MBA Guide to Salary and Wage Administration

Human Resource Management – M.B.A. PRINCE
R a j a R a o P a g i d i p a l l i Page 1
COMPENSATION
SALARY & WAGE ADMINISTRATION
RAJA RAO PAGIDIPALLI
M.B.A.(HRM), M.A.(ENG), M.Phil, (Ph.D)

COMPENSATION
SALARY & WAGE ADMINISTRATION
Compensation administration is essentially the application of a systematic
approach to the problem of ensuring that employees are paid in a logical, equitable and
fair manner.
Wage: Wage and salary are often discussed in loose sense, as they are used
interchangeably. But Indian Labour Organisation (ILO) defined the term wage as “the
remuneration paid by the employer for the services of hourly, daily, weekly and
fortnightly employees. “It also means that remuneration paid to production and
maintenance or blue collar employees.
Salary: The term salary is defined as the remuneration paid to the clerical and
managerial personnel employed on monthly or annual basis.This distinction between
wage and salary does not seem to be valid in these days of human resources approach
where all employees are treated as human resources and are viewed at par. Hence, these
two terms can be used interchangeably. As such, the term wage and/or salary can be
defined as the direct remuneration paid to an employee compensating his services to an
organization. Salary is also known as basic pay.
Earnings: Earnings are the total amount of remuneration received by an employee
during a given period. These include salary (pay), dearness allowance; house rent
allowance, city compensatory allowance, other allowances, overtime payments etc.
Nominal wage: It is the wage paid or received in monetary terms. It is also known as
money wage.
Real wage: Real wage is the amount of wage arrived after discounting nominal wage by
the living cost. It represents the purchasing power of money wage.
Take Home Salary: It is the amount of salary left to the employee after making
authorized deductions like contribution to the provident fund, life insurance premium,
income tax and other charges.
Minimum wage: It is the amount of remuneration which could meet the “normal
needs of the average employee regarded as a human being living in a civilized society.” It
is defined as the amount or remuneration “which may be sufficient to enable a worker to

live in reasonable comfort, having regard to all obligations to which an average worker
would ordinarily be subjected to”.
Statutoty Minimum Wage: It is the amount of remuneration fixed according to the
provisions of the minimum wages Act, 1948.
Objective of Wage and Salary Administration: The objective of wage and salary
administration is numerous and sometimes conflict with each other. The important
among them are:
Ï To acquire qualified competent personnel: Candidates decide upon their
career in a particular organization mostly on the basis of the amount of
remuneration the organization offers. Qualified and competent people join the
best-paid organizations. As such, the organizations should aim at payment of
salaries at that level, where they can attract competent and qualified people.
Ï To retain the present employees: If the salary level does not compare
favorable with that of other similar organizations, employees quit the present one
and join other organizations. The organization must keep the wage levels at the
competitive level, in order to prevent such quits.
Ï To secure internal and external equity: Internal equity does mean
payment of similar wages for similar jobs within the organization. External equity
implies payment of similar wages to similar jobs in comparable organizations.
Ï To ensure desired behaviour: Good rewards reinforce desired bahaviour
like performance, loyalty, accepting new responsibilities and changes etc.
Ï To keep labour and administrative costs in line with the ability of the
organization to pay.
Ï To protect in public as progressive employers and to comply with the wage
legislations.
Ï To pay according to the content and difficulty of the job and in tune with the
effort and merit of the employees.
Ï To facilitate pay roll administration of budgeting and wage and salary control.
Ï To simplify collective bargaining procedures and negotiations.
Ï To promote organization feasibility.

