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Good Compensation Package Generally Compensation

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Question:

Differences between good compensation package generally compensation?

 

Answer:

Introducation

A good compensation package is generally a compensation package that an expatriate considers as fair, but it also has to be cost-effective for the company. The compensation package has to be planned to attain the organization’s mobility and staffing goals. Several approaches have been developed for the purpose of determining global compensation. The balance sheet approach is the most extensively utilized approach for international compensation (Watson Jr. & Singh 2010, p. 33). Using the balance sheet approach, this paper discusses the compensation packages of a manager from the United States who is assuming a position in Australia.

The balance sheet approach, as Dowling (2008, p. 166) pointed out, is a system which is aimed at equalizing the employees’ purchasing power at similar position levels living abroad and in the home nation. It is also designed to offer inducements in order to counterbalance qualitative differences between locations of assignment. There are 4 main classifications of expenditures that the American expatriate incurs in Australia which are included in the balance sheet approach. First is housing outlays, which includes the costs linked to housing within the host nation, namely Australia. Secondly is goods and services outlay, which includes home-country expenses for various items like medical care, transportation, recreation, household furnishings, clothing, personal care as well as food (Biteen 2011, p. 28).

Thirdly is reserve outlay, which includes social security taxes, education expenditures, investments, pension contributions, payment for benefits, as well as contributions to savings. The fourth category includes income taxes, which include host-country and home-country income taxes (Bloom, Milkovich & Mitra 2013, p. 1351). Where expenses linked to the host-country job assignment go beyond or surpass equivalent expenses within the expatriate’s parent nation, these expenses are met by both the expatriate and the company in order to ensure that the parent-country equivalent purchasing power is attained. Using the balance sheet approach, the expatriate employee receives part of her salary in the local currency, which is the Australian dollar in this case, and part of the salary in her home currency, which is the US$ (Dowling 2008, p.167). The following table illustrates the compensation package for the American expatriate who has taken a managerial job in Australia.

Table 1: Compensation package for the American expatriate working in Australia

Expatriate:                             Joy Adamson

Job Post:                                Senior sales manager

Home Nation:                        United States

Reason for change:               New task in Australia

Effective date of change:      15 June 2017

Item

Amount in Australian Dollars per year

Paid in Australian Dollars per year

Paid in US$ per year, which is the expatriate’s local currency

Basic pay

200,000

100,000

150,000

Housing deduction (7 percent)

-14,000

-14,000

 

Foreign service premium (20 percent)

40,000

40,000

 

Cost of living allowance (COLA)

50,000

 

75,000

Allowance for hardship (20 percent)

40,000

40,000

 

Tax deduction

-97,000

-97,000

 

Full Amount

219,000

69,000

225,000

Cost of Living Index = 150

     

The American expatriate has been given a task in Australia where the Cost of Living Index is assumed to be 150 in relation to the United States. Moreover, in relation to the Australian dollar, the expatriate’s home country has an exchange rate of 1.5. Besides an overseas service premium, the expatriate from the United States who has taken up an assignment in Australia is also paid a hardship allowance for working in Australia. The company provides housing to the expatriate employee and it deducts 7% from the compensation package, together with a tax deduction. The American expatriate is able to see from the table above the components that are offered in her compensation package using the balance sheet approach and the way the compensation package would be split between the United States currency and the Australian currency.

It is worth mentioning that the balance sheet approach, as Robert and Mike (2012, p. 99) pointed out, provides equity between overseas job duties and between expatriates of the same nationality. The repatriation of expatriates is facilitated through this highlighting on equity with the parent nation given that compensation of the expatriate is based on the system of compensation used within the parent nation. The balance sheet approach is also simple and straightforward to communicate to the employee.

 

Conclusion

To sum up, using the balance sheet approach, the American expatriate who has assumed a managerial position in Australia will receive part of her salary in the Australian dollar and part of the salary in the US$. She will be paid an overseas service premium, hardship allowance, and cost of living allowance. She is provided with housing by the company and the company deducts 7% from her compensation.

 

References

Biteen, J 2011, 'Compensation Strategies for International Assignments: Alternatives to the Balance Sheet', HR Professional, 18, 2, p. 28, Business Source Complete, EBSCOhost, viewed 21 May 2017.

Bloom, M, Milkovich, G, & Mitra, A 2013, 'International compensation: learning from how managers respond to variations in local host contexts', International Journal Of Human Resource Management, 14, 8, pp. 1350-1367, Business Source Complete, EBSCOhost, viewed 21 May 2017.

Bonache, J, & Zárraga-Oberty, C 2017, 'The traditional approach to compensating global mobility: criticisms and alternatives', International Journal Of Human Resource Management, 28, 1, pp. 149-169, Business Source Complete, EBSCOhost, viewed 21 May 2017.

 Dowling, P 2008, International human resource management: Managing people in a multinational context. Canberra, Australia: Cengage Learning.

Robert H, S, & Mike, S 2012, 'Expatriate compensation: An exploratory review of salient contextual factors and common practices', Career Development International, 10, 2, pp. 98-108, Business Source Complete, EBSCOhost, viewed 21 May 2017.

Watson Jr., B, & Singh, G 2010, 'Global Pay Systems: Compensation in Support of a Multinational Strategy', Compensation & Benefits Review, 37, 1, pp. 33-36, Business Source Complete, EBSCOhost, viewed 21 May 2017.

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