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Chapter 8. INTERNATIONAL COMPENSATION. Chapter 8. Vocabulary Objectives Introduction Components of an international compensation program for expatriates Approaches to international compensation of expatriates Tentative conclusions: patterns in complexity, challenges, & choices. - PowerPoint PPT Presentation
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1 of 31 Cha
pter
8
For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
INTERNATIONAL COMPENSATION
Chapter 8
2 of 31 Cha
pter
8
For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Click on an item to go to its section.
Click on the book cover below to return to this table of contents.
STARTT
AB
LE
OF
C
ON
TE
NT
S
Chapter 8
Vocabulary Objectives Introduction Components of an international compensation program
for expatriates Approaches to international compensation
of expatriates Tentative conclusions:
patterns in complexity, challenges, & choices
INTERNATIONAL COMPENSATION
3 of 31 Cha
pter
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
compensation HRIS = HR information system base salary hardship premium foreign service inducements COLA = cost-of-living allowance housing allowance home leave allowances education allowances relocation allowances spouse assistance balance sheet, going rate, & local plus approaches tax equalization tax protection, ad hoc & laissez-faire approaches international base pay pay strategies
Vocabulary
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
In this chapter we:
1. Examine the complexities caused by moving compensation from a domestic to an international context
2. Detail components of a international compensation program
3. Outline the two main approaches to international compensation & the advantages/disadvantages of each
4. Introduce a third emerging approach: local plus5. Examine the special problem areas of taxation, valid
international living cost data, & the problem of managingTCN compensation
6. Examine recent developments & issues
Objectives
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Introduction
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Compensation is increasingly seen as Mechanism to
develop & reinforcea global corporate culture
Primary source of corporate control
Explicitly linkingperformance outcomeswith associated costs
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Internationalcompensation complexities Pay
Taxes Cost of living
Housing Safety Transportation Education of children Length of stay
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Objectives ofinternational compensationThe policy … should be consistent with overall strategy, structure,
& business needs of the MNE
must attract & retain staff in areas where the MNE has the greatest needs & opportunities
should facilitate the transfer of international employees in the most cost-effective way for the firm
must give due consideration to equity& ease of administration
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
International employee expectations1. Financial protection in terms of benefits, social
security, & living costs in the foreign location2. Opportunities for financial advancement through
income & savings3. Housing, children’s education, & recreation will be
addressed4. Career will be advanced
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Components of international compensation for expatriates
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Key components for expatriates1. Base salary
2. Foreign service inducement& hardship premium
3. AllowancesCOLA, housing, home leave, education, relocation, spouse assistance
4. Benefits
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Approaches to international compensation of expatriates
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Three approaches to international compensation1. Going rate approach
2. Balance sheet approach
3. Local plus
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Going rate approachTable 8.1
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Advantages & disadvantages of the going rate approachTable 8.2
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
The balance sheet approachTable 8.3
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
4 balance sheet approach categories1. Goods & services
2. Housing
3. Income taxesPC & HC income taxes
4. Reservecontributions to savings, payments for benefits, pension contributions, investments, education expenses, S.S. taxes, etc.
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Local plus approachThe expatriate employee is paid according to prevailing salary levels, structure, & administrative guidelines of the home country …
expatriate-type benefits in recognition of foreign status
Does not typically include:COLA, mobility premiums, hardship allowances,familiarization visits, home leave, cross-culturaltraining, other pre-departure or spouse assistance
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Expatriation compensation worksheetTable 8.4
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Advantages & disadvantages of the balance sheet approachTable 8.5
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Compensation approaches & strategies for long-term international assignmentsTable 8.6a
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Compensation approaches & strategies for long-term international assignmentsTable 8.6b
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Compensation approaches & strategies for long-term international assignmentsTable 8.6c
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Compensation approaches & strategies for long-term international assignmentsTable 8.6d
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
MNE approaches to international taxation Tax equalization
MNE withholds tax obligation & then pays all taxes in HC
Tax protectionEmployee pays up to amount s/he would pay on compensation in HC
Ad hoc – each expatriate handled differently Laissez-faire – each is on their own
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Maximum marginal federal tax ratesTable 8.7
CountryMax. marginal % rate
Australia 45.00
Belgium 50.00
Canada 29.00
Chile 40.00
Denmark 26.48
France 40.00
Germany 45.00
Italy 43.00
Japan 40.00
Korea 35.00
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CountryMax. marginal % rate
Mexico 28.00
Netherlands 52.00
New Zealand 39.00
Poland 40.00
Spain 27.13
Sweden 25.00
Switzerland 11.50
Turkey 35.00
United Kingdom 40.00
United States 35.00
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
City 1 Big Mac in minChicago, Tokyo, Toronto 12London, Los Angeles, Miami 13Hong Kong, New York, Sydney 14Dublin, Frankfurt, Luxembourg, Montreal, Zurich 15
Copenhagen, Geneva, Vienna 17Dubai, Nicosia 18Amsterdam, Auckland, Berlin, Brussels 19
Lyon, Munich, Paris, Stockholm, Taipei 20
Barcelona, Moscow, Oslo 21Lisbon 23Tel Aviv 24Manama 25Johannesburg 26
Working time required to buy one Big MacTable 8.7a
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Working time required to buy one Big MacTable 8.7b
1 Big Mac in minHelsinki, Madrid, Milan, Rome, Seoul 27Athens, Shanghai, Tallinn 30Warsaw, Doha 31Ljubljana 34
Singapore 34Prague 38São Paulo 40
Kuala Lumpur, Vilnius 41
Bucharest, Riga 42Beijing 44Bangkok, Kiev 45Istanbul 48Delhi 49Río de Janeiro 51
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Working time required to buy one Big MacTable 8.7c
1 Big Mac in minSofia 56
Buenos Aires 57Bogotá, Lima 58Budapest 59
Mumbai 61Bratislava 62Santiago de Chile 69
Cairo 82
Manila 88Caracas 126Mexico City 129Jakarta 136Nairobi 158
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Issues to considerfor expatriate benefits Keep expatriates in home-country programs,
particularly if the firm receives no tax deduction for it?
Option to enroll expatriates in host-country benefit programs &/or make up any difference in coverage?
Do expatriates receive home-country or are eligible to receive host-country social security benefits?
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Social security contributions by employers & employeesTable 8.8
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning
Tentative conclusions:patterns in complexity, challenges, & choices
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For use with International Human Resource Management 6eBy Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090© Cengage Learning C
hapt
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Com
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& c
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Figure 8.1