FACTORS AFFECTING WAGE/SALARY LEVELS
Generally, a large number of factors influence the salary levels in an organization.
Significant among them are:
þ (i) Remuneration in Comparable Industries;
þ (ii) Firm’s Ability to Pay;
þ (iii) Cost of Living;
þ (iv) Productivity;
þ (v) Union Pressure and Strategies; and
þ (vi) Government Legislations.
(i) Remuneration in Comparable Industries: Prevailing rates of remuneration in
comparable industries constituted an important factor in determining salary levels. The
organization, in the long-run, must pay at least equal to the going rate for similar jobs in
similar organization. Further, the salary rates for the similar jobs in the firms located in
the same geographical region also influence the wage rate in the organization. The
organization has to pay the wages equal to that paid for similar jobs in comparable
industries in order to secure and retain the competent employees, to follow the directive
of Courts of Law, to meet the trade union’s demands, to satisfy the employee’s need for
same social status as that of same categories of employees in comparable organizations.
Comparable industries constitute the organizations engaged in the same or similar
activities, of the same size in the similar type or management, i.e., public sector or under
the management of same owners, organizations located in the same geographical region
etc.,
(ii) Firm’s Ability to Pay: One of the principal considerations that weigh with the
management in fixing the salary levels is its ability to pay. But in the short-run, the
influence of ability to pay may be practically nil. However, in the long-run, it is quite an
influential factor. In addition, total cost of employees (salaries, allowances, cost of fringe
benefits etc.) should be taken into consideration in determining the ability to pay. Trade
Unions demand higher wages when the company’s financial position is sound. But they
may not accept wage reduction, when the company’s financial position is in doldrums.
Hence, the management has to take decisions judiciously. Further, certain incentives are
linked to the profitability. Thus, whatever the influence of other factors may be, the
organization cannot pay more than its ability to pay in the long-run.
(iii) Relating to Price-index: The cost of living is another important factor that
influences the quantum of salary. The employees expect that their purchasing power be
maintained at least at the same level, if not increased by adjusting wages to changes in

cost of living. In fact, in recent years, in advanced countries, “ a number f labour
agreements have ‘escalator’ clauses, providing for automatic wage and salary increase as
cost of living index raises. “Dearness allowance is an allowance granted to the employees
with a view to combating onslaughts of soaring prices.
(iv) Productivity: An interesting development in wage determination has been
productivity standard. This is based on the fact that productivity increase is also the
result of employee satisfaction and contribution to the organization. But wage
productivity linkage does not appear to be so easy since many problems crop up in
respect of the concept and measurement of productivity. But, although the wages are
not linked directly to the productivity in an organization, changes in productivity have
their impact on remuneration. This criteria received consideration of wage boards. “not
only because it constituted a factor in the fixation of ‘fair wage’ but also because it was
directly related to such questions as desirability of extending the system of payment by
result”.
(v) Union Pressure and Strategies: the wages are also often influenced by the
strength of Unions, their bargaining capacity and their strategies. Arthur M. Ross
concluded that “read hourly earnings have advanced more sharply in highly organized
industries than in less unionized industries. “Unions pressurize management through
their collective bargaining strategies political tactics and by organizing strikes etc. trade
unions influence maybe on the grounds of wages in comparable industries, firm’s
financial position, raised particularly in those industries where the wage level is below
that of other comparable industries”.
(vi) Government Legislations: Government legislations influence wage
determination. The two important legislations which affect wage fixation are: the
Payment of Wages Act, 1936 and the Minimum Wages Act, 1948. The important
provisions of the Payment of Wages Act, 1936 are: ensuring proper payment of wages ad
avoiding all malpractices like non-payment, underpayment, delayed and irregular
payment, payment in king and under-measurement of work. The Act covers all
employees drawing the wage up to Rs. 1,000 per month. The Act stipulates that the
organizations with less than hundred workers should pay the wage by the seventh and
the organizations with more than 100 employees should pay by the tenth of nest month.
Compensation: An Overview
v Compensation – Total of all rewards provided employees in return for services
v Direct financial compensation – Pay received in the form of wages, salaries,
bonuses, and commissions
v Indirect financial compensation – All financial rewards not included in direct
compensation

