A11 - Rewards in a Global Marketplace

Question 1

mgrs who operate anywhere in the world in a borderless manner

Answer 1

globalists

Question 2

strategic mkt mind-set based on the design of basic total pay systems at HQs and distribution worldwide to locations for implementation

Answer 2

exporter approach

Question 3

citizen of the country in which the subsidiary is located

Answer 3

local country national

Question 4

person whose citizenship is that of the ER’s base country

Answer 4

expatriate

Question 5

the degree of discretion mgrs have to make choices that make total compensation a strat. tool

Answer 5

managerial autonomy

Question 6

(4) factors that determine how ppl get paid globally

Answer 6

• Econo. factors
  
  • competitive mkt dynamics
  • cap. flows/ownership
  • taxes
• EE factors
  
  • demographics
  • knowledge/skills
  • attitudes/preferences
• Organizational
  
  • Strat. intent
  • tech/innov. work roles
  • managerial autonomy and info. flows
• institutional
  
  • ER federations trade unions
  • social contract and regs.
  • culture/politics

Question 7

(5) specific factors that are relevant in internat’l comp.

Answer 7

• social contracts (including legal framework and regs)
• cultures
• trade unions
• ownership and fin. mkts
• mgrs’ autonomy

_**each factors overlaps and interacts completely with the next**_

Question 8

specific factor that are relevant in internat’l comp.

THE SOCIAL CONTRACT

Answer 8

• employment relationship is more than an exchg b/w indiv. and ER
  
  • includes gov’t, all enterprise owners, and all EEs
  • relationships and expectations from these entities creates the social contract
• in order to understand how to manage EEs in different countries requires you to understand the social contract in that country
  
  • chg’g EE comp systems requires chg’g the expectations of parties to the social contract
• social contract evolves over time, but sometimes very quickly
• Decentralized
  
  • US, UK, some central European countries
  • little gov’t involvement
• Centralized
  
  • western/northern European countries
  • wage bargaining is likely to take place at industry or nat’l level w/ gov’t involvement being typical in nat’l-level bargaining countries
• Regulations
  
  • wage flexibility relates also to social contracts and the effect of reg. restrictions such as max. hrs of work or on hiring and firing workers
  • hiring and firings workers - US has most flexibility; EU, SA, and Jap not so much; Korea and China are like US
  • Co-determination in Germ - creates Works Councils that is formed by EEs in a single bus. unit that operates like unions, but separately and can’t call a strike

Question 9

specific factor that are relevant in internat’l comp.

CULTURE

Answer 9

• shared mental programming which is rooted in the values, beliefs, and assumptions held in common by a group of ppl and which influences how info. is processed
• the assumption that pay systems must be designed to fit different nat’l cultures based on the belief that most of a country’s inhabitants share a nat’l chara.
  
  • advocates of this believe that it is crucial that companies adjust their comp. practices to the cultural specifics of a particular host country
• Hofstede’s list of nat’l cultural attributes
  
  • power distance, collectivism, uncertainty avoidance, and masculinity-feminitity
• you are likely part of many cultures and cultures carry over from country to country
• variance b/w indivs. w/in countries is far larger than variance b/w countries

Question 10

Hofstede Culture Dimensions

power distance

Answer 10

• the extent to which the less powerful members of orgs. and instits. accept and expect that power is distributed unequally
• countries where the culture is alleged to emphasize respect for status and hierarchy = high power distance
  
  • should have hierarchical pay structures
  • Malaysia and Mexico
• low-power distance
  
  • egalitarianism approach
  • Australia and Netherlands

Question 11

Hofstede Culture Dimensions

uncertainty avoidance

Answer 11

• the extent to which a culture programs its members to feel either uncomfortable or comfortable in unstructured situations
• unstruct’d situations are unknown, surprising, different from usual
• societies differ in the degree to which they try to control the uncontrollable

Question 12

Hofstede Culture Dimensions

individualism

Answer 12

• opposite of collectivism
• it is the degree to which indivs. are supposed to look after themselves (individualism) or remain integrated into groups, usually around the family (collectivism)
• collectivism
  
