International Human Resource

Management
Managing people in a multinational context

Chapter Objectives
In this chapter we:
Examine the complexities that arise when firms move
from compensation at the domestic level to
compensation in an international context.
Detail the key components of an international
compensation program.
Outline the two main approaches to international
compensation and the advantages and
disadvantages of each approach.
Examine the special problem areas of taxation, valid
international living cost data and the problem of
managing TCN compensation.
Examine recent developments and global
compensation issues.
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IHRM Chapter 7

Terms
HRIS
allowances:COLA
housing
repatriation
home leave
base salary
education
benefits
relocation
Tax
spouse
equalization
assistance
Tax
global corporate
protection
culture
going rate
International base
approach
pay
balance sheet
approach
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IHRM Chapter 7

Issues when considering

benefits
1. Whether or not to maintain
expatriates in home-country
programs, particularly if the firm
does not receive a tax deduction for
it.
2. Whether firms have the option of
enrolling expatriates in host-country
benefit programs and/or making up
any difference in coverage.
3. Whether expatriates should receive
home-country
or
host-country
social
v
IHRM Chapter 7

Table
7-1

Going Rate Approach

Based on local market rates

Relies on survey comparisons among:
- Local nationals (HCNs)
- Expatriates of same nationality
- Expatriates of all nationalities
Compensation based on the selected survey
comparison
Base pay and benefits may be supplemented
by
v
additional
payments
for low-pay countries
IHRM Chapter
7

Table
7-2

Advantages and disadvantages of the Going

Rate Approach

Advantages

Disadvantages

Equality with local

nationals
Simplicity
Identification with host
country
Equity amongst
different
nationalities

Variation between
assignments for
same employee
Variation between expatriates
of same
nationality in different
countries
Potential re-entry problems

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Table
7-3

The Balance Sheet Approach

Basic objective is maintenance of home-country living

standard plus financial inducement
Home-country pay and benefits are the foundations of
this approach
Adjustments to home package to balance additional
expenditure in host country
Financial incentives (expatriate/hardship premium)
added
to make the package attractive
Most common system in usage by multinational firms
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IHRM Chapter 7

Four Balance Sheet Approach

categories
1. Goods and services home-country
outlays for items such as food, personal
care, clothing, household furnishings,
recreation, transportation and medical
care.
2. Housing the major costs associated with
housing in the host country.
3. Income taxes parent-country and hostcountry income taxes.
4. Reserve contributions to savings,
payments for benefits, pension
contributions, investments, education
v expenses,
IHRM Chapter
7
social
security taxes, etc.

Table
7-4

Expatriate compensation worksheet

IHRM Chapter 7

Table
7-5

Advantages and disadvantages of the Balance

Sheet Approach

IHRM Chapter 7

10

Table
7-6

Maximum marginal federal tax rates

Country

Argentina
Australia
Belgium
Brazil
Canada
China (Hong
Kong)
China
France
Germany
India
Italy
Japan
Malaysia

Maximum
marginal
rate (%)

35.00
47.00
50.00
27.50
29.00
20.00
45.00
48.09
42.00
33.66
43.00
37.00
28.00

IHRM Chapter 7

11

Some issues when

1. Keep expatriates inbenefits
home-country programs,
considering
2.

3.
4.
5.

particularly if the company does not receive a

tax deductions for it?
Enroll expatriates in host-country benefit
programs and/or making up coverage
differences?
Does host-country legislation regarding
termination affects benefit entitlement?
Do expatriates receive home-country or hostcountry social security benefits?
Should benefits be maintained on a homecountry or host-country basis? Who is
responsible for the cost? Should other benefits
offsetIHRM
anyChapter
shortfall
in coverage? Should homev
7

12

Table
7-7

Social security contributions by employers

and employees

IHRM Chapter 7

13

Table
7-8

Range of working times required to buy

one Big Mac

IHRM Chapter 7

14

Figure
Complexity,
7-1

challenges and choices in

global pay

IHRM Chapter 7

15

Discussion Questions
1. What should be the main objectives for a
multinational firm with regard to its
compensation policies?
2. Describe the main differences in the Going
Rate and Balance Sheet Approaches to
international compensation.
3. What are the key differences in salary
compensation for PCNs and TCNs? Do these
differences matter?
4. What are the main points that MNEs must
consider when deciding how to provide
benefits?
5. Why is it important for MNEs to understand the
vcompensation
16
IHRM Chapter 7practices of other countries?