v Nonfinancial compensation – Satisfaction a person receives from job itself or
from work environment
Equity in Financial Compensation
v Equity – Fair pay treatment for employees
v External equity – Comparable salary for work performed by workers of
similar jobs in other firms.
v Internal equity – pay according to relative value of other jobs within same
organization
v Employee equity – Individuals performing similar jobs for same firm are paid
according to factors unique to employee, such as performance level or
seniority
v Team equity – More productive teams are rewarded more than less
productive groups
Compensation Policies
Ï Pay leaders – pay higher wages and salaries
Ï Market rate, or going rate – pay what most employers pay for same job
Ï Pay followers – pay below market rate because poor financial condition or
believe they do not require highly capable employees
Job Evaluation
¯ Firm determines the relative value of one job in relation to another
¯ Ranking
¯ Classification
¯ Factor comparison
¯ Point
Ranking Method
ÿ Simplest method
ÿ Raters examine description of each job
ÿ Jobs arranged in order according to value
Factor Comparison Method
¶ Mental requirements
¶ Skills
¶ Physical requirements
¶ Responsibilities
¶ Working conditions
Job Pricing

¯ Placing a dollar value on worth of a job
¯ Pay grades – Grouping of similar jobs to simplify pricing jobs
¯ Wage curve – Fitting of plotted points to create a smooth progression between
pay grades
¯ Pay ranges – Minimum and maximum pay rate with enough variance between
the two to allow for a significant pay difference
Employee –Determinant of Financial Compensation
¥ Performance-based Pay
¥ Skilled-based Pay
¥ Competency-based Pay
¥ Seniority
¥ Experience
¥ Membership in the organization
¥ Potential
¥ Political Influence
¥ Luck
Performance-Based Pay
¤ Merit pay – Pay increase given to employees based on their level of
performance as indicated in the appraisal
¤ Variable pay – Compensation based on performance (bonus)
¤ Piecework – Employees paid for each unit they produce
Skill-Based Pay
± Compensates on basis of job-related skills and knowledge
± Employees and departments benefit when employees obtain additional
skills
± Appropriate where work tends to be routine and less varied
± Must provide adequate training opportunities or system becomes a
demotivator Seniority
± Length of time an employee has been associated with the company,
division, department, or job
± Labor unions tend to favor seniority
Organizational Memberships
° Some components of individual financial compensation are given to
employees regardless of particular job they perform or their level of
productivity
° Intended to maintain a high degree of stability in the workforce and to
recognize loyalty

Compensation for Special Groups
É Team-based Pay
É Company-wide Plans
É Compensation for Professional
É Compensation for Sales Employees
É Compensation for Contingency Workers
Company-Wide Pay
É Profit sharing – distribution of predetermined percentage of firm’s profits
to employees
É Gain sharing – incentive payment based upon improved company
performance
É Scanlon plan – reward to employees for savings in labor costs resulting
from employees’ suggestions
Types of Executive Compensation
É Base salary
É Short-term (annual) incentives or bonuses
É Long-term incentives and capital appreciation plans
É Stock option plans
É Indexed stock option plans
É Executive benefits (Perks)
É Golden parachutes
Compensation Management Purpose
Compensation is a key factor in attracting and keeping the best employees and
ensuring that your organization has the competitive edge in an increasingly
competitive world. The Compensation Management component enables you to
differentiate between your remuneration strategies and those of your competitors
while still allowing flexibility, control and cost effectiveness.
It provides a toolset for strategic remuneration planning that reflects your
organization culture and pay strategies, and it empowers line managers within a
framework of flexible budget control. Compensation Management allows you to
control bottom-line expenditures and offer competitive and motivating
remuneration, be it fixed pay, variable pay, stock options, merit increases, or
promotion – in other words, total compensation. In brief, you can use this