  • should use egalitarian pay strucutres, equal pay incr’s, and group-based rather than indiv.-based perf. incentives
  • Singapore, Japan, Israel, and Korea
• individualism
  
  • should use indiv-based pay and perf-based incr’s
  • US, UK, and HK

Question 13

Hofstede Culture Dimensions

masculinity vs. feminitity

Answer 13

• refers to the distrib. of emotional roles b/w the genders
• it opposes ‘tough’ masculine to ‘tender’ feminine societies
• masculine socieities emphasize assertiveness, perf., and competition

Question 14

Hofstede Culture Dimensions

L/T vs. S/T Orientation

Answer 14

• refers to the extent to which a culture programs its members to accept delayed gratification of their material, social, and emotional needs

Question 15

the usefulness of National Culture in managing internat’l pay?

Answer 15

• only a starting point
• provides some info about what kinds of pay attitudes and beliefs you are likely to find in an area
• overreliance can seriously mislead
• ***critical point for managing internat’l pay*

Question 16

specific factor that are relevant in internat’l comp.

TRADE UNIONS AND EE INVOLVEMENT

Answer 16

• Europe remains highly unionized
  
  • Sweden - 71%
  • UK - 28%
  • Italy - 33%
• Asia - less unionized
  
  • Japan - 18%
  • S. Korea - 10%
• some countries, workers’ pay is set by collective agreements even though the workers may not be union members
  
  • France - more than 90% of workers are covered by collective agreements even though less than 10% are union members
• Germany - Works Councils
  
  • higher rates of unionization
  • these must be involved w/ any chg’s to a pay plan

Question 17

specific factor that are relevant in internat’l comp.

OWNERSHIP AND FINANCIAL MKTS

Answer 17

• differ widely around the world which makes it very important to internat’l pay
  
  • US - corp. ownership and access to cap. is far less concentrated than in most other countries
    
    • 50% of American households own stk in companies either directly or indirectly through MFs and pension funds
  • Korea - 6 conglomerates control a significant portion of the Korean economy and the six are closely linked w/ specific families
  • Germ - nat’l Bundesbank and a small # of other influential banks have ownership interest in most major companies
• patterns of ownership make certain types of pay systems N/A b/c ownership in certain companies is not readily available for indiv. investors

Question 18

specific factor that are relevant in internat’l comp.

MANAGERAL AUTONOMY

Answer 18

• the degree of discretion mgrs have to make total comp. a strat. tool
• gov’t and trade unions: inversely related to the degree of centralization and regulatory intensity
  
  • US and UK orgs. have relatively greater freedom to relative chg EE pay practices or to hire/downsize than do most European companies
  • union countires limits orgs’ autonomy to align pay to bus. strats. and chg’g mkt conditions
• corp. policies limit managerial autonomy
  
  • comp. decision made in the home-country corp. offices and then exported to subunits around the world may align w/ the corp. strat. but discount local economic and social conditions

Question 19

Comparing Costs

Cost of Living and Purchasing Power

Answer 19

• comparing across borders is very complex
• obj. is to maintain the same level of purchasing power

Question 20

Comparing Systems

Answer 20

• national systems - comparative mind-set
  
  • most ERs in a country adopt similar pay practices
  • this thought is only true in nations that have ‘centralized’ approaches
• difference between nat’l systems and regional systems
• some countries will have more than 1 system

Question 21

Japanese Traditional National System

employment relationpships were supported by (3) Pillars

Answer 21

1. lifetime security w/in the company
2. seniority-based pay and promotion systems
3. enterprise unions
   
   • decentralized unions that rep. workers w/in a single company

Question 22

Japanese Traditional National System

Answer 22

• emphasizes the person rather than the job
• seniority and skills possessed rather than job or work perf’d
• promos based on a combo of supervisory eval. of trainability, skill/ability level, and perf. rather than on perf. alone
• internal alignment over competitors’ mkt rates
• employment security based on the perf. of the org. and the indiv.

