international compensation mgmt.ppt
TRANSCRIPT
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International Human International Human Resources Management Resources Management
International Compensation Management
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Attract individuals who are competent and interested in international assignments
Facilitate movement of expatriates from one subsidiary to another, from the home country to subsidiaries and from subsidiaries back to home country
Provide a consistent and reasonable relationship between the pay levels of employees at the headquarters, domestic affiliates and foreign subsidiaries
Be cost-effective by minimizing unnecessary expenses
Be consistent with the overall strategy, structure and business needs
Objectives of Objectives of CompensationCompensation
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Compensation philosophy is the set of values and beliefs that an organization has with regards to monetary and non-monetary benefits payable to employees
What are the goals of the organizations compensation system?
What percentage of compensation should be linked to individual/ unit performance and what should be the base salary?
What is the role of performance appraisal in disbursing compensation, bonus, merit hike etc.?
How to target the positioning of compensation of employees relative to market?
Compensation Philosophy Compensation Philosophy
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Contingency theory
Resource based Theory
The agency Theory
Equity Theory
Theories of Compensation Theories of Compensation
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Strategic business and operating inputs obtained from the subsidiaries business plan and objectives and the operating targets and resources requirements
Industry and labor market practices and trends to assess demand-supply relationships
Employee inputs and preferences to ascertain the degree to which compensation is fixed- structure based vs. negotiable -based on competency/skill
Compensation StrategyCompensation Strategy
Aligning Compensation Strategy by Michaiel H. Schuster
EMPLOYEE Inputs and Preferences
BusinessAnd
OperatingInputs
IndustryAnd Labor
Market Practices &
Trends
Compensation Philosophy and Objectives Based upon Business, Operating & Human Resource RequirementsD
ESIGN
ASSESSMENT
Compensation Mangement
Fringe Benefits
OrganisationsPerformance
OrVariable Pay
Non- Monetary& Other Monetary Rewards
& Recognitions
Base Pay Delivery
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Elements of compensation Base Salary Incentives/ Variable pay Allowances Long Term Benefits Taxes
Components of Components of
CompensationCompensation
Base Salary
Its common in any compensation strategy- domestic or foreign.
The base salary is the foundation block of international compensation whether the employee is a PCN or TCN.
Incentives/Variable Pay
A growing number of MNCs have dropped the ongoing premium for overseas assignments and replaces it with a one time, lump- sum premium
Even in domestic Bs MNCs are preferring one- time premiums to periodic salaries.
Incentives/Variable Pay contd.
Yahoo. Com has dropped CEO’s salary to some % but they are entitled to benefit from a discretionary bonus in the form of a fully vested stock option of up to 1 million shares / annum.
Google Inc. has also done a similar thing.
Incentives/Variable Pay contd.
Referral Bonus: It is a popular way of bringing in new
talent by employees introducing friends, relatives and acquaintances to the company.
Eligibility to receive a hiring bonus varies across job levels, but is relatively un affected by companies size or industry sector.
Incentives/Variable Pay contd.
Use of Retention Bonuses/ Rises for employeesIs common in industries like IT/BPO
and in the services industry. Surveys indicate that about one third of technology and life sciences companies use a formal or discretionary retention bonus plan to retain key employee.
The practice is more common in large industry but does not vary by industry sector.
Allowances
They are an inevitable feature of international compensation.
One common allowance relate to the cost of living- an adjustment for differences in the cost of living between the home country and foreign assignment.
Popular Allowances are
Spouse assistanceHousing allowanceHome leave allowanceRelocation allowance( to cover
expenses as moving, shipping and storage charges, temporary living expenses, subsidies regarding appliance or car purchase and lease related charges etc.)
Educational allowance( to the children & trailing spouse)
Allowances contd.Foreign Service/Hardship Premium
This is perceived as an inducement in the form of a salary premium to accept an overseas assignment.
Generally salary premiums vary from 5-40 % of the base salary.
Actual salary depends upon the assignment, actual hardship, tax consequences and length of assignment.
Use of Long Term benefits
Employee Stock Option Plan (ESOP)
This is plan established by a company wherein a certain no. of shares are reserved for purchase and issuance to key employees. Such shares usually vest over a certain period to serve as an incentive for employees to build long-term value for the company.
Use of Long Term benefits contd.
Restricted Stock Unit ( RSU)
This is a plan established by a company, wherein units of stocks are provided with restrictions on when they can be exercised.
It is usually issued as partial compensation for employees.
The restriction generally lifts in 3-5 years when the stock vests.
IT companies are increasingly using RSUs as incentives since they afford a lot more flexibility.
Use of Long Term benefits contd
Employee Stock Purchase Plan ( ESPP)
This is a plan wherein a company sells This is a plan wherein a company sells shares to its employees usually, at a shares to its employees usually, at a discount.discount.
The company deducts the purchase price The company deducts the purchase price of these shares every month from of these shares every month from employees salary.employees salary.
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MNCs generally select one of the following approaches to tackle international taxation.TAX EQUALISATIONTAX PROTECTION
TaxesTaxes
TAX EQUALISATION
Organisations withhold an amount equal to the home country tax obligation of the PCN and pay all taxes in the host country.
TAX PROTECTION
The employee pays up to the amount of taxes he or she would pay on remuneration in the home country.
In such a situation, the employee is entitled to any windfall received if the total taxes are less in the foreign country than in the home country.
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Goal Orientation – profit making vs. service oriented
Parent company philosophy Industry type Capacity to pay Local labor market characteristics Local Culture Government and statutory provisions
Variables influencing Variables influencing CompensationCompensation
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Going Rate Approach
Balance Sheet Approach
Other Approaches
International Compensation International Compensation Packages Packages
Going Rate Approach
Executives are paid according to the host country salary structures.
When salary structures in host country are lower, additional salary payments are made to the expatriates.
Balance Sheet Approach
Majority of MNCs follow the balance sheet approach to determine expatriate compensation.
This method provides a compensation package that attempts to equate or balance the expatriate’s purchasing power in the host country as compared to the home country.
Income Tax
Housing
Goods& Services
Reserve
Premium& IncentivesIncome Tax
Housing
Goods& ServicesReserve
Home & Host Country Income
Taxes
Housing
Goods& Services
Reserve
Income Tax
Housing
Goods& Services
Reserve
Home country Salary
Home Country EquivalentPurchasing
Power
Host country costs
paid by orgn.& from salary
Home CountryCosts
International Citizen’s Approach
In this approach an international basket of goods is used for all expatriates, regardless of country of origin,
It includes food, clothing, housing and so forth.
Expatriates are not provided salary adjustments that would allow them to purchase exactly the same items in the host country as in the home country.
Rather they receive adjustments that would allow them to purchase a comparable local product of same nature and use.
Global Salary Systems International Citizen’s Approach is
alternatively called globalsalary systems.This is appropriate when an MNC has a
team of dedicated international managers- Europeans, Americans or Asians who are ready to move to any part of Globe.
It seeks to provide worldwide equity in rewards and allow managers to move between countries with minimal effects on life style.
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Compensation
Administration
Salary Increases / reviews
Establish Salary Bands
Developing Rates of
pay for Jobs
Linkages to
performance
Appraisal
Starting Salary for
New Employee
s
Compensation Administration Compensation Administration
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Issues in International Issues in International compensationcompensation Impact of the human resources
demand-supply equation at the parent country / host country
Increasing usage of international compensation and benefits consultants
Use of compensation benchmarking Surveys at local and global levels
Outsourcing Compensation management/ payroll processing