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McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Milkovich/Newman: Compensation, Ninth Edition Chapter 16 International.

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Presentation on theme: "McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Milkovich/Newman: Compensation, Ninth Edition Chapter 16 International."— Presentation transcript:

1 McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Milkovich/Newman: Compensation, Ninth Edition Chapter 16 International Pay Systems

2 16-2 Chapter Topics Managing Variations: The Global Guide Managing Variations: The Global Guide The Social Contract The Social Contract Culture Culture Trade Unions and Employee Involvement Trade Unions and Employee Involvement Ownership and Financial Markets Ownership and Financial Markets Managerial Autonomy Managerial Autonomy

3 16-3 Chapter Topics (cont.) Comparing Costs Comparing Costs Comparing Systems Comparing Systems National Systems-Comparative Mind-Set National Systems-Comparative Mind-Set Strategic Market Mind-Set Strategic Market Mind-Set Expatriate Pay Expatriate Pay Borderless World  Borderless Pay? Globalists Borderless World  Borderless Pay? Globalists Your Turn: Coke and IBM Your Turn: Coke and IBM

4 16-4 Understanding international compensation begins with recognizing variations (differences and similarities) and figuring out how best to manage them.

5 16-5 Managing Variations How people get paid around the world depends on differences (and similarities) in the following general factors How people get paid around the world depends on differences (and similarities) in the following general factors –Economic –Institutional –Organizational –Employee

6 16-6 Exhibit 16.1: Guide to International Compensation

7 16-7 Variation in International Pay Practices Social contracts Social contracts Cultures Cultures Trade unions Trade unions Ownership and financial markets Ownership and financial markets Managers’ autonomy Managers’ autonomy

8 16-8 The Social Contract Viewed as part of 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 Relationships and expectations of these parties form the social contract

9 16-9 Exhibit 16.3: Social Contracts and Pay Setting

10 16-10 Culture Shared mental programming rooted in values, beliefs, and assumptions shared in common by a group of people Shared mental programming rooted in values, beliefs, and assumptions shared in common by a group of people Influences how information is processed Influences how information is processed

11 16-11 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 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 Job of a global manager –Search for national characteristics whose influence is assumed to be critical in managing international pay systems

12 16-12 Culture Matters, but So Does Cultural Diversity How useful is the notion of a national culture when managing international pay? How useful is the notion of a national culture when managing international pay? –Only a starting point –Can 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

13 16-13 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 compensation Interplay among various conditions within each nation or region, taken as a whole, form distinct contexts for determining compensation –Economic –Institutional –Organizational –Individual

14 16-14 Factors Affecting International Pay Ownership and capital markets Ownership and capital markets Managers’ autonomy Managers’ autonomy

15 16-15 Comparing Costs Factors affecting wage comparisons Factors affecting wage comparisons –Standard of living costs –Purchasing power –Working time required

16 16-16 Exhibit 16.8: Strategic Similarities and Differences: An Illustrated Comparison

17 16-17 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

18 16-18 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

19 16-19 Strategic Market Mind-Set (cont.) Globalizer: “Think and Act 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

20 16-20 Types of Expatriates Expatriates - Individuals whose citizenship is that of employer’s base country 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 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 Local country nationals (LCNs) - Individuals who are citizens of country in which subsidiary is located Advantages of hiring LCNs Advantages of hiring LCNs Advantages of bringing in expats or TCNs Advantages of bringing in expats or TCNs

21 16-21 Exhibit 16.9: Why Expatriates Are Selected

22 16-22 Exhibit: Common Allowances in Expatriate Pay Packages

23 16-23 Salary Taxes Housing Allowances and Premiums Elements of Expatriate Compensation

24 16-24 Common Allowances in Expatriate Pay Packages Financial Allowances Social Adjustment Assistance Family Support

25 16-25 Balance Sheet Approach Premise – Employees on overseas assignments should have same spending power as they would in their home country Premise – Employees on overseas assignments should have same spending power as they would in their home country Home country is standard for all payments Home country is standard for all payments Objectives Objectives –Ensure cost effective mobility of people to global assignments –Ensure expatriates neither gain nor lose financially –Minimize adjustments required of expatriates

26 16-26 Exhibit 16.11: Balance Sheet Approach

27 16-27 Other Approaches: Compensation for Expatriates Negotiation Negotiation Localization Localization Modified balance sheet Modified balance sheet Decrease allowances Decrease allowances Lump-sum/cafeteria plan Lump-sum/cafeteria plan

28 16-28 Expatriate Systems → Objectives? How the expatriate pay system affects competitive advantage, customer satisfaction, quality, or other performance concerns 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 Lack of attention to aligning expatriate pay with organization objectives Employee Preferences Employee Preferences

29 16-29 Borderless World--Borderless Pay? Corporations attempting to become “globally integrated enterprises,” are creating cadres of globalists: Corporations attempting to become “globally integrated enterprises,” are creating cadres of globalists: –Managers who operate anywhere in the world in a borderless manner To support a global flow of ideas and people, companies are also designing borderless, or at least regionalized, pay systems To support a global flow of ideas and people, companies are also designing borderless, or at least regionalized, pay systems –Testing ground for this approach - European Union


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