Question 23

Japanese Traditional National System

(3) basic components of the pay systems

Answer 23

• base pay
• bonuses
• allowances/benefits

Question 24

basic component of the Japanese Traditional Nat’l pay systems

base pay

Answer 24

• accts for 60-80% of EE’s monthly pay
  
  • depends on rank in company
• not based on job eval or mkt pricing
• not attached to specific job titles
• based on combo of EE characteristics:
  
  • Career
  • YoS
    
    • seniority is still major factor in determining base pay
    • companies actually meet periodically to compare their matrixes - makes for similarityes among companies
    • slry incr’s until age 50 no matter on their perf.
  • Skill/Perf. Level
    
    • ranked by effort, skills req’d for the work, perf.

Question 25

basic component of the Japanese Traditional Nat’l pay systems

bonuses

Answer 25

• acct for b/w 20 to 40% of annual slry, depending on the level in the org.
• normally paid twice a yr.
• an expectable addit’l pmt to be made twice a year, even in bad financial times
• not necessarily related to perf.
• amt of bonuses is calc’d by multiplying EEs’ monthly base pay by a multiplier
  
  • size of multiplier is determined by collective bargaining b/w ERs and uinos in each company
  • may also vary depending on EEs perf. eval.
• for most EEs, bonuses are in reality variable pay that helps control the ER’s CF and labor costs, but not intended to act as a motivator or to support improved corp. perf.
• Jap. labor laws encourage the use of bonuses to achieve cost savings by omitting bonuses from calcs. of many other benefit costs (pension plans, OT pay, severance pay, and early retirement allowances)
• timing of bonuses is very important
  
  • EEs tend to use their bonuses to purchase gifts during the summer festival and the new yr times (traditional)

Question 26

basic component of the Japanese Traditional Nat’l pay systems

benefits and allowances

Answer 26

• famliy allowances, commuting allowances, housing and geographic differential allowances
  
  • company housing
  • mortgage subsidies
  • life-passage pmts
• legally mandated benefits
  
  • SS
  • UnN
  • WC
  • mandated health ins. premiums
  • preschool child support
  • employment of the handicapped

Question 27

German Traditional Nat’l System

Answer 27

• embedded in the social partnership b/w bus, labor, and gov’t
• pay decisions are highly regulated
  
  • over 90 laws apply
• tariff agreements are negotiated for each industrial sector by the major ERs and unions
  
  • methods for job eval. and career progression are included in the tariff agreements
  • agreements do not apply to managerial jobs

Question 28

tariff agreements

Answer 28

• in some European countries, the wage rates negotiated by ER assoc. and trade union feds for all wage earners for all companies in an industry group

Question 29

basic component of the German Traditional Nat’l pay systems

base pay

Answer 29

• accts for 70 to 80% of total comp depending on their job level
• base pay is based on job descripts, job evals, and EE age
• generally, a rate will be negotiated for one of the levels, the other levels in that group will be calc’d as a %age of the negotiated rate

Question 30

basic component of the German Traditional Nat’l pay systems

bonuses

Answer 30

• the traditional German system does not trend toward perf-based bonuses
• if a tariff agreement stipulates a perf-based rating min, then it would then have to be negotiated w/ the Works Council.
• these “efficiency allowances” become expected annual bonuses
• perf. bonuses for managerial postiions not included in tariffs are based on company earnings and other company objs.
  
  • only 1/3 of top execs. receive stk options

Question 31

basic component of the German Traditional Nat’l pay systems

Allowances and Benefits

Answer 31

• includes generous social benefits.
  
  • nationally mandated
  • paid by taxes levied on ERs and EEs
  • include liberal SS, UnN protection, helath care, nursing care, and other programs
  • ER and EE contribs. to SS add up to more than 1/3 of wages
• in additon, companies usually provide other benefits and services
  
  • pension plans, savings plans, building loans, and life ins.
  • company cars and cell phones - signs of ‘status’
• german workers also receive 30 days of vacation plus about 13 nat’l holidays annually

Question 32

trends in German Traditional Nat’l System

Answer 32

• not just the tradit’l manufacturing, machine tools and BMW
  
  • has 1/2 of the top Internet companies in EU
• 1 in 5 German adults owns stk (doubled from 1990)
• global competitive pressures and tech. chgs are forcing many of chgs
• high SS expenses and other costly benefits are problematic
• rethinking of the tradit’l social contract as well as the resulting total comp. system is occurring
  
  • companies are asking for greater flexibility in tariff agreements to better reflect each company’s economic conditions, use of perf. in total comp. in addition to seniority and qualification and ways to link job security to company perf.