component to perform:
ü Create centralized and decentralized budgets
ü Plan and administer compensation adjustments at the manager level
ü Plan and administer compensation adjustments within budget
ü Performing Job Pricing
ü Define pay grades and salary structures to identify the internal value of
jobs and positions in your organization
ü Administer long-term incentives
BUILDING COMPENSATION PLANS
During the process of establishing compensation plans, companies take into
consideration different employee types, such as a software engineer or a sales
representative, and establish the primary salary ranges based on the different grades
available for each position (e.g., Software Engineer I, Software Engineer II). Each
position can be assigned an associated salary or compensation range, which can be
further affected by other factors such as seniority, location, and market salary surveys.
Which factors are included and how much weight each factor has are easily configured
during the plan definition phase.
Compensation Planning includes all aspects of employee compensation, including
bonuses and long-term incentives such as stock options. Compensation plan definition
is extremely flexible. For instance, a plan can be applied to all employees or groups of
employees, different policies in a single plan may apply to all employees or a group of
employees, or an organization may cover all of its employees within one plan or within
multiple plans. Plans can be tested against the organization’s budget using simulations
to ensure that policies are practically applied.
MANAGERIAL COMPENSATION
There is a feeling among the trade union circles that executives get a very high salary
including perks. Hence, they view that the level of executive compensation should be
contained in view of the objectives of the socialistic pattern of society. However, the
existing provisions of managerial compensation would provide a clear picture. Section
198 of the Companies Act, 1956 says that the total managerial remuneration payable by
a public limited company to its directors, secretaries and treasures and managers in a
financial year shall not exceed 11% of the net profits of the company. Section 198(4) of
the Companies Act provides that in the absence or inadequacy profits, a maximum of
Rs.50,000 may be paid to Managing Director and all directors. In exceptional cases, the

Government may permit payment of higher salary. Section 309(4) of the Act stipulates
Certain ceilings on the remuneration payable.
The Government issued guidelines in November, 1978. According to these guidelines,
the overall salary was restricted to Rs. 72,000 per annum and perks were restricted to
Rs.60,000 per annum. Managers and organizations were highly critical about these
guidelines. They felt that they discourage initiative and hamper the skill of managers.
Peter F. Durucker . who was in India during November and December, 1978, thought
that such ceiling should cause migration of talent from India. He suggested that Indian
managers should not accept lower salaries and they should demand tax-free as is the
custom in Sweden. Ratio between the lowest and highest salary of managers in Sweden
is 1:5 But the tax free benefits are enormously granted to the executives.
In view of the criticism, the Government announced some liberalization to the
guidelines. Overall ceiling is as it was at Rs. 60,000 but it is increased to Rs. 62,700 in
case of Mumbai. Rates of house rent allowance to salary are raised to 45% in case of
Mumbai, 40% in case of Delhi, 35% in case of Kolkata and 30% in case of other places.
An allowance of 10% is allowed for cooking gas, electricity, gas etc. Expenditure of
pensionary benefits is increased upto 25% of the salary. Medical expenses allowance
equal to three months salary is allowed. However, the Gujarat High Court in May, 1980
and the Delhi High Court in August, 1980, struck down the guidelines of November 1978
as violative of Section 637-A of the Companies Act, 1956.
The Government in U.K. accepted fair remuneration for executives in the public sector
with a view to attracting whereas the Government in India reduced the managerial
compensation in the private sector with a view to equalizing them with those of the
public sector. Thus, the Government wishes to control its burden at the cost of talent
and skill.
Influences on Compensation: Factors Determining Pay Rates 1. Job needs 2. Ability
to pay 3. Cost of living 4. Prevailing rates 5. Unions 6. Productivity 7. State regulation
8. Demand and surplus of workforce
Job Evaluation: Job evaluation is a practical technique, designed to enable trained
and experienced staff to judge the size of one job relative to others. It does not directly
determine pay levels, but will establish the basis for an internal ranking of jobs.
The two most common methods of job evaluation that have been used are first, whole
job ranking, where jobs are taken as a whole and ranked against each other. The second
method is one of awarding points for various aspects of the job. In the points system
various aspects or parts of the job such as education and experience required to perform
the job are assessed and a points value awarded – the higher the educational
requirements of the job the higher the points scored. The most well known points

