Milkovich/Newman: Compensation, Ninth Edition McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 16 International Pay Systems

16-2 Exhibit 16.3: Social Contracts and Pay Setting

16-3 Culture and Managing International Pay Assumption that pay systems must be designed to fit different national cultures is based on the belief that most of a country’s inhabitants share a national character Assumption that pay systems must be designed to fit different national cultures is based on the belief that most of a country’s inhabitants share a national character Job of a global manager Job of a global manager –Search for national characteristics whose influence is assumed to be critical in managing international pay systems

16-4 Hofstede’s Cultural Dimensions Power Distance Power Distance Uncertainty Avoidance Uncertainty Avoidance Individualism – Collectivism Individualism – Collectivism Masculinity – Femininity Masculinity – Femininity Long-term – Short-term Long-term – Short-term

16-5 Exhibit 16.5 (8e): Union Density

16-6 Exhibit 16.8: Strategic Similarities and Differences: An Illustrated Comparison

16-7 Strategic Market Mind-Set Localizer: “Think Global, Act Local” –Designs pay systems to be consistent with local conditions –Business strategy is to seek competitive advantage by providing products and services tailored to local customers  Mngt 443: Multi-domestic strategy –Operate independently of corporate headquarters  Mngt 443: Global Geographic Structure

16-8 Strategic Market Mind-Set (cont.) Exporter: “Headquarters Knows Best” –Basic total pay system designed at headquarters and is “exported” world-wide for implementation at all locations –Exporting a basic system makes it easier to move managers and professionals among locations –One plan from headquarters gives all managers around the world a common vocabulary and a clear message what the leadership values  Mngt 443: Global product group structure

16-9 Strategic Market Mind-Set (cont.) Globalizer: “Think and Act Globally and Locally” –Seek a common system to be used as part of “glue” to support consistency across all global locations –Headquarters and operating units are heavily networked to shared ideas and knowledge –Performance is measured where it makes sense for the business –Pay structures are designed to support business  Mngt 443: Global matrix structure

16-10 Types of Expatriates Expatriates - Individuals whose citizenship is that of employer’s base country Expatriates - Individuals whose citizenship is that of employer’s base country Third country nationals (TCNs) - Individuals whose citizenship is neither employer’s base country nor location of subsidiary Third country nationals (TCNs) - Individuals whose citizenship is neither employer’s base country nor location of subsidiary Local country nationals (LCNs) - Individuals who are citizens of country in which subsidiary is located Local country nationals (LCNs) - Individuals who are citizens of country in which subsidiary is located

16-11 Objectives of Compensation and Benefits for Expatriates Attract and retain employees who are qualified for foreign assignments Attract and retain employees who are qualified for foreign assignments Provide an incentive to leave the home country for a foreign assignment Provide an incentive to leave the home country for a foreign assignment Maintain a given standard of living Maintain a given standard of living Take into consideration expatriates’ career and family needs Take into consideration expatriates’ career and family needs Facilitate reentry into the home country at the end of a foreign assignment Facilitate reentry into the home country at the end of a foreign assignment

16-12 Exhibit: Common Allowances in Expatriate Pay Packages

16-13 Common Allowances in Expatriate Pay Packages Financial Allowances Social Adjustment Assistance Family Support

16-14 Balance Sheet Approach Premise – Employees on overseas assignments should have same spending power as they would in their home country Premise – Employees on overseas assignments should have same spending power as they would in their home country Home country is standard for all payments Home country is standard for all payments Objectives Objectives –Ensure cost effective mobility of people to global assignments –Ensure expatriates neither gain nor lose financially –Minimize adjustments required of expatriates

16-15 Exhibit 16.11: Balance Sheet Approach

16-16 Pay Comparisons USI MBA candidates, Engineering undergrad, MNGT 652, Fall 2000 USI MBA candidates, Engineering undergrad, MNGT 652, Fall 2000 –Crystalline Maintenance Manager, GE Plastics, Lexan Chemical Operations, Mt. Vernon (10 yrs exp, B.S. U of Idaho) –Sourcing Leader, GE Plastics, Mt. Vernon (8 yrs exp, B.S. National University of Colombia, M.S. U of Oklahoma) –Staff Engineer, City of Evansville (7 yrs exp, B.S. U of Illinois) –Engineering Mngr, Ruvan, Evansville (11 yrs exp, B.S. U of Cincinnati) –Lead Process Engineer, Towel Mfg, Kimberly-Clark, Owensboro (3 yrs exp, B.S. Purdue) –Environmental Chemist, Alcan Ingot, Sebree, KY (27 yrs exp, B.S. Universidad Pontifica Bolivariana [Colombia] –Staff Electrical Engineer, Biagi, Chance, Cummins, London, Titzer, Inc., Evansville (2 yrs exp, B.S. USI) –Plant Mechanical Engineer, SIGECO, Newburgh (9 yrs exp, B.S. UE) –Industrial/Process Engineer, DSM Engineering Plastics, Evansville (14 yrs exp, B.S. Ball State) –Engineering Manager, ARC Machine, Evansville (15 yrs exp, B.S. UE)

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16-19 Borderless World--Borderless Pay? Corporations attempting to become “globally integrated enterprises,” are creating cadres of globalists: Corporations attempting to become “globally integrated enterprises,” are creating cadres of globalists: –Managers who operate anywhere in the world in a borderless manner To support a global flow of ideas and people, companies are also designing borderless, or at least regionalized, pay systems To support a global flow of ideas and people, companies are also designing borderless, or at least regionalized, pay systems –Testing ground for this approach - European Union