Chapter

1. Chapter 16 International Pay Systems

2. Learning ObjectivesAfter studying Chapter 16, students should be able to: • Realize that studying international compensation enhances their understanding of compensation within their own country. • Understand how changes in political and economic conditions affect pay in every country. • Recognize the danger of making generalizations about systems in a country. • Discuss how compensation in every country must deal with the objectives of efficiency, fairness, and compliance.

3. Managing Variations • How people get paid around the world depends on differences (and similarities) in the following general factors: • Economic • Institutional • Organizational • Employee

4. Guide to International Compensation

5. Social Contract: Government, Organizations, & Employees Organizations Individuals Employment Relationship Government • Individuals • Unions • Union Federations • Organizations • Individual Employers • Employer Consortium Social Contract

6. Social Contracts and Pay Setting Highly Centralized Austria Belgium Cuba Hungary Poland Sweden Czech Republic Germany India Israel Japan Korea Slovakia Slovenia Argentina Brazil Canada France Hong Kong Mexico Singapore U.K. U.S.A. SOCIAL CONTRACT Localized Local Systems Sector/Industry-wide Systems Nationwide Systems PAY SETTING SYSTEMS

7. Culture • Culture is often defined as shared mental programming. • Culture is acquired knowledge that people use to interpret experience and generate social behavior. • It is rooted in the values, beliefs, and assumptions shared in common by a group of people. • It influences how information is processed.

8. Culture and Managing International Pay • The 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. • The job of a global manager is to search for national characteristics whose influence is assumed to be critical in managing international pay systems.

9. Hofstede’s Cultural Dimensions • Power Distance • Uncertainty Avoidance • Individualism – Collectivism • Masculinity – Femininity • Long-term – Short-term

10. Global Trade Unions • Europe highly impacted by union • Although not all members of union, much of pay may be set by collective agreement • European Union: try to avoid social dumping such as what happens when U.S. opens plant in country with lower labor costs

11. Ownership/financial markets • Capital/corporate ownership less concentrated in U.S. Stock options less common or even illegal! • National banks in Germany and state-owned businesses in other countries may employ more people, but profits may be higher in private companies. • Does this remind you of the U.S. (except proportion of privately owned is higher?)

12. Global Wage Comparisons • May be misleading - comparing apples and oranges, such as national health care • Purchasing power parity • Standard of living • Uniform basket of goods based on European consumers • Big Mac cost comparison

13. Employment Practices Differ Among Nations:Time and the Clock

14. Employment Practices Differ Among Nations:The Cost of an Employee

15. Strategic Similarities and Differences:An Illustrated Comparison

16. Strategic Similarities and Differences:An Illustrated Comparison (continued)

17. Strategic Similarities and Differences:An Illustrated Comparison (continued)

18. Strategic Market Mindset • 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 the corporate headquarters.

19. Strategic Market Mindset (continued) • Exporter: “One Size Fits All” • 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.

20. Strategic Market Mindset (continued) • Globalizer: “Think and Act Globally and Locally” • Seek a common system that can be used as part of the “glue” to support consistency across all global locations. • Headquarters and the 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 the business.

21. Objectives of Compensation and Benefits for Expatriates • Attraction and retention of employees who are qualified for foreign assignments • Providing an incentive to leave the home country for a foreign assignment • Maintaining a given standard of living • Taking into consideration expatriates’ career and family needs • Facilitating reentry into the home country at the end of the foreign assignments

22. Types of International Employees • Expatriates - citizenship is that of employer’s base country • Third country nationals - employee’s citizenship is neither base country or location of subsidiary • Local country national - citizen of country where subsidiary is located

23. Elements of Expatriate Compensation Salary Taxes Allowances and Premiums Housing

24. Common Allowances in Expatriate Pay Packages Financial Allowances Social Adjustment Assistance Family Support

25. The Balance Sheet Approach • Based on the premise that employees on overseas assignments should have the same spending power as they would in their home country. • The home country is the standard for all payments. • The objective is to: • Ensure cost effective mobility of people to global assignments • Ensure that expatriates neither gain nor lose financially • Minimize adjustments required of expatriates

26. Balance Sheet Approach Equivalent Salary and Allowances, Host Country $10,200 Relocation Bonus $1,500 Home Country Currency Taxes Home Country Salary $7,000 Allowances, paid by company $1,000 Taxes $2,000 Housing Housing $2,000 $700 Goods and Services $2,000 Goods and Services Reserve $1,000 Reserve

27. Other Approaches to Compensationfor Expatriates • Negotiation • Localization • Lump Sum • Cafeteria Plan • Regional Systems

28. Summary • Anyone interested in compensation needs to adopt a global perspective. • The globalization of businesses, financial markets, trade agreements, and labor markets is affecting every workplace and every employment relationship. • Employee compensation is embedded in the different political-socioeconomic arrangements found around the world. • Compensation systems have a profound impact on individual behavior, organizational success, and social well-being. This holds true within and across all national boundaries.

29. Review Questions • Rank the factors in the global guide according to your belief in their importance for understanding and managing compensation. • How do your ranks differ from your peers? • From international peers? • Discuss how the rankings may change over time. • Distinguish between nationwide and industry-wide pay determination. How do they compare to a business strategy-market approach? • Develop arguments for and against “typical” Japanese style, German style, and U.S. style approaches to pay.

30. Review Questions (continued) • Distinguish between global, expatriates, local nationals, and third-country nationals. • Under the balance sheet approach to paying expatriates, most of total compensation is linked to costs of living. Some argue that expatriate pay resembles a traditional Japanese pay system. Evaluate this argument. • What is meant by “the full house” or “variations within a nation”? Evaluate its importance in understanding and managing global total compensation.