1. International Human Resource Management
IHRM Chapter 7
International Human Resource Management
Managing people in a multinational context
International compensation

2. Chapter Objectives In this chapter we:
Examine the complexities that arise when firms move from compensation at the domestic level to compensation in an international context.
Detail the key components of an international compensation program.
Outline the two main approaches to international compensation and the advantages and disadvantages of each approach.
Examine the special problem areas of taxation, valid international living cost data and the problem of managing TCN compensation.
Examine recent developments and global compensation issues.
IHRM Chapter 7

3. Terms HRIS repatriation base salary benefits Tax equalization
Tax protection
allowances:
COLA
housing
home leave
education
relocation
spouse assistance
global corporate culture
International base pay
going rate approach
balance sheet approach
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4. Issues when considering benefits
Whether or not to maintain expatriates in home-country programs, particularly if the firm does not receive a tax deduction for it.
Whether firms have the option of enrolling expatriates in host-country benefit programs and/or making up any difference in coverage.
Whether expatriates should receive home-country or host-country social security benefits.
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5. Based on local market rates Relies on survey comparisons among:
Table 7-1
Going Rate Approach
Based on local market rates
Relies on survey comparisons among:
- Local nationals (HCNs)
- Expatriates of same nationality
- Expatriates of all nationalities
Compensation based on the selected survey comparison
Base pay and benefits may be supplemented by
additional payments for low-pay countries
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6. Advantages and disadvantages of the Going Rate Approach
Table 7-2
Advantages and disadvantages of the Going Rate Approach
Advantages
Equality with local nationals
Simplicity
Identification with host
country
Equity amongst different
nationalities
Disadvantages
Variation between assignments for
same employee
Variation between expatriates of same
nationality in different countries
Potential re-entry problems
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7. The Balance Sheet Approach
Table 7-3
The Balance Sheet Approach
Basic objective is maintenance of home-country living standard plus financial inducement
Home-country pay and benefits are the foundations of this approach
Adjustments to home package to balance additional expenditure in host country
Financial incentives (expatriate/hardship premium) added to make the package attractive
Most common system in usage by multinational firms
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8. Four Balance Sheet Approach categories
Goods and services – home-country outlays for items such as food, personal care, clothing, household furnishings, recreation, transportation and medical care.
Housing – the major costs associated with housing in the host country.
Income taxes – parent-country and host-country income taxes.
Reserve – contributions to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc.
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9. Expatriate compensation worksheet
Table 7-4
Expatriate compensation worksheet
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10. Advantages and disadvantages of the Balance Sheet Approach
Table 7-5
Advantages and disadvantages of the Balance Sheet Approach
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11. Maximum marginal federal tax rates
Table 7-6
Maximum marginal federal tax rates
Country
Argentina
Australia
Belgium
Brazil
Canada
China (Hong Kong)
China
France
Germany
India
Italy
Japan
Malaysia
Maximum marginal rate (%)
35.00
47.00
50.00
27.50
29.00
20.00
45.00
48.09
42.00
33.66
43.00
37.00
28.00
Maximum marginal rate (%)
33.00
52.00
40.00
22.00
35.00
29.16
26.00
11.50
34.00
Country
Mexico
Netherlands
Poland
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
United Kingdom
United States
Venezuela
IHRM Chapter 7 11

12. Some issues when considering benefits
Keep expatriates in home-country programs, particularly if the company does not receive a tax deductions for it?
Enroll expatriates in host-country benefit programs and/or making up coverage differences?
Does host-country legislation regarding termination affects benefit entitlement?
Do expatriates receive home-country or host-country social security benefits?
Should benefits be maintained on a home-country or host-country basis? Who is responsible for the cost? Should other benefits offset any shortfall in coverage? Should home-country benefit programs be exported to local nationals in foreign countries?
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13. Social security contributions by employers and employees
Table 7-7
Social security contributions by employers and employees
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14. Range of working times required to buy one Big Mac
Table 7-8
Range of working times required to buy one Big Mac
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15. Complexity, challenges and choices in global pay
Figure 7-1
Complexity, challenges and choices in global pay
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16. Discussion Questions
What should be the main objectives for a multinational firm with regard to its compensation policies?
Describe the main differences in the Going Rate and Balance Sheet Approaches to international compensation.
What are the key differences in salary compensation for PCNs and TCNs? Do these differences matter?
What are the main points that MNEs must consider when deciding how to provide benefits?
Why is it important for MNEs to understand the compensation practices of other countries?
Explain how balancing the interests of global and local, occupational and functional perspectives might play out in a compensation decision scenario.
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