1. International Pay Systems

2. Understanding international compensation begins with recognizing variations (differences and similarities) and figuring out how best to manage them.

3. Managing Variations
How people get paid around the world depends on differences (and similarities) in the following general factors
Economic
Institutional
Organizational
Employee

4. Guide to International Compensation

5. Variation in International Pay Practices
Social contracts
Cultures
Trade unions
Ownership and financial markets
Managers’ autonomy

6. The Social Contract Viewed as part of the social contract
Employment relationship is more than an exchange between an individual and an employer
It includes
The government
All enterprise owners
All employees
Relationships and expectations of these parties form the social contract

7. Social Contracts and Pay Setting

8. Culture
Shared mental programming rooted in values, beliefs, and assumptions shared in common by a group of people
Influences how information is processed

9. 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
Job of a global manager
Search for national characteristics whose influence is assumed to be critical in managing international pay systems

10. Culture Matters, but So Does Cultural Diversity
How useful is the notion of a national culture when managing international pay?
Only a starting point
Can be thought of as the “average”
Provides some information about what kinds of pay attitudes and beliefs you are likely to find in an area
Over reliance on the “average” can seriously mislead

11. Culture Matters, but So Does Cultural Diversity (cont.)
Interplay among various conditions within each nation or region, taken as a whole, form distinct contexts for determining compensation
Economic
Institutional
Organizational
Individual

12. Factors Affecting International Pay
Ownership and capital markets
Managers’ autonomy

13. Comparing Costs Factors affecting wage comparisons
Standard of living costs
Purchasing power
Working time required

14. Strategic Similarities and Differences: An Illustrated Comparison
See Exhibit page 561

15. 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
Operate independently of corporate headquarters

16. 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

17. 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

18. Types of Expatriates
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
Local country nationals (LCNs) - Individuals who are citizens of country in which subsidiary is located
Advantages of hiring LCNs
Advantages of bringing in expats or TCNs

19. Why Expatriates Are Selected

20. Common Allowances in Expatriate Pay Packages

21. Elements of Expatriate Compensation
Salary
Taxes
Allowances and Premiums
Housing

22. Common Allowances in Expatriate Pay Packages
Financial Allowances
Social Adjustment Assistance
Family Support

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

24. Balance Sheet Approach
See Exhibit 16.17, page 569 and text discussion pages

25. Other Approaches: Compensation for Expatriates
Negotiation
Localization
Modified balance sheet
Decrease allowances
Lump-sum/cafeteria plan

26. Expatriate Systems → Objectives?
How the expatriate pay system affects competitive advantage, customer satisfaction, quality, or other performance concerns
Lack of attention to aligning expatriate pay with organization objectives
Employee Preferences

27. Borderless World--Borderless Pay?
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
Testing ground for this approach - European Union