This document discusses international compensation practices for expatriates. It covers using compensation to develop a global culture, components like base salary and allowances, benefits, approaches like the going rate and balance sheet, taxation issues, safety and security challenges, international labor standards, and emerging issues.

1. International Compensation
Unit - 5

2. Compensation
• a mechanism to develop and reinforce a global corporate culture
• a primary source of corporate control
• Explicitly linking performance outcomes with associated costs
• Nexus of increasingly strident
• Sophisticated and public discourses on central issues of corporate
governance

3. Components of International Compensation
• Base Salary
• Foreign service inducement and hardship premium
• Allowances
• Cost-of-living allowance
• Housing allowance
• Home leave allowance
• Education allowances
• Relocation allowances
• Spouse assistance

4. Benefits
• Healthcare
• Pension plans/social security
• Life insurance
• Child allowance
• Profit sharing
When considering
Benefits
• Whether to maintain
expatriates in home-country
programs
• Whether MNE have option
of enrolling expatriates
• Whether expatriates are
eligible to receive host
country social security
benefits

5. Approaches to International Compensation of
Expatriates
Going rate approach
“If the location is in a low pay country, the MNE usually supplements base pay with additional benefits and
payments”
• Based on local market rates
• Relies on survey comparison among
• Local nationals
• 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

6. Going rate approach
Advantages
• Equality with local nationals
• Simplicity
• Identification with host country
• Equity among different nationalities
Disadvantages
• Variation between assignments for
same employee
• Variation between expatriates of same
nationality in different countries
• Potential re-entry problems

7. Balance Sheet Approach
“Keep the expatriate Whole”
Goods & Services
Housing
Income taxes
Reserves

8. Local Plus
Expatriates paid according to the prevailing salary levels, structure, and
administration guidelines of the host location
Plus
Provided “expatriate type”

9. • Full international – development - to develop careers
• Expat lite – skills - transferring skills & knowledge
• Local Plus – cost savings – managing capacity & developing skills
• Localization – cost saving & turnover retention – willing to relocate
• One-way International – Self-initiated transfers

10. Taxation
“Taxation evokes emotional responses”
Tax equalization – firms withholds an amount equal to the home-
country tax obligation
Tax Protection – employee pays the local & international tax

11. Challenges in an uncertain world
• Safety
• Security
• Counter terrorism

12. Corporate risk assessment categories
• In facility emergency & disaster preparedness
• In-facility security – perimeter security, protocols
• Industrial espionage – theft of info
• Cyber-terrorism – hacking
• Travel risks

13. International Labor Standards
Legal instruments are drawn up by ILO’s constituents
“setting out basic principles and rights at work”
Aimed at promoting opportunities for women and men to obtain
“decent and productive work in conditions of freedom,
equity, security and dignity”

14. Forms of ILS
• Conventions
• Which are legally binding international treaties that may be ratified by
member states
• Recommendations
• Which serve as non-binding guidelines

15. Special categories of ILSs
• Fundamental (core conventions)
• Freedom of association & effective recognition of rights to collective
bargaining
• Elimination of all forms of forced labor
• Effective abolition of child labor
• Elimination of discrimination in respect of employment and occupation

16. • Priority conventions
• Labor inspection
• Employment policy

17. Subjects covered by ILS
• Freedom of association,
collective bargaining & industrial
relations
• Forced labour
• Elimination of child labour &
protection of children and young
persons
• Equality of opportunity

18. How are ILS made?
• Drawn up by representatives of governments, employers and workers
and are adopted at the ILO’s annual international labor conference
• Once adopted, a standard have to be submitted by the member
states to the concerned authority

19. Emerging Issues
• Social contract
• Culture
• Trade union
• Ownership and capital markets
• Managers autonomy