scheme was introduced by Hay management consultants in 1951. This scheme evaluates
job responsibilities in the light of three major factors – know how, problem solving and
accountability.
Job Evaluation Methods:
There are three basic methods of job evaluation: (1) ranking, (2) classification, (3) factor
comparison. While many variations of these methods exist in practice, the three basic
approaches are described here.
Ranking Method: Perhaps the simplest method of job evaluation is the ranking
method. According to this method, jobs are arranged from highest to lowest, in order of
their value or merit to the organization. Jobs also can be arranged according to the
relative difficulty in performing them. The jobs are examined as a whole rather than on
the basis of important factors in the job; and the job at the top of the list has the highest
value and obviously the job at the bottom of the list will have the lowest value. Jobs are
usually ranked in each department and then the department rankings are combined to
develop an organizational ranking. The following table is a hypothetical illustration of
ranking of jobs.
Array of Jobs according to the Ranking Method
Rank Monthly salaries
1. Accountant Rs 3,000
2. Accounts clerk Rs 1,800
3. Purchase assistant Rs 1,700
4. Machine-operator Rs 1,400
5. Typist Rs 900
6. Office boy Rs 600
The variation in payment of salaries depends on the variation of the nature of the job
performed by the employees. The ranking method is simple to understand and practice
and it is best suited for a small organization. Its simplicity, however, works to its
disadvantage in big organizations because rankings are difficult to develop in a large,
complex organization. Moreover, this kind of ranking is highly subjective in nature and
may offend many employees. Therefore, a more scientific and fruitful way of job
evaluation is called for.
Job Classification Method
According to this method, a predetermined number of job groups or job classes are
established and jobs are assigned to these classifications. This method places groups of
jobs into job classes or job grades. Separate classes may include office, clerical,

managerial, personnel, etc. Following is a brief description of such a classification in an
office.
ü Class I – Executives: Further classification under this category may be Office
manager, Deputy office manager, Office superintendent, Departmental
supervisor, etc.
ü (b) Class II – Skilled workers: Under this category may come the Purchasing
assistant, Cashier, Receipts clerk, etc.
ü (c) Class III – Semiskilled workers: Under this category may come Steno typists,
Machine-operators, Switchboard operators, etc.
ü (d) Class IV – Semiskilled workers: This category comprises Daftaris, File clerks,
Office boys, etc.
The job classification method is less subjective when compared to the earlier ranking
method. The system is very easy to understand and acceptable to almost all employees
without hesitation. One strong point in favor of the method is that it takes into account
all the factors that a job comprises. This system can be effectively used for a variety of
jobs.
The weaknesses of the job classification method are:
° Even when the requirements of different jobs differ, they may be combined into a
single category, depending on the status a job carries.
° It is difficult to write all-inclusive descriptions of a grade.
The method oversimplifies sharp differences between different jobs and different
grades.
° When individual job descriptions and grade descriptions do not match well, the
evaluators have the tendency to classify the job using their subjective judgments.
Factor Comparison Method:
A more systematic and scientific method of job evaluation is the factor comparison
method. Though it is the most complex method of all, it is consistent and appreciable.
Under this method, instead of ranking complete jobs, each job is ranked according to a
series of factors. These factors include mental effort, physical effort, skill needed,
supervisory responsibility, working conditions and other relevant factors (for instance,
know-how, problem solving abilities, accountability, etc.). Pay will be assigned in this
method by comparing the weights of the factors required for each job, i.e., the present
wages paid for key jobs may be divided among the factors weighed by importance (the
most important factor, for instance, mental effort, receives the highest weight). In other
words, wages are assigned to the job in comparison to its ranking on each job factor.
The steps involved in factor comparison method may be briefly stated thus:
Select key jobs, representing wage/salary levels across the organization. The selected

