CHAPTER 8: International Compensation
TRUE/FALSE
1. Increased complexities in global pay include the decreased use of outsourced activities and subsequent
labor pricing needs.
ANS: F
PTS: 1
TOP: Introduction
2. The competing objectives of the international firm and the expatriate employee are fundamentally
different from that which exists in a domestic environment.
ANS: F
PTS: 1
TOP: Introduction
3. The term “base salary” acquires a somewhat different meaning when employees go abroad.
ANS: T
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
4. Base salary must be paid in local country currency.
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
5. Foreign service inducements are usually made in the form of a percentage of salary and usually
amount to 30 to 60 percent of base pay.
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
6. The provision of a relocation allowance implies that employees should be entitled to maintain their
home country living standards.
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
7. Many employers cover the expense of one or more trips back to the home country each year.
ANS: T
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
8. The provision of a cost-of-living allowance implies that the cost-of-living in the foreign assignment is
higher than at home.
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
9. PCNs and TCNs do not usually receive the same treatment concerning educational expenses.
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
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10. Pension plans are very easy to deal with from country-to-country, as national practices are similar
ANS: F
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
11. The Going Rate Approach is based on local market rates.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
12. With the Going Rate Approach, if the location is in a low-pay country, the multinational usually
supplements base pay with additional benefits and payments.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
13. The Balance Sheet Approach links the base salary for PCNs and TCN to the salary structure of the
relevant home country.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
14. Generally the developed countries tend to rank as more expensive than developing countries because
their wage costs are higher.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
15. It is a common practice for MNEs to use a home-country balance sheet approach for TCNs except in
the USA.
ANS: F
PTS: 1
TOP: Approaches to International Compensation of Expatriates
16. “Universal” pay systems may be preferred by corporate pay planners rather than having to deal with
myriad “Local” systems.
ANS: T
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
17. Firms will never provide standardized “core” pay in the global firm.
ANS: F
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
18. Paying TCNs according to their home-country base salary can be less expensive than paying all
expatriates on a PCN scale.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
19. MNEs using the Balance Sheet approach to international compensation are constantly updating
compensation packages for cost of living changes.
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ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
20. Obtaining up to date information on international living costs is a constant issue for multinationals.
ANS: T
PTS: 1
TOP: Approaches to International Compensation of Expatriates
MULTIPLE CHOICE
1. Successfully managing compensation and benefits in a multinational context:
a. Requires knowledge of employment and taxation law, customs, environment, and
employment practices of many foreign countries
b. Requires the use of both the going rate approach and the balance sheet approach to
international compensation
c. Does not require familiarity with currency fluctuations
d. Does not require the use of any kind of base salary
ANS: A
PTS: 1
TOP: Introduction
2. In a domestic context, base salary:
a. Is the primary component of a package of allowances
b. Includes cost-of-living allowance
c. Denotes the amount of cash compensation serving as a benchmark for other compensation
elements
d. Is determined by using the Going Rate Approach
ANS: C
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
3. Which of the following is the foundation block for international compensation whether the employee is
a PCN or TCN?
a. Tax protection
b. Foreign service inducement/hardship premium
c. Allowances
d. Base salary
ANS: D
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
4. Which of the following involves a payment to compensate for differences in expenditures between the
home country and the foreign country?
