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CHAPTER 5 INTERNATIONAL REWARD

INTERNATIONAL REWARD MANAGEMENT


International reward management is the process of rewarding people in international or multinational organizations. It can involve the worldwide management of rewards, not just the management of expatriates.

INERNATIONAL SCENE
The international scene is composed of international and multinational firms working in the context of globalization.
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International firms Multinational firms

International scene is linked to the notion of globalization.


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The growing economic interdependence of countries worldwide through increasing vo,ume and variety of cross border transactions in goods and services , free international capital flow and more rapid and widespread diffusion of technology. Globalization is concerned with reduction in international trade barriers. Achievement of global/local balance has become more strategic and challenging issue.

INTERNATIONAL REWARD STRATEGY


International reward strategy is concerned with the development of an integrated approach to building reward policies and practices across international boundaries. Take into account business goals of parents and strategic context and culture of subsidiaries.

Integration:
Convergence or divergence:
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An issue facing all international firms is the extent to which their HR policies, including reward, should either converge worldwide to be basically the same in all locations, or diverge to be differentiated in response to local requirements.

The factors affecting choice are:


The extent to which there are well-defined local norms; The degree to which an operating unit is embedded in the local environment; The strength of the flow of resources finance, information and people between the parent and the subsidiary; The orientation of the parent to control; The nature of the industry the extent to which it is primarily a domestic industry at local level; T he specific organizational competences, including HRM, that are critical for achieving competitive advantage in a global environment.

International approach to human resource management require the following steps.


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An explicit recognition by the parent organization that its own peculiar ways of managing human resources reflect some of the assumptions and values of its home culture. An explicit recognition by the parent organization that its peculiar ways are neither universly better or worse than others but are different and likely to exhibit strengths and weaknesses, particularly abroad. An explicit recognition by the parent organization that its foreign subsidiaries may have other preferred ways of managing people that are neither intrinsically better nor worse but could possibly be more effective locally. An explicit recognition by the parent organization that its foreign subsidiaries may have other preferred ways of managing people that are neither intrinsically better nor worse but could possibly be more effective locally. A willingness from headquarters not only to acknowledge cultural differences, but also to take active steps in order to make them discussable and therefore useable.

Guiding principles for international reward: o the importance attached to a total rewards approach; o the use of job evaluation to provide for internal equity; o the relationship between levels of pay in the local company and local market rates; o the degree of flexibility present in grade and pay structures; o the scope for pay progression; o the importance attached to paying for contribution; o the use of variable pay short-term, medium-term and long-term incentives; o the use of forms of recognition other than pay; o the use of flexible benefits; o the basis upon which expatriates and third country nationals should be paid.

The content of international reward strategy


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International reward strategy may cover the areas included in the guiding principles, namely: total reward, job evaluation, marketpricing grade and pay structures, contingent pay, benefits and remuneration of expatriates and third country nationals.

REWARDS FOR EXPATRIATES


Expatriate remuneration policies Expatriate remuneration policies may be based on the following propositions: o Expatriates should not be worse off as a result of working abroad but may be compensated for extra responsibilities or demanding work and living environments. o Home-country living standards should be maintained as far as possible. o Higher responsibility should be reflected in the salary paid (this may be a notional home salary). o The remuneration package should be competitive. o In developing the remuneration package, particular care has to be taken to give proper consideration to the conditions under which the employee will be working abroad.

Account should be taken of the need to maintain equity as far as possible in remuneration between expatriates, some of whom will be from different countries. Account also has to be taken of the problems that may arise when expatriates are paid more than nationals in the country in which they are working who are in similar jobs. The package should be cost effective, ie the contribution made by expatriates should justify the total cost of maintaining them abroad assignment costs can total three or four times the equivalent package in the home country.

Expatriate pay o The main approaches to calculating expatriate pay are:


Home-based pay. The provision of remuneration (pay, benefits and allowances) to expatriates that is the same as in their home country. Host-based pay. The provision to expatriates of salaries and benefits such as company cars and holidays that are in line with those given to nationals of the host country in similar jobs. Hybrid Selected Country Based

Allowances: o Companies add a number of allowances, such as a cost-of-living, incentive premium, hardship allowances,separation and clothing allowance,Relocation allowance, housing to the expatriates salary to calculate the total expatriate remuneration package. o They are designed to compensate for disruption and to make the assignment attractive to the employee.

Choice of approach
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Based on companys convergence or divergence strategy


Advantages Disadvantages

Method

Home-based

Ensures that expatriates do not lose out by working abroad. Easy to communicate to expatriates. Easier to slot back into home country salary on return Particularly appropriate for shorter assignments after which the employee will return home.

Expatriates may be paid significantly more than local nationals doing the same jobs, thereby causing dissatisfaction and possible friction In effect there will be two reward systems in the same country, which can cause confusion.

Host-based

Avoids the possible dissatisfaction and friction which can arise when expatriates are paid significantly more than local nationals doing the same jobs. Enables one coherent pay system to be maintained.

Expatriates might lose out, making it more difficult to persuade people to work abroad. May be harder to assimilate expatriates back into their own countrys pay systems.

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