International Compensation Mgmt.ppt

ppt

1. 1
International Human Resources
Management
International Compensation Management

2. 2
Attract individuals who are competent and
interested in international assignments
Facilitate movement of expatriates from one
subsidiary to another, from the home country to
subsidiaries and from subsidiaries back to home
country
Provide a consistent and reasonable relationship
between the pay levels of employees at the
headquarters, domestic affiliates and foreign
subsidiaries
Be cost-effective by minimizing unnecessary
expenses
Be consistent with the overall strategy, structure
and business needs
Objectives of Compensation

3. 3
Compensation philosophy is the set of values
and beliefs that an organization has with regards
to monetary and non-monetary benefits payable
to employees
What are the goals of the organizations
compensation system?
What percentage of compensation should be
linked to individual/ unit performance and what
should be the base salary?
What is the role of performance appraisal in
disbursing compensation, bonus, merit hike etc.?
How to target the positioning of compensation of
employees relative to market?
Compensation Philosophy

4. 4
Contingency theory
Resource based Theory
The agency Theory
Equity Theory
Theories of Compensation

5. 5
Strategic business and operating inputs
obtained from the subsidiaries business plan
and objectives and the operating targets and
resources requirements
Industry and labor market practices and
trends to assess demand-supply
relationships
Employee inputs and preferences to
ascertain the degree to which compensation
is fixed-structure based vs. negotiable -
based on competency/skill
Compensation Strategy

6. Aligning Compensation Strategy by Michaiel H.
Schuster
EMPLOYEE
Inputs and
Preferences
Business
And
Operating
Inputs
Industry
And
Labor
Market
Practices &
Trends
Compensation Philosophy and Objectives
Based upon Business, Operating & Human Resource Requirements
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Compensation
Mangement
Fringe Benefits
Organisations
Performance
Or
Variable Pay
Non-Monetary&
Other Monetary Rewards
& Recognitions
Base Pay
Delivery

7. 7
Elements of compensation
Base Salary
Incentives/ Variable pay
Allowances
Long Term Benefits
Taxes
Components of Compensation

8. Base Salary
Its common in any compensation
strategy-domestic or foreign.
The base salary is the foundation
block of international compensation
whether the employee is a PCN or
TCN.

9. Incentives/Variable Pay
A growing number of MNCs have
dropped the ongoing premium for
overseas assignments and replaces it
with a one time, lump-sum premium
Even in domestic Bs MNCs are
preferring one-time premiums to
periodic salaries.

10. Incentives/Variable Pay contd.
Yahoo. Com has dropped CEO’s
salary to some % but they are entitled
to benefit from a discretionary bonus
in the form of a fully vested stock
option of up to 1 million shares /
annum.
Google Inc. has also done a similar
thing.

11. Incentives/Variable Pay contd.
Referral Bonus:
It is a popular way of bringing in new talent
by employees introducing friends,
relatives and acquaintances to the
company.
Eligibility to receive a hiring bonus varies
across job levels, but is relatively un
affected by companies size or industry
sector.

12. Incentives/Variable Pay contd.
Use of Retention Bonuses/ Rises
for employees
Is common in industries like IT/BPO and in
the services industry. Surveys indicate
that about one third of technology and life
sciences companies use a formal or
discretionary retention bonus plan to
retain key employee.
The practice is more common in large
industry but does not vary by industry
sector.

13. Allowances
They are an inevitable feature of
international compensation.
One common allowance relate to the
cost of living-an adjustment for
differences in the cost of living
between the home country and foreign
assignment.

14. Popular Allowances are
Spouse assistance
Housing allowance
Home leave allowance
Relocation allowance( to cover expenses as
moving, shipping and storage charges,
temporary living expenses, subsidies
regarding appliance or car purchase and
lease related charges etc.)
Educational allowance( to the children &
trailing spouse)

15. Allowances contd.
Foreign Service/Hardship Premium
This is perceived as an inducement in
the form of a salary premium to accept
an overseas assignment.
Generally salary premiums vary from 5-
40 % of the base salary.
Actual salary depends upon the
assignment, actual hardship, tax
consequences and length of
assignment.

