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1 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: 1408032090.

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Presentation on theme: "1 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: 1408032090."— Presentation transcript:

1 1 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning INTERNATIONAL COMPENSATION Chapter 8

2 2 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning TABLE OF CONTENTS Chapter 8  Vocabulary  Objectives  Introduction  Components of an international compensation program for expatriates  Approaches to international compensation of expatriates  Tentative conclusions: patterns in complexity, challenges, & choices INTERNATIONAL COMPENSATION

3 3 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning  compensation  HRIS = HR information system  base salary  hardship premium  foreign service inducements  COLA = cost-of-living allowance  housing allowance  home leave allowances  education allowances  relocation allowances  spouse assistance  balance sheet, going rate, & local plus approaches  tax equalization  tax protection, ad hoc & laissez-faire approaches  international base pay  pay strategies Vocabulary

4 4 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning In this chapter we: 1.Examine the complexities caused by moving compensation from a domestic to an international context 2.Detail components of a international compensation program 3.Outline the two main approaches to international compensation & the advantages/disadvantages of each 4.Introduce a third emerging approach: local plus 5.Examine the special problem areas of taxation, valid international living cost data, & the problem of managing TCN compensation 6.Examine recent developments & issues Objectives

5 5 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Introduction

6 6 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Compensation is increasingly seen as  Mechanism to develop & reinforce a global corporate culture  Primary source of corporate control  Explicitly linking performance outcomes with associated costs

7 7 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning International compensation complexities  Pay  Taxes  Cost of living  Housing  Safety  Transportation  Education of children  Length of stay

8 8 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Objectives of international compensation The policy …  should be consistent with overall strategy, structure, & business needs of the MNE  must attract & retain staff in areas where the MNE has the greatest needs & opportunities  should facilitate the transfer of international employees in the most cost-effective way for the firm  must give due consideration to equity & ease of administration

9 9 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning International employee expectations 1.Financial protection in terms of benefits, social security, & living costs in the foreign location 2.Opportunities for financial advancement through income & savings 3.Housing, children’s education, & recreation will be addressed 4.Career will be advanced

10 10 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Components of international compensation for expatriates

11 11 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Key components for expatriates 1.Base salary 2.Foreign service inducement & hardship premium 3.Allowances COLA, housing, home leave, education, relocation, spouse assistance 4.Benefits

12 12 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Approaches to international compensation of expatriates

13 13 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Three approaches to international compensation 1.Going rate approach 2.Balance sheet approach 3.Local plus

14 14 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Going rate approach Table 8.1

15 15 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Advantages & disadvantages of the going rate approach Table 8.2

16 16 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning The balance sheet approach Table 8.3

17 17 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning 4 balance sheet approach categories 1.Goods & services 2.Housing 3.Income taxes PC & HC income taxes 4.Reserve contributions to savings, payments for benefits, pension contributions, investments, education expenses, S.S. taxes, etc.

18 18 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Local plus approach The expatriate employee is paid according to prevailing salary levels, structure, & administrative guidelines of the home country … expatriate-type benefits in recognition of foreign status Does not typically include: COLA, mobility premiums, hardship allowances, familiarization visits, home leave, cross-cultural training, other pre-departure or spouse assistance

19 19 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Expatriation compensation worksheet Table 8.4

20 20 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Advantages & disadvantages of the balance sheet approach Table 8.5

21 21 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Compensation approaches & strategies for long-term international assignments Table 8.6a Chapter 8

22 22 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Compensation approaches & strategies for long-term international assignments Table 8.6b

23 23 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Compensation approaches & strategies for long-term international assignments Table 8.6c

24 24 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Compensation approaches & strategies for long-term international assignments Table 8.6d

25 25 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning MNE approaches to international taxation  Tax equalization MNE withholds tax obligation & then pays all taxes in HC  Tax protection Employee pays up to amount s/he would pay on compensation in HC  Ad hoc – each expatriate handled differently  Laissez-faire – each is on their own

26 26 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Maximum marginal federal tax rates Table 8.7 Country Max. marginal % rate Australia45.00 Belgium50.00 Canada29.00 Chile40.00 Denmark26.48 France40.00 Germany45.00 Italy43.00 Japan40.00 Korea35.00 Chapter 8 Country Max. marginal % rate Mexico28.00 Netherlands52.00 New Zealand39.00 Poland40.00 Spain27.13 Sweden25.00 Switzerland11.50 Turkey35.00 United Kingdom40.00 United States35.00

27 27 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning City1 Big Mac in min Chicago, Tokyo, Toronto12 London, Los Angeles, Miami13 Hong Kong, New York, Sydney14 Dublin, Frankfurt, Luxembourg, Montreal, Zurich15 Copenhagen, Geneva, Vienna17 Dubai, Nicosia18 Amsterdam, Auckland, Berlin, Brussels19 Lyon, Munich, Paris, Stockholm, Taipei20 Barcelona, Moscow, Oslo21 Lisbon23 Tel Aviv24 Manama25 Johannesburg26 Working time required to buy one Big Mac Table 8.7a

28 28 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Working time required to buy one Big Mac Table 8.7b 1 Big Mac in min Helsinki, Madrid, Milan, Rome, Seoul27 Athens, Shanghai, Tallinn30 Warsaw, Doha31 Ljubljana34 Singapore34 Prague38 São Paulo40 Kuala Lumpur, Vilnius41 Bucharest, Riga42 Beijing44 Bangkok, Kiev45 Istanbul48 Delhi49 Río de Janeiro51

29 29 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Working time required to buy one Big Mac Table 8.7c 1 Big Mac in min Sofia 56 Buenos Aires57 Bogotá, Lima58 Budapest59 Mumbai61 Bratislava62 Santiago de Chile69 Cairo82 Manila88 Caracas126 Mexico City129 Jakarta136 Nairobi158

30 30 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Issues to consider for expatriate benefits  Keep expatriates in home-country programs, particularly if the firm receives no tax deduction for it?  Option to enroll expatriates in host-country benefit programs &/or make up any difference in coverage?  Do expatriates receive home-country or are eligible to receive host-country social security benefits?

31 31 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Social security contributions by employers & employees Table 8.8

32 32 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Tentative conclusions: patterns in complexity, challenges, & choices

33 33 of 31 Chapter 8 For use with International Human Resource Management 6e By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr. ISBN-10: © Cengage Learning Chapter 8 Complexity, challenges & choices in global pay Figure 8.1


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