Question 33

strategic similarities and differences in Jap, US, and Germ

Objs.

Answer 33

• Jap
  
  • L/T focus
  • high commitment
  • Egal - internal fairness
  • flexible workforce
  • control CF w/ bonuses
• US
  
  • Short/Intermediate focus
  • high commitment
  • perf - mkt - meritocratic
  • flexible workforce
  • cost control; varies w/ perf
• Germ
  
  • L/T focus
  • high commitment
  • egal - fairness
  • highly trained workforce
  • cost control through tariff negotiations

Question 34

strategic similarities and differences in Jap, US, and Germ

Internal Alignment

Answer 34

• Jap
  
  • person based: age, ability, perf. determine base pay
  • many levels
  • sm. pay differences
• US
  
  • work based: jobs, skills, accountabilities
  • fewer levels
  • larger pay differences
• Germ
  
  • work based: jobs and experience
  • many levels
  • sm. pay differences

Question 35

strategic similarities and differences in Jap, US, and Germ

External Competitiveness

Answer 35

• Jap
  
  • monitor age-pay charts
  • consistent w/ competitors
• US
  
  • mkt determined
  • compete on variable and perf-based pay
• Germ
  
  • tariff based
  • same as competitors

Question 36

strategic similarities and differences in Jap, US, and Germ

EE contributions

Answer 36

• Jap
  
  • bonuses vary w/ perf. only at higher levels in org.
  • perf. appraisal influences promos and sm. portion of pay incr’s
• US
  
  • bonuses in incr’g %age of total pay
  • incr’s. based on indiv., unit and corp. perf.
• Germ
  
  • tariff-negotiated bonuses
  • smaller perf. bonuses for mgrs

Question 37

strategic similarities and differences in Jap, US, and Germ

Adv.

Answer 37

• Jap
  
  • supports commitment and security
  • greater predictability for companies and EEs
  • flexibility - person based
• US
  
  • supports perf-competitor focus
  • costs vary w/ perf.
  • focus on S/T payoffs (speed to mkt)
• Germ
  
  • supports commitment and security
  • greater predictability for companies and EEs
  • companies do not compete w/ pay

Question 38

strategic similarities and differences in Jap, US, and Germ

Disadv.

Answer 38

• Jap
  
  • high cost of aging workforce
  • discourages unique contirbutors
  • discourages women and younger EEs
• US
  
  • skeptical workers, less security
  • fosters “what’s in it for me” attitude
  • no reward for investing in L/T projects
• Germ
  
  • inflexible; bureaucratic
  • high social and benefit costs
  • not a strat. tool

Question 39

(3) general comp. strats. used by companies w/ worldwide ops.

Answer 39

1. Localizers: “think global, act local”
   
   • designs pay systems to be consistent w/ local conditions
   • seek competitive adv. by providing prods/services tailored to local cust.
   • operate independently of the corp. HQs
   • strat - align w/ local conditions, resulting in multiple domestic-based pay systems
2. Exporter: “HQs knows best” (one size fits all)
   
   • exporters design a total pay system at HQs and then export it worldwide for implementation at all locations
   • makes it easier to move mgrs and prfs. among locations or countries w/o having to chg how they are paid
3. Gobalizer: “Think and Act Globally and Locally”
   
   • seek a common system that can be used as part of the ‘glue’ to support consistency across all global locations
   • HQs and the operating units work together and share ideas and knowledge

Question 40

global approaches

Answer 40

• substit. of a particular skill and experience level for job descripts. in determining ext. mkt rates
• includes rates for all indivs. who possess that skill

Question 41

EXPATRIATE PAY

Answer 41

• EEs temporarily working and living in a foreign country
• key decison - the degree of reliance on expats. relative to local EEs
• (3) types
  
