STRATEGIC COMPENSATION

AHumanResource
ManagementApproach

Chapter12

InternationalCompensation

121

Competitivestrategiesandhow
internationalactivitiesfitin

Severalfactorshavecontributedtotheexpansionofglobal
markets.likefreetradeagreements.
1) Lowestcostproducersrelocationstocheaperproduction
areas
2) DifferentiationandthesearchforNewGlobalMarkets
3) HowglobalizationisaffectingHRDepartments
4) Complexityofinternationalcompensationprogram

Furthercorporateinterestsabroad

Encourageemployeeexpatriation
Minimizeworkersfinancialrisks
Enhanceoverseasexperiences
Repatriationissues
Promotinglowestcoststrategies
Promotingdifferentiationstrategies

122

InternationalEmployees
Hostcountrynationals(HCNs)

ForeignnationalCitizensworkforU.S.companyintheir
homecountry

Thirdcountrynationals(TCNs)

ForeignnationalCitizensofonecountryworkforaU.S.
companyin
anothercountry

Expatriates

U.S.citizensworkforaU.S.companyinanothercountry

123

CompensationFactors
Lengthofoverseasassignments
ShorttermExtendedterm

Staffmobility

Oneormoreforeignassignments

Equity:payreferentgroups
Domesticworkers

Hostcountryworkers/Localemployees

124

CompensationComponents
Corecompensation

Basepay
Incentivecompensation

Fringecompensation
Standardbenefits
Enhancedbenefits

125

SettingBasePay
Homecountrybased

Similartodomesticemployees

Hostcountrybased

Similartoemployeesinforeignsites

Headquartersbased

Notbasedonhomeorhostcountryspaylevels

126

PurchasingPower
Stabilityofcurrency
U.S.dollar&foreignmoney

Exchangeratefluctuations

Inflation
Increaseinpricesofgoods&services

Increaseininflationlowerspurchasingpower

127

IncentiveCompensation
Foreignservicepremiums

ToEncourageemployeestoacceptExpatriateAssignments
1030%ofbasepayincreasewiththelengthofservicewhichisnotapermanent
increasepaidininstallments.

Hardshipallowances

Fortoughwork&workingconditionsatforeignlocations
Insmallamountsthroughoutthedurationofexpatriatesassignments.
Companiesshouldcommunicatetheroleofthesepayments
3criteria:extraordinarilydifficultlivingconditions,excessivephysicalhardshipand
notablyunhealthyconditions.

Mobilitypremiums

Forwillingnesstorelocatetoanassignment

128

HardshipAllowances
SetbyU.S.StateDeptbasedon:
Foreignlivingconditions

Physicalchallengeslikeclimate
Poorhealthconditions

Over150placesashardshiplocations
Supplementsbetween10%25%ofbasepay

129

InternationalFringeCompensation
2Types

Standard

Enhanced

Considerations

Totalremuneration

Benefitadequacy
Taxeffectiveness
Recognizinglocalcustoms&practices

1210

ENHANCEDBENEFITS
Relocationassistance
Educationreimbursement
Homeleave&travelreimbursement
Rest&relaxationleaveandallowance

1211

RelocationAssistance
Temporaryquartersbeforemoving
Transportationexpenses
Reasonabletravelingexpenses
Temporaryquartersuponarrival
Moving&storinghouseholdgoods

1212

BalanceSheetApproach
Todeterminecompensationpackages
Toprovidesimilarstandardofliving
Strategicvalue
Protectsexpatriatesstandardofliving

Allowscompaniestocontrolcosts

1213

 Appropriateness:

Homecountryisanappropriatereferencepointfor
economiccomparisons.
ExpatriateskeepclosetiestoUSA(theirhomecountry
orbasecountry)
Assignmentisoflimitedduration
Repatriationafterassignment
thecompanypromisesemployeesthatheywillnotlose
financiallywhileonforeignassignment.

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 MajorExpenditures

Housing&utilities
Goods&services
Discretionaryincome
Taxes
InformationSources
Returningexpatriatesorforeigngovernment
contacts.
Consulting&researchcompanies
U.S.StateDept.indexes

1215

DiscretionaryIncomeExpenditures
Pensioncontributions
Savings&investments
Insurancepayments
Mortgageequitypayments
Alimony
Childsupport
Studentloans
Carpayments

1216

TaxConsiderations
Doubletaxationrelief
IRCSection901
IRCSection911

Taxprotection
Taxequalization

1217

IRCSection901
CancreditforeigntaxesfromU.S.tax
IfU.S.taxisgreater
ExpatriatespaydifferencetoIRS
Ifforeigntaxisgreater
ExpatriatescandeductexcesstofutureU.S.taxes
Forupto5years

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IRCSection911
CanExcludeupto$70,000offoreignIncome,+ahosing
allowance,fromtax.

Exclusions
Cash

IncomeProfessionalfeesIncentives
BonusesSalescommissions

NonCash

HousingMealsVehiclesEducation
HomeleaveTaxreimbursements
MovingexpensesCostofliving

1219

EmployerConsiderations:Tax
Protection
Keyelementoftaxprotectionandtax
equalizationmethodsishypotheticaltax:
Hypotheticaltax:employerscalculatethehypotheticaltaxas
theUSincometaxbasedonthesamesalarylevel,excludingall
foreignallowances.
Employersreimburseexpatriateswhenactualtaxisgreater.
Expatriatespayentiretaxwhenactualtaxislessorequalto
hypotheticaltax

1220

EmployerConsiderations:Tax
Equalization
Employersdeducthypotheticaltax
Employerspayrealtaxfromhypothetical
Reimbursementssettledafterpayment
Equitabletreatmentanyassignment
Employersreimburseexpatriateswhenactualtaxisless.

1221

RepatriationConcerns
Losingsupplements&allowances
Workexperiencenotvalued
Reintegrationintodomesticworkforce
Leavingcompany

1222

END

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