Milkovich/Newman: Compensation, Ninth Edition
International Pay
Systems
Chapter 16
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Topics

Managing Variations: The Global Guide
 The Social Contract
 Culture
 Trade Unions and Employee Involvement
 Ownership and Financial Markets
 Managerial Autonomy
16-2
Chapter Topics (cont.)

Comparing Costs
 Comparing Systems
 National Systems-Comparative Mind-Set
 Strategic Market Mind-Set
 Expatriate Pay
 Borderless WorldBorderless Pay? Globalists
 Your Turn: Coke and IBM
16-3
Understanding
international
compensation begins with
recognizing variations
(differences and
similarities) and figuring
out how best to manage
them.
16-4
Managing Variations
How
people get paid around the world depends
on differences (and similarities) in the following
general factors
– Economic
– Institutional
– Organizational
– Employee
16-5
Exhibit 16.1: Guide to International Compensation
16-6
Variation in International Pay Practices

Social contracts

Cultures

Trade unions

Ownership and financial markets

Managers’ autonomy
16-7
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
16-8
Exhibit 16.3: Social Contracts
and Pay Setting
16-9
Culture

Shared mental programming rooted in values,
beliefs, and assumptions shared in common by a
group of people

Influences how information is processed
16-10
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
16-11
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
16-12
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
16-13
Factors Affecting International Pay

Ownership and capital markets

Managers’ autonomy
16-14
Comparing Costs
 Factors
affecting wage comparisons
– Standard of living
costs
– Purchasing power
– Working time required
16-15
Exhibit 16.8: Strategic Similarities and Differences: An
Illustrated Comparison
16-16
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
16-17
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
16-18
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
16-19
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
16-20
Exhibit 16.9: Why Expatriates Are Selected
16-21
Exhibit: 16.10 Common Allowances in
Expatriate Pay Packages
16-22
Elements of Expatriate Compensation
Salary
Housing
Taxes
Allowances
and
Premiums
16-23
Common Allowances in Expatriate Pay
Packages
Financial Allowances
Social Adjustment Assistance
Family Support
16-24
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
16-25
Exhibit 16.11: Balance Sheet Approach
16-26
Other Approaches: Compensation for
Expatriates

Negotiation

Localization

Modified balance sheet

Decrease allowances

Lump-sum/cafeteria plan
16-27
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
16-28
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
16-29