- Briefly discuss and explain the issue of comparability? [Please include an example(s) in your explanation].
- What are the main advantages and disadvantages of the Balance Sheetapproach to international compensation?
- Briefly describe the Local Plus approach to compensation (including why a MNC may use this approach and the main inherent risk of this approach?)
An MNC is sending a person on an 18 month international assignment in order to transfer skills to a subsidiary. Following the completion of the assignment the MNC has no plans to send this person on another international assignment. Does your workshop reading suggest that the MNC should use a "Full international", "Expat Lite" or "Local Plus" compensation strategy? Why?
1). The two approaches which multinational companies follow while compensating employees are going rate approach and balance sheet approach. The companies condier two significant factors in case of comparability of the two compenation structures. The first one is that the salaries and benefits an employee is receiving should be comparable both to other firms and his peers in other countries. The salary should be comparable to the other departments within the organisation. The companies in comparison to going rate, are concerned about the salary structures prevailing in the domicile country. In comparsion to the going appraoch, the balance sheet rate is based on the philosophy of the MNCs to provide salary accoridng to a uniform rewrad system. For example, companies based in countries like the US having higher currency value than most of the countries offer their employees additional benefits to compensate the loss they suffer in their salary drawings due to difference in exchange rates between their home and host countries.
2). The fowling are the main advantages of balance sheet approach are:
1. There remains an equity between the payments of employees in same company based in same country, hence motivates the employees.
2. Special non-financial compensation measures make up the loss employee suffer due to difference in exchange rates between their home countries and countries of deployment.
The following are the disadvantage of balance sheet approach:
1. Great disparities between expatriates of different countries effect the motivation of employees.
2. The different compensation packages consisting of financial and non-financial compensation components are extremely complex.
3). Local plus approach have international companies playing their staff according to the salary rates prevailing in the host countries where they are deployed. The business organizations use the local plus approach to enable their employees take advantage of the growing salary rate in emerging countries where are placed. However, employees placed in countries having poor economic growth may suffer a great decrease in their salary. This loss of salary poses results in the decrease of motivation of employees which in turn leads to fall in their productivity, thus posing risks to the revenue generation of the company.
4). The choice of use of full international, local plus or expat lite would depend on the country where the employee would be deployed. The companeis have to maintain comparatibility in the salaries and benefits of their international employees and maintaining equability in the process so as to uphold employee morale. For example, the salary should be comparabel to the expatiates of the same nationality and local nations. The companeis have to increase the base pay and benefits to supplement the loss of compensate due to transfer to low paying countries. Thus, the choice of the compensation would on these factors.