International Compensation,Lecture and Seminar Dr. Andrew Jenkins,Programme,1. Introduction 2. Elements in an International compensation package 3. Current compensation trends 4. Questions and Answers 5. Case study 6. Next Weeks Seminar,Introduction,A number of studies (e.g. Jokinen et al., 2008; Konopaske and Werner, 2005) have shown that an employees willingness to accept a foreign assignment depends most strongly but not exclusively on financial components “In order to persuade employees to accept expatriation to a difficult country, a higher salary has to be offered” (Baruch, 2004). However, because of the heterogeneous nature of employee preferences, employers attempts to standardise compensation may be thwarted (Warneke and Shneider, 2011),Introduction,Most multinational corporations (MNCs) offer attractive compensation packages to relocate their employees for long-term international assignments, especially to expatriates from developed nations when working in developing nations (Chen, Kraemer and Gathii, 2011) Expatriates often work alongside similarly qualified local employees (Welch 2003) However, the pay levels of these two groups tend to be very different. In some countries, expatriates pay is more than 20 times that of their local colleagues in the same firm (Cervio and Bonache, 2005),Introduction,The management of expatriate compensation is a difficult balancing act between costs, flexibility, attractiveness and equity (Fenwick, 2004) The Cranfield Centre for Research into the Management of Expatriation (CReME) has identified 4 types of international assignment: 1. Frequent flyers 2. Short-term assignments 3. Commuter assignments and 4. Expatriate assignments,Introduction,Many MNCs send (often senior) managers from HQ to foreign subsidiaries According to Tayeb (2000) the objectives are: 1. A means to transfer technical and managerial skills over a period of time to the subsidiaries until these skills are mastered by local employees 2. Helps integrate subsidiaries into the firm 3. Helps develop a “Global Mindset” of senior management which is important for firms competing globally,Introduction,The opposite of expatriation is Inpatriation where staff (usually senior management) from the subsidiaries are invited to join the staff at HQ to be trained and developed for a short period of time. Compensation is a primary area of IHRM MNCs usually want to hire the most competent people However, they also wish to control costs Sometimes these two objectives are not compatible as it can be very expensive to relocate an overseas executive “The high cost of expatriate assignments mean that much attention is focused on developing more cost-effective systems” (Evans et al, 2002),Introduction,“Compensation is a crucial link between strategy and its successful implementation- there must be a fit between compensation and the goals for which the firm wants managers to aim” (Deresky, 1997) Compensation, or reward, serves a range of purposes for the organisation, the employee and other key stakeholders (Davis and Scully, 2008) Expatriate compensation is becoming increasingly complex as organisations use a variety of approaches in an effort to minimise costs (Briscoe and Schuler, 2004),Introduction,There is a perception that compensation for expatriates is very costly and time consuming for the organizations involved (Tornikoski, 2011) This perception results in companies either decreasing their investment in international experience and knowledge (Bonache and Pla-Barber, 2005; Pate and Scullion, 2010; Schell and Solomon, 1997) or recruiting alternate international employee populations, such as self-initiated expatriates (SIE) (Meyskens et al., 2009; Thite et al., 2009).,Introduction,In their 2013 paper, Doherty, Richardson and Thorn state that they do not have a prescriptive definition of “Self Initiated Expatriates” (SIEs) but state that expatriates were initially differentiated into two distinct groups: those sent or sponsored by companies those solely taking the initiative themselves outside the corporate context. However, these boundaries are being blurred with increasing recognition of other sub-groups. For example, one distinct group is the “global self-initiated corporate expatriate” (Altman and Baruch, 2012) who is understood as someone who would seek out a foreign posting within their organization, perhaps to a foreign subsidiary, rather than waiting to be sent by their employer.,Introduction,According to Lucas, Lupton and Mathieson (2006), there are a number of factors that affect the pay of expatriate managers: 1. Cost of living in the host country 2. Hardship 3. Currency exchange rates 4. Healthcare 5. Housing 6. Taxation 7. Education,Elements in an International compensation package,A typical international compensation package will include a base salary, benefits and allowances Also, most packages will address the issue of tax protection and/or tax equalization Base salary is the amount of money the individual receives in the home country This will be used as a benchmark for calculating the package,