a. Home leave allowance
c. Cost-of-living allowance
b. Housing allowance
d. Relocation allowance
ANS: C
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
5. The provision of a housing allowance:
a. Is not often assessed on a case-by-case basis
b. Does not ever include a fixed housing allowance
c. Implies higher living standards
d. May include company-provided housing
ANS: D
PTS: 1
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TOP: Key Components of an International Compensation Program for Expatriates
6. The purpose of home leave allowances is to:
a. Compensate for differences in expenditures between the home country and the foreign
country
b. Give expatriates the opportunity to renew family and business ties, thereby helping them
to avoid adjustment problems when they are repatriated
c. Cover moving, shipping and storage charges, and temporary living expenses
d. Give employees a chance to leave their homes to tour their potential foreign assignment
ANS: B
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
7. Relocation allowances:
a. Do not usually cover temporary living expenses
b. Usually cover temporary living expenses
c. Cover discretionary items
d. Do not usually cover moving
ANS: B
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
8. MNEs generally pay allowances in order to:
a. Change the living standards of employees
b. Encourage employees to take international assignments
c. Avoid certain taxes
d. Discourage employees from taking international assignments
ANS: B
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
9. Most US PCNs typically:
a. Remain under their home country benefit plan
b. Adopt US benefit plans
c. Take advantage of both their home countries’ and the US’s benefit plans
d. Do not receive benefits, only allowances
ANS: A
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
10. Firms need to address many issues when considering benefits, including:
a. Whether or not to maintain expatriates in home-country programs
b. Whether or not to use the Going Rate Approach
c. Whether or not to use the Balance Sheet Approach
d. Whether or not expatriates should receive any social security benefits
ANS: A
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
11. Benefits that may be provided to employees include:
a. Base pay
c. Vacations and special leave
b. Tax protection
d. Cost-of-living allowances
ANS: C
PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
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12. The base salary for an international transfer is linked to the salary structure in the host country using:
a. Tax protection
c. The Going Rate Approach
b. Tax equalization
d. The Balance Sheet Approach
ANS: C
PTS: 1
TOP: Approaches to International Compensation of Expatriates
13. The Balance Sheet Approach:
a. Is the most widely used approach to international compensation
b. Relies on survey comparisons
c. Creates potential re-entry problems
d. Creates variation between expatriates of the same nationality in different countries
ANS: A
PTS: 1
TOP: Approaches to International Compensation of Expatriates
14. An advantage of the Going Rate Approach is that:
a. There is variation between assignments for the same employee
b. There is equality in pay with local nationals
c. There is equity between assignments
d. It results in fewer taxes
ANS: B
PTS: 1
TOP: Approaches to International Compensation of Expatriates
15. A disadvantage of the Balance Sheet Approach is that:
a. There can be variations between assignments for the same employee
b. There can be variations between expatriates of the same nationality in different countries
c. There may be potential re-entry problems
d. It can result in great disparities between expatriates of different nationalities and between
expatriates and local nationals
ANS: D
PTS: 1
TOP: Approaches to International Compensation of Expatriates
16. The four categories of outlay incurred by expatriates that are incorporated in the Balance Sheet
Approach are:
a. Goods and services, housing, income tax and reserve
b. Housing, base pay, goods and services and taxation
c. Taxation, housing, exchange rate and goods and services
d. Reserve, housing, taxation and evaluation cost
ANS: A
PTS: 1
TOP: Approaches to International Compensation of Expatriates
17. The most common taxation policy used by multinationals is:
a. Tax protection
c. Tax equalization
b. Parent country national taxation
d. No taxation
ANS: C
PTS: 1
TOP: Approaches to International Compensation of Expatriates
18. “Globals” are:
a. Expatriates
b. Permanent international assignees
c. Commuters
d. International travelers
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ANS: B
PTS: 1
TOP: Approaches to International Compensation of Expatriates
19. Many multinationals respond to complexity of tax issues across countries by:
a. Ignoring all tax issues except for the Parent company
b. Retaining the services of international accounting firms
c. Having an in-house tax division to prepare all tax related forms and addresses all country
tax issues
d. Leaving all tax issues up to the employee
ANS: B
PTS: 1
TOP: Approaches to International Compensation of Expatriates
20. A firm-external theory of job worth is influenced by:
a. Behavioral theory
c. Cultural and institutional perspectives
b. Level of internationalization
d. Local market conditions
ANS: C
PTS: 1
TOP: Approaches to International Compensation of Expatriates
21. Pay strategy may be defined in terms of a series of interlocking strategic choices on:
a. Basis of pay, units of aggregations, patterns of variation in pay and job evaluations
b. Industry/competition, size of organization, organizational structure and job evaluations
c. Employment relationships, corporate culture, basis of pay and job evaluation
d. Local market conditions, laws, basis of pay and job evaluations
ANS: A
PTS: 1
TOP: Approaches to International Compensation of Expatriates
22. An external, environmental norm in global pay strategy would be:
a. Traditional employment relationships
c. Resource-based view of the firm
b. Labor unions and educational systems
d. Institutional economics
ANS: B
PTS: 1
TOP: Approaches to International Compensation of Expatriates
23. Performance verses seniority is a strategic choice of pay strategy considered in:
a. Job evaluation system
c. Internal equity
b. Units of aggregation
d. Basis of pay