jobs must represent as many departments as possible.
Find the factors in terms of which the jobs are evaluated (such as skill, mental effort,
responsibility, physical effort, working conditions, etc.).
Rank the selected jobs under each factor (by each and every member of the job
evaluation committee) independently. Assign money value to each factor and determine
the wage rates for each key job. The wage rate for a job is apportioned along the
identified factors. All other jobs are compared with the list of key jobs and wage rates
are determined.
Merits of Factor Comparison Method:
Ï Analytical and objective.
Ï Reliable and valid as each job is compared with all other jobs in terms of key
factors.
Ï Money values are assigned in a fair way based on an agreed rank order fixed by
the job evaluation committee.
Ï Flexible as there is no upper limitation on the rating of a factor.
Demerits of Factor Comparison Method :
¥ Difficult to understand, explain and operate.
¥ Its use of the same criteria to assess all jobs is questionable as jobs differ across
and within organizations.
¥ Time consuming and costly.
Point method: This method is widely used currently. Here, jobs are expressed in
terms of key factors. Points are assigned to each factor after prioritizing each factor in
the order of importance. The points are summed up to determine the wage rate for the
job. Jobs with similar point totals are placed in similar pay grades. The procedure
involved may be explained thus:
¥ Select key jobs. Identify the factors common to all the identified jobs such as skill,
effort, responsibility, etc.
¥ (b) Divide each major factor into a number of sub factors. Each sub factor is
defined and expressed clearly in the order of importance, preferably along a scale.
The most frequent factors employed in point systems are:
± Skill (key factor): Education and training required, Breadth/depth of experience
required, Social skills required, Problem-solving skills, Degree of discretion/use
of judgment, Creative thinking;

± II. Responsibility/Accountability: Breadth of responsibility, Specialized
responsibility, Complexity of the work, Degree of freedom to act, Number and
nature of subordinate staff, Extent of accountability for equipment/plant, Extent
of accountability for product/materials;
± III. Effort: Mental demands of a job, Physical demands of a job, Degree of
potential stress.
Merits of the Point Method: The point method is a superior and widely used method
of evaluating jobs. It forces raters to look into all keys factors and sub-factors of a job.
Point values are assigned to all factors in a systematic way, eliminating bias at every
stage. It is reliable because raters using similar criteria would get more or less similar
answers. “The methodology underlying the approach contributes to a minimum of
rating error” (Robbins, p.361). It accounts for differences in wage rates for various jobs
on the strength of job factors. Jobs may change over time, but the rating scales
established under the point method remain unaffected.
Demerits of the Point Method: On the negative side, the point method is complex.
Preparing a manual for various jobs, fixing values for key and sub-factors, establishing
wage rates for different grades, etc., is a time consuming process. According to Decenzo
and Robbins, “the key criteria must be carefully and clearly identified, degrees of factors
have to be agreed upon in terms that mean the same to all rates, the weight of each
criterion has to be established and point values must be assigned to degrees”. This may
be too taxing, especially while evaluating managerial jobs where the nature of work
(varied, complex, novel) is such that it cannot be expressed in quantifiable numbers.
Compensation Strategy
Compensation Strategy is one of the most important strategies in the HRM Function as
it influences the costs of the organization and potential bad decision can lead to very
serious damages to the organization. The compensation and benefits strategy is derived
from the overall HRM Strategy and it has to be fully aligned. When the HRM Strategy
sets the main objectives for the HRM Function, the compensation and benefits strategy
has to follow. When the overall HRM Strategy states the low cost of services and
employees, the compensation and benefits strategy cannot target the highest salaries at
all levels.
The compensation and benefits strategy sets the general rules for the compensation and
benefits area in the organization and the owners and leaders of the area. In some
organizations, the compensation and benefits department is just a support department
for the line management. In other organizations the compensation and benefits
manager is a very powerful employee in the organization with the right “veto”.

