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Expatriate

Compensation

Expatriate Compensation

EXPATRIATE COMPENSATION
Expats get --- Base salary (Home country)

--- Various allowances (market condition)

TRADITIONAL APPROACHES
Balance sheet method
Higher-of-home or host approach

Localization Approach

BALANCE SHEET METHOD


For short-term/ temporary assignments. 85% U.S multinational companies use it.

Home- based approach.

BASIC IDEA
Each expatriate should enjoy the same
standards of living he/she would have had at home.

BALANCE SHEET METHOD(cont)


Four main home country groups of expenses are the focus of attention.
income taxes housing goods & services

discretionary expenses (child support, car payments)

BALANCE SHEET METHOD(cont)


The employer estimates:

Expenses in home country

Expenses in host country

Difference paid by the employer

BALANCE SHEET METHOD(cont)


Assume Base Salary of $ 80,000.
Annual Expense Housing & utilities Goods & services Taxes Discretionary income Total Chicago, U.S. $ 35,000 6,000 22,400 10,000 $ 73,400 Brussels, Belgium $ 67,600 9,500 56,000 10,000 $ 143,100 Allowance $ 32,000 3,500 33,600 0 $ 69,700

BALANCE SHEET METHOD(cont)


The expatriate gains a sense of equity and fairness in the compensation package.

BALANCE SHEET METHOD(cont)


The system is complex to administer
BECAUSE Local employees, if poor, may sense some inequity.

HIGHER-OF HOME/HOST APPRAOCH


The employee will get
-- Base salary (Home country)

-- upward adjustments

HIGHER-OF HOME/HOST APPRAOCH(cont)


Upward adjustments
BECAUSE UNKNOWN duration & High cost of living (Host Country)

LOCALIZATION APPROACH
Employee is assigned to a Host
country on PERMANENT bases.

Employees Base Salary

Host Country Salary

LOCALIZATION APPROACH(cont)
By using this approach, their might be
a SALARAY decrease for the

employeeReasons:
Salary structure of host country

&
Cost of living

LEVEL OF STANDARDIZATION
Proposed by HEENAN & PERLMUTTER
Ethnocentric Polycentric

Regiocentric
Geocentric

ETHNOCENTRIC
Practices & policies of HOME country are exported to foreign locations. Focus of organization Create an image (Competitive strategy)

ETHNOCENTRIC(cont)
In context of expatriate--

Helps make the assignments MORE ATTRACTIVE to the organizations DOMESTIC employees.

POLYCENTRIC
Each location has ITS OWN practices & policies align with LOCAL CULTURE & WORKFORCE characteristics.

Focus of the organization CUSTOMER needs

POLYCENTRIC(cont)
Costly approach BUT Reduce turnover in acquisition BECAUSE All practices are according to: Existing market needs & Customer tastes

REGIOCENTRIC
All practices & policies are STANDARDIZED by geographic region. Variations depends upon regions & local market

REGIOCENTRIC(cont)
This approach involves: Establishing autonomously/separately

managed regional subsidiaries within


a geographic region

GEOCENTRIC
Developing one set of global practices & policies that are applied to all locations. Difficult to implement BECAUSE Global & Cultural difference Factors

Four approaches to HRM


Orientation Aspect of the Enterprise Standard settings, Evaluation & Control Communication & Coordination Ethnocentric Polycentric Regiocentric Geocentric

By home country HQ

By local subsidiary management Little among subsidiaries, little between subsidiary & HQ Host country managers

Coordination across countries in the region

Global as well as local standards & control

From HQ to local subsidiary

Little between Totally subsidiary & connected HQ, medium to network of high among subsidiaries & subsidiaries in subsidiaries and region HQ Managers may come from nations within region Best people where they can be best used

Staffing

Home country managers

REPATRIATION
The returning of an employee to the
country of origin or home country.

ISSUES TO BE ADDRESSED IN A REPATRIATION PROCESS


Career Career anxiety current place, future Organizations reaction Loss of autonomy Adaptation to change Personal Logistics Personal readjustment Family readjustments

AT&T REPATRIATION PROCESS


Its a THREE parts repatriation process that
actually starts before the employee leaves for the assignment abroad.

THE EUROPEAN UNION


Employers cannot take ethnocentric approach to HR in their operations in EU

BECAUSE
Large number of employment laws vary from country to country that protects workers.

THE EUROPEAN UNION(cont)


EU does not follow employmentat-will policy as U.S does. Terminating an employee can be difficult and expensive undertaking.

TERMINATION IN DIFFERENT COUNTRIES


Netherland
court approval is needed. Termination for cause requires very rigid and specific documentations

TERMINATION IN DIFFERENT COUNTRIES(cont)


Germany
Three months notification before termination.

TERMINATION IN DIFFERENT COUNTRIES(cont)


Sweden
Six months notification before termination.

TERMINATION IN DIFFERENT COUNTRIES(cont)


Belgium
Terminations are very difficult. Up to Four years salary are given to employee as severance.

TERMINATION IN DIFFERENT COUNTRIES(cont)


Spain
Terminations are very difficult. Nine weeks of severance pay for each year of service.

EMPLOYMENT RELATIONS IN EU VERSES U.S. IN TERMS OF WORKER INVOLVEMENT

UNITED STATES
Employers have unilateral right to
make decisions, that effect

employees

EUROPEAN UNION
Employers are required to
communicate & negotiate many

decisions with employees as part


of EUs directive on information

& consultation.

EUROPEAN UNION(cont)
Works council, compose of employee-elected worker representatives, are required to meet monthly with senior management to discuss all employment policy issues.

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