16. Use of Long Term benefits
Employee Stock Option Plan (ESOP)
This is plan established by a
company wherein a certain no. of
shares are reserved for purchase and
issuance to key employees. Such
shares usually vest over a certain
period to serve as an incentive for
employees to build long-term value for
the company.

17. Use of Long Term benefits contd.
Restricted Stock Unit ( RSU)
This is a plan established by a company, wherein
units of stocks are provided with restrictions on
when they can be exercised.
It is usually issued as partial compensation for
employees.
The restriction generally lifts in 3-5 years when
the stock vests.
IT companies are increasingly using RSUs as
incentives since they afford a lot more flexibility.

18. Use of Long Term benefits contd
Employee Stock Purchase Plan ( ESPP)
This is a plan wherein a company sells shares to
its employees usually, at a discount.
The company deducts the purchase price of
these shares every month from employees
salary.

19. 19
MNCs generally select one of the
following approaches to tackle
international taxation.
TAX EQUALISATION
TAX PROTECTION
Taxes

20. TAX EQUALISATION
Organisations withhold an amount
equal to the home country tax
obligation of the PCN and pay all
taxes in the host country.

21. TAX PROTECTION
The employee pays up to the amount
of taxes he or she would pay on
remuneration in the home country.
In such a situation, the employee is
entitled to any windfall received if the
total taxes are less in the foreign
country than in the home country.

22. 22
Goal Orientation –profit making vs. service
oriented
Parent company philosophy
Industry type
Capacity to pay
Local labor market characteristics
Local Culture
Government and statutory provisions
Variables influencing Compensation

23. 23
Going Rate Approach
Balance Sheet Approach
Other Approaches
International Compensation Packages

24. Going Rate Approach
Executives are paid according to the
host country salary structures.
When salary structures in host
country are lower, additional salary
payments are made to the expatriates.

25. Balance Sheet Approach
Majority of MNCs follow the balance
sheet approach to determine
expatriate compensation.
This method provides a
compensation package that attempts
to equate or balance the expatriate’s
purchasing power in the host country
as compared to the home country.

26. Income Tax
Housing
Goods&
Services
Reserve
Premium
& Incentives
Income Tax
Housing
Goods&
Services
Reserve
Home & Host
Country Income
Taxes
Housing
Goods&
Services
Reserve
Income Tax
Housing
Goods&
Services
Reserve
Home country
Salary
Home Country
Equivalent
Purchasing
Power
Host country
costs
paid by orgn.
& from salary
Home Country
Costs

27. International Citizen’s Approach
In this approach an international basket of
goods is used for all expatriates, regardless
of country of origin,
It includes food, clothing, housing and so
forth.
Expatriates are not provided salary
adjustments that would allow them to
purchase exactly the same items in the host
country as in the home country.
Rather they receive adjustments that would
allow them to purchase a comparable local
product of same nature and use.

28. Global Salary Systems
International Citizen’s Approach is
alternatively called globalsalary systems.
This is appropriate when an MNC has a
team of dedicated international managers-
Europeans, Americans or Asians who are
ready to move to any part of Globe.
It seeks to provide worldwide equity in
rewards and allow managers to move
between countries with minimal effects on
life style.

29. 29
Compensation
Administration
Salary
Increases /
reviews
Establish
Salary
Bands
Developing
Rates of pay
for Jobs
Linkages to
performance
Appraisal
Starting
Salary for
New
Employees
Compensation Administration

30. 30
Issues in International compensation
Impact of the human resources
demand-supply equation at the
parent country / host country
Increasing usage of international
compensation and benefits
consultants
Use of compensation benchmarking
Surveys at local and global levels
Outsourcing Compensation
management/ payroll processing