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Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)                    Professor                                          ...
Compensation & Benefits
Organization’s Com-                        pensation PolicyEmployment and                                  Competitors Tax...
 E xpatriate costs may pose a multiple-fold  expense in relation to employees who are  not sent as expatriates to foreign...
•Example:•A Chinese manager with 15 yearsexperience costs less than USD 70,000per annum, while•A US expatriate manager wit...
1)   Policy should be consistent with overall     strategy, structure and business needs of     international organization...
3) Policy should facilitate transfer of  international employees in most cost-  effective manner4) Policy must give due co...
   Financial protection in terms of benefits, social    security and cost of living in foreign location   Foreign assign...
   Base Salary   Base salary - main component in    international compensation   It is used as main benchmark for other...
   Hardship Premium   For expatriate’s (usually PCNs, TCNs) who will    encounter “hardships” caused by the transfer to ...
• Factors determining hardship premium,usually expressed in terms of an expatriate’sbase pay:  Assignment  Actual hardsh...
Allowances: There are many types of  allowances inan international compensation package: Cost of Living Allowance – Payme...
   Housing Allowance – Payment made to expatriate with a    view to ensuring that he or she can maintain their home-    c...
 Education Allowance – Payment made with a view to  supporting education of expatriate’s children, i.e.  tuition, languag...
 Miscellaneous   Allowances – Depending on  level of seniority of expatriate, payments to  him for club memberships, spor...
   Benefits – Support rendered to expatriate in addition    to allowances:   Social Security Benefits (home country or h...
Two basic approaches used to determinean international compensation package: Going Rate Approach Balance Sheet Approach ...
   Based on local market rates   Relies on survey comparisons    ◦ Local nationals (HCNs)    ◦ Expatriates of same natio...
ADVANTAGES                           DISADVANTAGES- Equality with local nationals      - Variation between assignments    ...
      Balance sheet approach to international    compensation is a system designed to equalize     purchasing power of em...
Balance sheet approach is widely used by    international organizations to determine    compensation package for expatriat...
Balance sheet approach considers four types of outlays which    are incurred by expatriates:   Goods and services – Outla...
DISADVANTAGESADVANTAGES                                 - Can result in considerable- Equality between assignments   dispa...
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Contemporary strategic compensation challenges

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Contemporary strategic compensation challenges

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Contemporary strategic compensation challenges