  • parent-country nat’ls (PCNs)
  • third-country nat’ls (TCNs)
  • local country nat’ls (LCNs)

Question 42

expats who are citizens of the ER’s parent or home country and living and working in another country

Answer 42

parent-country nat’ls (PCNs)

Question 43

expats who are citizens of neither the ER’s parent country nor the foreign country where they are living and working

Answer 43

third-party nat’ls (TCNs)

Question 44

expats that are citizens of a foreign country where the parent ER ops

Answer 44

local country nat’ls (LCNs)

Question 45

ADV of hiring local country nat’ls (LCNs)

Answer 45

• know local conditions and have relationships w/ local cust., suppliers, and gov’t regs.
• save on location exps. and other substantial exps. associated w/ the use of expats.
• avoids concerns about EEs adapting to the local culture
• satisfies naitionalistic demands for hiring locals

Question 46

why bring in TCNs?

Answer 46

• foreign assignment may rep. an opp. for selected EEs to develop an internat’l perspective
• position may be sufficiently confidential that info is entrusted only to a proven domestic vet.
• particular skills req’d for a position may not be readily available in the local labor pool

Question 47

Elements of Expat. Compensation

Salary

Answer 47

• base slry + incentives (merit, eligibility for profit sharing, bonus plans) is usually determined via job eval. or some system of “job leveling”
• other components other than base and bonus is to help keep expats. financially whole and minimize the disruptions of the move
  
  • maintaining standard of living about = to their peers in their home or base country
  • often results in very costly pkgs

Question 48

Elements of Expat. Compensation

taxes

Answer 48

• income earned in foreign countries has (2) sources of income tax liabilty
• foreign tax liabilities are incurred on income earned in foreign countries (w/ only a few countries as exceptions)
• US will tax the income earned even though it has already been taxed once in the foreign country
• most ERs pay whatever income taxes are due to the host country and/or the home country via tax equalizations
  
  • taxes are deducted from EEs’ earnings up to the same amt of taxes they would pay had they remained in their home country
  • allowance can be substantial

Question 49

Elements of Expat. Compensation

Housing

Answer 49

• approp. housing is major impact on expat’s success
• most internat’l companies pay housing allowances or provide company-owned housing
• expat colonies
  
  • grow up in sections of major cities where many different internat’l companies group their expats.

Question 50

Elements of Expat. Compensation

allowances and premiums

Answer 50

• cost-of-living allowances, club memberships, transportation assistance, child/elderly care, education, spousal employment, local culture training, and personal security
• foreign assignments require that the expat:
  
  • work w/ less direct supervision than a domestic counterpart
  • often live/work in strange and sometimes uncongenial surroundings
  • represent the ER in the host country
• size of the allowance is a function of both the expected hardship and hazards in the host country and the type of job

Question 51

Balanced Sheet Approach

Answer 51

• based on the premise that EEs on overseas assignments should have the same spending power as they would in their home country
• home country is the standard for all pmts
• (3) objs. (which none link to perf.)
  
  • ensure mobility of ppl to global assignments as cost-effectively as feasible
  • ensure that expats. neither gain nor lose financially
  • minimize adjmnts req’d of expats. and their dependents

Question 52

Alternatives to the balance sheet approach

Answer 52

• Negotiation
  
  • ER and EE find a mutually agreeable pkg
  • tends to be relatively costly, creates comparibility probs. that need to be renegotiated
• localization
  
  • ties slry to the host country’s slry scales and provides some cost-of-living allowances for taxes, housing, and dependents
  • allowances tend to be similar to those under the bal. sht. but the slry can vary w/ the location
• modified bal. sht.
  
  • ties slry to a region
• decrease allowances over time
  
  • the longer the EE is in the host country, the closer the standard of living should come to that of a local EE
• lump-sum/cafeteria approach
  
  • offers more choices
  • sets slries according to the home-country system and simply offers EEs lump sums of money to offset differences in standards of living
• using fewer expats and use more LCNs
  
  • instead of relocating expats, companies can choose to staff internat’l assignmetns w/ LCNs or TCNs.