2. OVERVIEW
Introduction to international compensation
Meaning and definition of international
compensation
Objectives of international compensation
Components and benefits of international
compensation
Approaches to international compensation
3. INTRODUCTION
Compensation is an integral part of human resource
management.
Compensation provided to employees can direct in
the form of monetary benefits and indirect in the
form of non-monetary benefits.
Compensation does not include only salary but it is
the sum of all rewards & allowances provided to
employees in return of their services.
Almost all the employees accept jobs in MNC’s
take-up assignments in various countries due to the
compensation package.
4. MEANING & DEFINITION
According to R. Wayne Mondy “ Compensation is
the total of all rewards provided to employees in
return to their services. The overall purpose of
providing compensation are to attract, retain, and
motivate employees”.
5. OBJECTIVES
From the point of view of firm:
The compensation policy should be in line with the
structure, business needs and overall strategy of the
organisation.
The policy should aim at attracting and retaining
the best talent.
It should enhance employee satisfaction.
It should be clear in terms of understanding of the
employees & convenient to administer.
6. From the point of view of employees:
The employee expects proper compensation against
his competency and performance level.
The employee expects substantial financial gain for
his own comfort and for his family also.
The employee expects his present and future needs
to be taken care of .
The policy should be progressive in nature.
7. COMPONENTS OF
INTERNATIONAL COMPENSATION
Base salary
Hardship premium
COLA Housing allowance
Allowances Home leave allowance Educational allowance
Relocation allowance Spouse assistance
Benefits
8. BASE SALARY
Primary component of a package .
Foundation block for international
compensation.
9. HARDSHIP PREMIUM
o It is perceived as an
inducement in the form
of salary premium to
accept foreign
assignment.
o Salary premium will
be 5%-40% of the base
salary.
10. COLA
o It involves a payment to
compensate for differences
in expenditures between the
home country and the
foreign country.
Why?
o To maintain the PCN
standard of living in the
HCN.
11. HOUSING ALLOWANCE
o This allowance implies
that employees should be
entitled to receive
accommodation that is
equivalent to that provided
for similar foreign
employees .
o This allowances are
often paid on either an
assessed or an accrual
basis.
12. HOME LEAVE ALLOWANCE
A period of annual
leave taken by a staff
member in order to
visit their home
country.
13. OBJECTIVES IMPORTANCE
To attract employees
Employee satisfaction
Productivity
Time for Non-work
related issues.
o To ensure that
employees who live
abroad for an extended
period undergo
reorientation and re-
exposure .
14. EDUCATIONAL ALLOWANCES
Providing allowance
for expatriate’s
children .
Problems:-
I. Level of education
provided for
II. Adequacy of local
schools &
transportation in
host country.
15. RELOCATION ALLOWANCE
This allowance cover
usually covers the
additional expenses of
expatriates during
relocation .
It includes moving,
shipping, storage cost etc..
16. SPOUSE ASSISTANCE
To help guard against or
offset income lost by an
expatriate’s as a result of
relocating abroad.
Some firms may pay an
allowance to make up for a
spouse’s lost income.
MNC’s generally pay
allowances in order to
encourage employees to take
up international assignments.
17. BENEFITS
Pension plans.
Medical coverage.
Social security benefits.
Vocations and special leave.
Rest and rehabilitation
leave.
Emergency provisions.
18. ISSUES
Pension plans are very difficult
to deal with country-to-country.
Transportability of benefits is
difficult to normalize.
Laws governing private benefits
practices differ from country to
country.
Firm practices vary.
19. APPROACHES
The two main approaches to expatriate
compensation are:
I. Going Rate Approach
II. Balance Sheet Approach
20. GOING RATE APPROACH
It is also referred as the market rate approach.
It is based on local market rates.
It 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 & benefits may be supplemented by
additional payments for low pay countries.
21. ADVANTAGES &
DISADVANTAGES
ADVANTAGES DISADVANTAGES
• Equality with local nationals
• Identification with host country
• Equity amongst different nationalities
• Variation between assignments for
same employee.
• Variation between expatriates of
same nationality in different
countries.
• Potential re-entry problems.
22. BALANCE SHEET APPROACH
Balance sheet approach is also known as build –
up approach.
Balance sheet approach to international
compensation is a system designed to equalize
purchasing power of employees at comparable
position level living abroad & in home country
and to provide incentives to offset qualitative
difference between assignment location.
24. ADVANTAGES &
DISADVANTAGES
ADVANTAGES DISADVANTAGES
• Equity
- Between assignments
- Between expatriates of the same
nationality
• Facilitates expatriate re-entry
• Easy to communicate to
employees
• Can result in great disparities
- Between expatriates of different
nationalities
- Between expatriates and local
nationals
• Can be quite complex to administer.
