International Human Resource Management
Managing people in a multinational context
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.
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Terms
HRIS
repatriation
base salary
benefits
Tax equalization
Tax protection
allowances: COLA
housing
home leave
education
relocation
spouse assistance
going rate approach
balance sheet approach
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global corporate culture
International base pay
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Issues when considering benefits
1. Whether or not to maintain expatriates in
home-country programs, particularly if the
firm does not receive a tax deduction for it.
2. Whether firms have the option of enrolling
expatriates in host-country benefit programs
and/or making up any difference in coverage.
3. Whether expatriates should receive homecountry or host-country social security
benefits.
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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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Table
7-2
Advantages and disadvantages of the Going Rate Approach
Advantages
Disadvantages
• Equality with local nationals • Variation between assignments for
same employee
• Simplicity
• Variation between expatriates of same
• Identification with host
nationality in different countries
country
• Potential re-entry problems
• Equity amongst different
nationalities
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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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Four Balance Sheet Approach categories
1. Goods and services – home-country outlays for
items such as food, personal care, clothing,
household furnishings, recreation, transportation
and medical care.
2. Housing – the major costs associated with housing in
the host country.
3. Income taxes – parent-country and host-country
income taxes.
4. Reserve – contributions to savings, payments for
benefits, pension contributions, investments,
education expenses, social security taxes, etc.
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Table
7-4
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Expatriate compensation worksheet
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Table
7-5
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Advantages and disadvantages of the Balance Sheet Approach
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Table
7-6
Maximum marginal federal tax rates
Country
Maximum marginal
rate (%)
Argentina
Australia
Belgium
Brazil
Canada
China (Hong Kong)
China
France
Germany
India
Italy
Japan
Malaysia
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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
Country
Maximum marginal
rate (%)
Mexico
Netherlands
Poland
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
United Kingdom
United States
Venezuela
33.00
52.00
40.00
22.00
40.00
35.00
29.16
26.00
11.50
40.00
40.00
35.00
34.00
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Some issues when considering benefits
1. Keep expatriates in home-country programs, particularly if
the company does not receive a tax deductions for it?
2. Enroll expatriates in host-country benefit programs and/or
making up coverage differences?
3. Does host-country legislation regarding termination affects
benefit entitlement?
4. Do expatriates receive home-country or host-country social
security benefits?
5. Should benefits be maintained on a home-country or hostcountry basis? Who is responsible for the cost? Should other
benefits offset any shortfall in coverage? Should homecountry benefit programs be exported to local nationals in
foreign countries?
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Table
7-7
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Social security contributions by employers and employees
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Table
7-8
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Range of working times required to buy one Big Mac
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Figure
7-1
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Complexity, challenges and choices in global pay
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Discussion Questions
1. What should be the main objectives for a multinational
firm with regard to its compensation policies?
2. Describe the main differences in the Going Rate and
Balance Sheet Approaches to international compensation.
3. What are the key differences in salary compensation for
PCNs and TCNs? Do these differences matter?
4. What are the main points that MNEs must consider when
deciding how to provide benefits?
5. Why is it important for MNEs to understand the
compensation practices of other countries?
6. 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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