INTERNATIONAL COMPENSATION MANAGEMENT

INTERNATIONAL COMPENSATION MANAGEMENT WWW.PPTMART.COM

Objectives of Compensation • International Compensation System is understood as provision of monetary and nonmonetary rewards including Base Salary, Benefits, Perquisites, long and short term incentives in accordance with their relative contribution to performance. • Attract Individuals who are competent and interested in Foreign assignments. • Facilitate movements of Expatriates from one subsidiary to another, from one home country to subsidiaries, from subsidiaries back to home country • Consistent pay levels at Headquarters, Domestic affiliates, and Foreign subsidiaries. • Be Cost effective by minimizing unnecessary expenses. • Be consistent with the overall strategy, structure and Business needs. WWW.PPTMART.COM

Compensation Philosophy • Is set of values and beliefs that an organization has with regards to monetary and nonmonetary benefits payable to employees. • Many MNCs say no formal compensation philosophy but whatever they are practicing from a long period is their compensation philosophy. • Difference in Compensation philosophies in various organizations Some-Extensive use of Incentives Some-Apply to a narrow group of Employees who are believed to contribute directly to bottom line Some-at market average, or at highest levels Some-Generous to super performers WWW.PPTMART.COM

Any Compensation philosophy should cover following aspects • What are the goals of the Organization. • What % of compensation linked to Individual/unit performance and what percentage linked to Base Salary • What role of Performance Management in distributing Compensation • How much relative to Market WWW.PPTMART.COM

Three categories of Variables • Organization-What is the requirement of organization. • Environment-What are the Market trends. • Employee-what is Employee requirements. WWW.PPTMART.COM

Variables COMPENSATION STRATEGY Employee Organization Environment Assessment Industry and Labor Market practices and trends Business and Operating Units Employee Inputs & Preferences Elements of Compensation Design WWW.PPTMART.COM

Three categories of Variables After these are decided, Elements of compensation are decided WWW.PPTMART.COM

Elements • Base pay- are the wages or Salaries. Employee receives 90% to 100% of Cash compensation and 2/3rd of total compensation from Base pay. • Variable Pay-Variable pay plans are Organization Systems for sharing the economic benefits improved productivity, cost reductions, quality and overall business performance. • Fringe benefits-Highly influenced by Legal requirements. • Compensation administration-includes a collection of activities required to sustain the effectiveness of a compensation strategy. Issues like labour marketing surveying, PM, Skill Certification, Peer review come under this umbrella. WWW.PPTMART.COM

Components of International Compensation • BASE SALARY. • INCENTIVES. • ALLOWANCES. • FOREIGN SERVICE/HARDSHIP PREMIUM. • BENEFITS. • TAXES. • LONG TERM BENEFITS. WWW.PPTMART.COM

Exhaustive checklist used by organizations either implicitly or explicitly In implementing the Compensation strategy. WWW.PPTMART.COM

Components of International Compensation Salary Int. Comp Benefits Incentives Long term benefits Allowances WWW.PPTMART.COM

Base salary • Base on which other elements are built. • Foundation block for International Compensation, whether the is Employee is a PCN or HCN WWW.PPTMART.COM

Incentives • MNCs are designing special incentive program for keeping Expatriates motivated. • Many MNCs have dropped-Ongoing premium for foreign assignments and replaced it by One time lump sum premium. Ex In 1990- 60% MNCs used ongoing premiums for foreign assignments and now 50%. • MNCs are preferring One time premiums to Periodic Salaries. Ex-Yahoo. Com dropped CEO salary to 1million dollars but he is made entitled to Bonus in the form of fully vested stock option up to I million shares/year • Two types of Bonus. Referral bonus and Retention Bonus • Referral Bonus- Popular way of bringing in new talent by employee(popular in Technical jobs, Least likely in sales Representatives) • Retention Bonus-To retain employees in IT, BPO, Service Industry WWW.PPTMART.COM

The Primary Goal of Retention Bonus WWW.PPTMART.COM

Calculation of Retention Bonus WWW.PPTMART.COM

Allowances Allowance is an inevitable feature of International Compensation. • Cost of living Allowance. • Spouse Allowance. • Housing Allowance. • Home leave Allowance. • Education Allowance. WWW.PPTMART.COM

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Foreign service/ Hardship premium Inducement in the form of salary premium to accept an overseas assignment depends on type of assignment, actual Hardship and length of Hardship. Certain countries- hostile, sometimes killed (paid 2to 3 times) WWW.PPTMART.COM

Benefits Also k/a Indirect Compensation, Hidden Salary roll, fringes or Service Programs • Entertainment • Festival celebrations • Gifts • Sponsorship of children • Employee welfare • Conference attendance • Conveyance, tour and lodging • Hotel board and lodging • Vehicles • Telephones • Health and Life insurance WWW.PPTMART.COM

Benefits that have a prominence place in any Compensation strategy Health and Life Insurance- Purchased by employees at group rates which are typically lower than individual rates 2 .Vocation/Holidays/ Rest Breaks- Release fatigue, improve productivity when they actually work. 3. Retirement/ Health Care/ Disability Benefits- allows workers to be more productive by freeing them of concerns about medical and retirement cost WWW.PPTMART.COM

Key issues related with Benefit program in International Compensation • Whether Expatriates in the Home country benefit program or Host Country benefit program. • Whether Host country legislations or Home country with regards to termination. • Which country should pay for the Benefits. WWW.PPTMART.COM

International Taxation(MNCs select following approaches) • Tax Equalization- Organizations withhold an amt equal to Home Country tax obligation of the PCN, and pay all taxes in the host country. Tax protection- employees pays up to the amt of taxes he or she would pay on remuneration in the home country. • Adhoc Approach- Each Expatriate is handled differently. • Laisses Faire- Left on their own to solve their taxation problems WWW.PPTMART.COM

Factors affecting Int Compensation MNCs External Envi MNCs Internal Envi • Goal Orientation • Capacity to Pay • Competitive strategies • Organization Culture • Workforce Demographics • Labor relations • Strategic role • (Subsidiary role) • Parent nationality • Labor market char. • Local culture • Industry type • Government role • (Home and Host) • Competitors strategies Staffing Orientation International Compensation strategy WWW.PPTMART.COM

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Compensation packages design • Going rate approach-Expatriates are paid according to Host Salary structures. • Balance Sheet Approach-Equate or balance Expatriate’s purchasing power in Host country with purchasing power in Home country • Regional System-Everyone going to one area falls under one category. • International Citizen’s approach-International basket of goods is used for all expatriates(food, clothing, housing) WWW.PPTMART.COM

INTERNATIONAL COMPENSATION MANAGEMENT