  1. 1. Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 1
  2. 2. Compensation & Benefits
  3. 3. Organization’s Com- pensation PolicyEmployment and Competitors Taxation Laws Compensation CompensationAllowances & Benefits & Benefits Economic Conditions Political and Social Standard of Living Environment 3
  4. 4.  E xpatriate costs may pose a multiple-fold expense in relation to employees who are not sent as expatriates to foreign destinations Costs significantly higher than the compensation accorded to Host Country Nationals (HCNs) and Third Country Nationals (TCNs) 4
  5. 5. •Example:•A Chinese manager with 15 yearsexperience costs less than USD 70,000per annum, while•A US expatriate manager withcorresponding expertise would cost hisor her organization USD 300,000 peryear 5
  6. 6. 1) Policy should be consistent with overall strategy, structure and business needs of international organization2) Policy must work to attract and retain staff in those areas where international organization has greatest needs and opportunities.3) Policy must be competitive and recognize factors such as incentive for serving in a foreign location, tax equalization and reimbursement for reasonable costs 6
  7. 7. 3) Policy should facilitate transfer of international employees in most cost- effective manner4) Policy must give due consideration to equity and ease of administration 7
  8. 8.  Financial protection in terms of benefits, social security and cost of living in foreign location Foreign assignment offers opportunities for advancement through income and/or savings Issues such as housing, education of children and recreation are addressed Note that the expectations of the employees often do not coincide with the interests of the organization 8
  9. 9.  Base Salary Base salary - main component in international compensation It is used as main benchmark for other elements in expatriate compensation package, such as, bonuses and benefits Base salary is either paid in expatriate’s home or parent country currency, or in currency of expatriate’s host country 9
  10. 10.  Hardship Premium For expatriate’s (usually PCNs, TCNs) who will encounter “hardships” caused by the transfer to a foreign location, determining the appropriate level of payment can be difficult 10
  11. 11. • Factors determining hardship premium,usually expressed in terms of an expatriate’sbase pay: Assignment Actual hardship Tax consequences Length of assignment 11
  12. 12. Allowances: There are many types of allowances inan international compensation package: Cost of Living Allowance – Payment made to the expatriate with a view to compensating for differences in expenditure between home or parent country and host country Factors such as inflation differentials and price level need to be considered Often, cost of living allowance is difficult to determine 12
  13. 13.  Housing Allowance – Payment made to expatriate with a view to ensuring that he or she can maintain their home- country living standard in host country. Organization may provide- Housing facilities on a mandatory or optional basis- Support services to expatriate for selling or renting expatriate’s house in home country Home Leave Allowance – Payment made to expatriate with a view to facilitating their visit back to home country, once or twice a year. Home leave allowance enables expatriate to renew business, family and social ties, avoiding adjustment problems subsequent to repatriation 13
  14. 14.  Education Allowance – Payment made with a view to supporting education of expatriate’s children, i.e. tuition, language class, school enrollment fees, books and supplies, transportation to educational establishment, room and boarding, school uniforms etc. Problems regarding level of education required and adequacy of schools in host country & transportation costs may pose significant problems for organizations Relocation Allowance – Payment made with a view to enable relocation of expatriate to assignment location includes moving, shipping, storage costs, subsidies for purchase of appliances and automobile 14
  15. 15.  Miscellaneous Allowances – Depending on level of seniority of expatriate, payments to him for club memberships, sport associations, maintenance of household staff, etc. may be provided Organization may provide financial assistance to spouse for loss of income as a result of transfer of expatriate 15
  16. 16.  Benefits – Support rendered to expatriate in addition to allowances: Social Security Benefits (home country or host country) Paid Vacations for expatriate and family Rest and Rehabilitation leave (especially for expatriates based in “hardship” assignment locations) Emergency Cases (severe illness, death) 16
  17. 17. Two basic approaches used to determinean international compensation package: Going Rate Approach Balance Sheet Approach 17
  18. 18.  Based on local market rates Relies on survey comparisons ◦ Local nationals (HCNs) ◦ Expatriates of same nationality ◦ Expatriates of all nationalities Compensation based on selected survey comparison Base pay and benefits may be supplemented by additional payments for low-pay countries Example: Should a Indian bank operating in London use local British salaries, salaries of other Indian competitor banks in London or average salary offered by all foreign banks operating in London as reference point for base salary offered 18
  19. 19. ADVANTAGES DISADVANTAGES- Equality with local nationals - Variation between assignments of same employee- Simplicity - Rivalry between expatriates- Identification with host country of same nationality in getting assignments- Equity amongst different to some countriesnationalities - Potential reentry problems in home country 19
  20. 20.  Balance sheet approach to international compensation is a system designed to equalize purchasing power of employees at comparable position levels living abroad and in home country, and to provide incentives to offset qualitative differences between assignment locations 20
  21. 21. Balance sheet approach is widely used by international organizations to determine compensation package for expatriates: Basic objective is maintenance of home-country living standard, plus financial inducement Home-country pay and benefits are foundations of this approach Adjustments to home package to balance additional expenditure in host country Financial incentives (expatriate / hardship premium) added to make package attractive 21
  22. 22. Balance sheet approach considers four types of outlays which are incurred by expatriates: Goods and services – Outlays incurred in home country for food, personal care, clothing, household furnishings, recreation, transportation and medical care Housing – All major costs associated with housing in host country Income Taxes – Parent country and host country income tax expenditures Reserve – Contributions to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc. Where costs of host country > costs of home country  organization pays the expatriate to make up the difference 22
  23. 23. DISADVANTAGESADVANTAGES - Can result in considerable- Equality between assignments disparities between expatriatesand between expatriates of different nationalitiesOf same nationality and between expatriates and local nationals- Facilitates expatriatereentry - Can be quite complex to administer (e.g. changing- Easy to communicate economic conditions,to employees taxation) 23

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