The compensation and benefits strategy sets the position of the organization on the job
market and defines the items in the total cash in the organization and their role. The
role of different components of the compensation is very important as the role of the
compensation components can differ. For example, the role of bonuses can be primarily
in performance reward or the retention of the employees and the organization has to
decide.
The compensation and benefits strategy has to reflect the reality in the industry and the
surrounding job market. The compensation strategy can set the wish to pay the lowest
possible salaries, but the HRM Function and the organization have to respect the reality
on the job market.
The compensation strategy needs a strong support from the top management as it sets
strong limits to the daily operation of the line management and they usually do not fully
agree with all the aspects included in the compensation and benefits strategy.
International Compensation:
Developing international compensation policies requires that it be consistent with
overall corporate strategy, structure of a global corporation. The policy must be
competitive and take into account incentives for Foreign Service, tax equalization and
reimbursement of expenses. Other factors that determine whether or not the
compensation package will be acceptable to the potential expatriate are social security,
health and medical benefits, and cost of living factors in the foreign location. The main
components of an international compensation plan are base salary, Foreign Service
inducement, allowances and benefits. The base salary in domestic terms is the cash
compensation, bonus and benefits are in addition to this amount. For an expatriate the
base salary is a primary component of the compensation package, of which Foreign
Service inducement, cost of living allowance and other costs may be a percentage of this
amount.
Foreign Service inducement can vary from country to country. U.S. Department of State
has published hardship post differential guidelines to determine level of payment. While
the hardship guidelines may dictate a high differential cost the Cost of Living Allowance
(COLA) may tend to pull this figure down. It is difficult to determine the actual cost of
living in a particular country. One method to determine cost of living is according to
Philippe Lasserre, Purchasing Power Parity (PPP) which is for example, a cup of coffee
that cost $5.00 in New York City may cost €6.00 in France due to spot exchange rates
these would be identical in cost however, the housing in Paris may be more than in New
York City. To determination this can be quite extensive, housing costs must be
considered, as must the cost of entertainment and food. Another cost that should be
considered is education costs for children. The spouse may also decide to attend school

at the foreign location to fill in any gap in the employment record she may be
encountering due to her husbands foreign posting. Care should be exercised in the
selection of schools both for the children and the spouse as the accreditation of the
foreign school may not be acceptable in the home country. Most international schools in
Europe have an acceptable accreditation in the United States.
It is also not possible to defer these payments because this creates an excess
contribution and becomes a taxable event, for more information on 401k accounts
please see the Internal Revenue Service web site listed in the bibliography. Another
issue is the health and medical benefits and continuation of these benefits upon
repatriation into the expatriate’s home country. Socialized medicine in many of the
Western European countries has made this a non-issue while the expatriate is on
assignment in these countries, or if an expatriate is returning to Europe after an
assignment in another country. An assignment to the United States for example, the
expatriate and his family would require medical insurance. There are several methods
for determining the international compensation plan. The first is the going rate
approach which in effect, excluding allowances and benefits discussed above, would
make compensation similar to the host country nationals. This method of compensation
could make things difficult for the expatriate when returning to is home country. If the
going rate is considerably higher in the host country, the may be some adjustment upon
his return home in there will be a perceived pay cut. The preferred method of
compensation is the balance sheet method as defined by C. Reynolds as, “foreign
assignees should not suffer a material loss due to their transfer, and this is accomplished
via the balance sheet method of international compensation.” Taxation is also a concern
to expatriate personnel. Some form of tax equalization should be provided to the
expatriate employee. While on assignment for Ericsson the tax equalization was
provided by withholding taxes for the parent country and paying the taxes in the host
country. Centillium provided no such relief however, due to an existent tax treat
between the United Kingdom and the United States my tax burden was not doubled. For
further information on taxes and treaties it may benefit employers and employee to
discuss their individual situations with a global accounting firm such as Ernst & Young.

MBA Guide to Salary and Wage Administration

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MBA Guide to Salary and Wage Administration