ANS: A
PTS: 1
TOP: Approaches to International Compensation of Expatriates
24. In a recent cost of living survey, the most expensive city to live in is:
a. London
c. Zurich
b. New York
d. Tokyo
ANS: B
PTS: 1
TOP: Approaches to International Compensation of Expatriates
25. The Top Five highest taxation countries are:
a. Netherlands, Belgium, Germany, Australia and Italy
b. USA, Netherlands, France, Germany and China
c. China, Australia, Belgium, France and Malaysia
d. Taiwan, France, Netherland, Belgium and Australia
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ANS: A
PTS: 1
TOP: Approaches to International Compensation of Expatriates
26. International compensation is characterized by:
a. Complexity, culture and corporation
c. Complexity, challenges and choices
b. Complexity, cultural challenges
d. Complexity, cooperation and competition
ANS: C
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
27. Global pay practices consist of firm level decisions about:
a. Pay mix, pay level and standardization versus localization
b. Pay levels, pay mix and hierarchy versus egalitarian basis
c. Pay levels, cultural norms and pay bases
d. Pay mix, pay culture and standardization versus localization
ANS: A
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
28. International compensation is:
a. On a practical level, simpler than a domestic pay system
b. Not considered critical for most multinational enterprises
c. Still essentially equivalent to the topic of expatriate pay practices in all multinational
enterprises
d. More complex than domestic pay due to outsourcing and balancing centralizations and
decentralization of pay forms
ANS: D
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
29. National and regional differences in the meaning practice and tradition of pay:
a. Are rapidly diminishing
b. Have practically disappeared with global cultural integration
c. Remain significant sources of variation in the international firm
d. Are actually increasing due to national and regional protectionist legislative mandates
ANS: C
PTS: 1
TOP: Introduction
30. A seamless network of pay providing members, made up of global firms, their specialist consultant and
local and regional public and private interests are:
a. A reality
b. An impossibility
c. Not considered critical to MNEs executives
d. A goal not yet a reality
ANS: D
PTS: 1
TOP: Approaches to International Compensation of Expatriates
31. The “Local Plus” approach to international compensation
a. Pays expatriates solely based on prevailing local wage conditions
b. Provides nothing but benefits in transportation assistance, housing and dependent’s
education
c. Combines some local pay practices with some expatriate benefits
d. Always includes tax equalization policies
ANS: C
PTS: 1
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TOP: Approaches to International Compensation of Expatriates
SHORT ANSWER
1. Present the general objectives of international compensation for a firm.
ANS:
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Consistent with the overall strategy, structure and business needs of the firm.
Work to attract and retain staff in the areas where the multinational has the greatest business
needs and opportunities. In other words be competitive in the appropriate labor market or
markets.
Policies should facilitate the transfer of international employees in the most cost effective
manner.
Policy should give due consideration to perceptions of equity and fairness and ease of
administration.
PTS: 1
TOP: Introduction
2. List the objectives of international compensation for an employee.
ANS:
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
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Provide financial protection in terms of benefits and living costs
Assignment should offer opportunities for financial advancement through income and or
savings.
Issues such as housing, education of children and recreation will be addressed in the policy
General expectations for career advancement as the result of the assignment.
PTS: 1
TOP: Introduction
3. Discuss the key components of an international compensation program.
ANS:
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

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Base salary
Foreign service inducements/hardship premium
Allowances (cost of living, housing, home leave, educational allowance, relocation allowance)
Benefits (pension, vacation and home leave, recreational opportunities, emergency provisions)
PTS: 1
4. Describe the advantages and disadvantages of the Going Rate Approach to international compensation
and the Balance Sheet Approach.
ANS:

Going Rate: ADV – Equitable vis a vis local nationals, simple, identifies expatriate with the
locals, provides sense of fairness across different nationalities in a country.
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
DISADV – Creates variation between assignments for the same employee, creates variation
between expatriates of the same nationality working in different countries, creates potential
reentry problems upon completion of the assignment.

Balance Sheet: ADV – Contributes to a sense of equity between assignments and between
expatriates of the same nationality, facilitates expatriate reentry into his/her home country, easy
to communicate to employees.
DISADV – Can result in disparities between expatriates of different nationalities and between
expatriates and local nationals, can be quite complex to administer and track.

PTS: 1
TOP: Key Components of an International Compensation Program for Expatriates
5. What are the three vertical levels of global pay strategies?
ANS:
Level three: Artifacts, Level two: Norms and values, Level one: Basic assumptions
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
6. Describe some categories of Basis-for-Pay of strategic pay systems.
ANS:
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Job vs. skill as basis for pay
Performance vs. seniority
Individual vs. group performance
Short vs. long term orientation
Risk aversion vs. risk taking
Corporate vs. divisional performance
Hierarchical vs. egalitarian pay structure
Qualitative vs. quantitative performance measures
Internal vs. external equity emphasis
PTS: 1
TOP: Tentative Conclusions: Patterns in Complexity, Challenges and Choices
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