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International Pay Systems
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Understanding international
compensation begins with recognizing
variations (differences and similarities) and
figuring out how best to manage them.
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Managing Variations
How people get paid around the world depends on differences (and similarities) in the following general factors
Economic
Institutional
Organizational
Employee
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Guide to International Compensation
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Variation in International Pay Practices Social contracts Cultures Trade unions Ownership and financial markets Managers’ autonomy
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The Social Contract Viewed as part of the social contract
Employment relationship is more than an exchange between an individual and an employer
It includes○ The government○ All enterprise owners ○ All employees
Relationships and expectations of these parties form the social contract
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Social Contracts and Pay Setting
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Culture
Shared mental programming rooted in values, beliefs, and assumptions shared in common by a group of people
Influences how information is processed
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Culture and Managing International Pay
Assumption that pay systems must be designed to fit different national cultures is based on the belief that most of a country’s inhabitants share a national character
Job of a global manager
Search for national characteristics whose influence is assumed to be critical in managing international pay systems
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Culture Matters, but So Does Cultural Diversity How useful is the notion of a national
culture when managing international pay?Only a starting pointCan be thought of as the “average”Provides some information about what kinds
of pay attitudes and beliefs you are likely to find in an area
Over reliance on the “average” can seriously mislead
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Culture Matters, but So Does Cultural Diversity (cont.) Interplay among various conditions
within each nation or region, taken as a whole, form distinct contexts for determining compensationEconomicInstitutionalOrganizationalIndividual
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Factors Affecting International Pay
Ownership and capital markets
Managers’ autonomy
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Comparing Costs Factors affecting wage comparisons
Standard of livingcosts
Purchasing power
Working time required
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Strategic Similarities and Differences: An Illustrated Comparison
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Strategic Market Mind-Set
Localizer: “Think Global, Act Local”
Designs pay systems to be consistent with local conditions
Business strategy is to seek competitive advantage by providing products and services tailored to local customers
Operate independently of corporate headquarters
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Strategic Market Mind-Set (cont.)
Exporter: “Headquarters Knows Best”
Basic total pay system designed at headquarters and is “exported” world-wide for implementation at all locations
Exporting a basic system makes it easier to move managers and professionals among locations
One plan from headquarters gives all managers around the world a common vocabulary and a clear message what the leadership values
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Strategic Market Mind-Set (cont.)
Globalizer: “Think andAct Globally and Locally”
Seek a common system to be used as part of “glue” to support consistency across all global locations
Headquarters and operating units are heavily networked to shared ideas and knowledge
Performance is measured where it makes sense for the business
Pay structures are designed to support business
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Types of Expatriates Expatriates - Individuals whose citizenship is
that of employer’s base country Third country nationals (TCNs) - Individuals
whose citizenship is neither employer’s base country nor location of subsidiary
Local country nationals (LCNs) - Individuals who are citizens of country in which subsidiary is located
Advantages of hiring LCNs Advantages of bringing in expats or TCNs
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Why Expatriates Are Selected
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Common Allowances in Expatriate Pay Packages
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Salary Taxes
HousingAllowances
and Premiums
Elements of Expatriate Compensation
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Common Allowances in Expatriate Pay Packages
Financial AllowancesFinancial Allowances
Social Adjustment AssistanceSocial Adjustment Assistance
Family SupportFamily Support
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Balance Sheet Approach
Premise – Employees on overseas assignments should have same spending power as they would in their home country
Home country is standard for all payments
ObjectivesEnsure cost effective mobility of people to global
assignments
Ensure expatriates neither gain nor lose financially
Minimize adjustments required of expatriates
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Balance Sheet Approach
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Other Approaches: Compensation for Expatriates Negotiation
Localization
Modified balance sheet
Decrease allowances
Lump-sum/cafeteria plan
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Expatriate Systems → Objectives? How the expatriate pay system affects
competitive advantage, customer satisfaction, quality, or other performance concerns
Lack of attention to aligning expatriate pay with organization objectives
Employee Preferences
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Borderless World--Borderless Pay? Corporations attempting to become “globally Corporations attempting to become “globally
integrated enterprises,” are creating cadres of integrated enterprises,” are creating cadres of globalists: globalists: – Managers who operate anywhere in the world in a Managers who operate anywhere in the world in a
borderless mannerborderless manner
To support a global flow of ideas and people, To support a global flow of ideas and people, companies are also designing borderless, or at companies are also designing borderless, or at least regionalized, pay systemsleast regionalized, pay systems– Testing ground for this approach - European UnionTesting ground for this approach - European Union