Same as competitors Employee Contribution Bonuses vary with performance only at higher levels in organization Performance appraisal influences promotions and small portion of pay increases Bonuses an increasing percentage of total pay Increases based on individual, unit, and corporate performance Tariff negotiated bonuses Smaller performance bonuses for managers Exhibit 16.11: Strategic Similarities and Differences: An Illustrated Comparison

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved JapanUnited StatesGermany Advantages Supports commitment and security Greater predictability for companies and employees Flexibility – person based Supports performance – competitor focus Costs vary with performance Focus on short-term payoffs (speed to market) Supports commitment and security Greater predictability for companies and employees Companies do not compete with pay Disadvantages High cost of aging work force Discourages unique contributors Discourages women and younger employees Skeptical workers, less security Fosters “What’s in it for me?” No reward for investing in long-term projects Inflexible; bureaucratic High social and benefit costs Not a strategic tool Exhibit 16.11: Strategic Similarities and Differences: An Illustrated Comparison

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Shift in Strategic Global Focus  Focus of strategic global approaches – Avoid matching national systems  Involves aligning the total pay system with the global business strategy  Challenges  Managers must rethink international compensation in the face of global competition  Align global pay with the way business is aligned

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Objectives of Compensation and Benefits for Expatriates  Attract and retain employees who are qualified for foreign assignments  Provide an incentive to leave the home country for a foreign assignment  Maintain a given standard of living  Take into consideration expatriates’ career and family needs  Facilitate reentry into the home country at the end of a foreign assignment

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved Base-country currency Reserve $1,000 Reserve Goods and Services $2,000 Goods and Services $700 Housing Housing $2,000 $1,000 Taxes Taxes $2,000 $1,500 Relocation Bonus Allowances paid by company Base-country salary $7,000 Equivalent salary and allowances, host country $10,200 Exhibit 16.14: Balance Sheet Approach