Assignment 11 Flashcards
Understanding international compensation begins with recognizing
variations or differences and similarities and figuring out how best to manage them.
4 factors in the global outline determine
how people get paid around the world.
The four facotrs that determine how people get paid are
1) Economic
2) Employee
3) Organizational
4) Institutional
Subfactors of the Economic Factor
1) Competitive market dynamics
2) Capital flows/ownership
3) Taxes
Subfactors of the Employee factor
1) Demographics
2) Knowledge/Skills
3) Attitudes/preferences
Subfactors of the Organizational factors
1) Strategic Intent
2) Technology/innovation/work roles
3) Managerial autonomy and information flows
Subfactors of Institutional factors
1) Employer federations and trade unions
2) Social contract and regulation
3) Culture/politics
Variations in 5 of these subfactors that are particulary important
1) Social Contracts
2) Cultures
3) Trade Unions
4) Ownership & Financial Markets
5) Managers’ autonomy
Explain Social Contract
Employees believe that certain actions are expected of them in exchange for which they expect to receive certain returns or total value of their employment. The relationships and expectations of these parties form the social contract.
Countries that are highly decentralized with very little government involvement:
United States, United Kingdom, some central European countries
Moderatley Centralized countries
Germany, Sweden, Italy, Netherlands
Highly Centralized countries
Belgium, Finland, and Ireland
Culture is often defined as
Shared mental programming.
Culture is rooted in the
values, beliefs, and assumptions shared in common by a group of people, and it influences how information is processed
Impact of culture on international pay systems:
It is crucial thta companies adjust their compensation practices to the cultural specifics of a particular host country. In nations where the culture emphasizes respect for status and hierarchy, more hierachical pay structures are appropriate.
What pay system is appropriate in low power distance nations
Egalitariansism,
Companies operating in nations with collectivistic cultures shoud use eglitarian pay structures or
small differences b/t levels of work, equal pay increases, and group-based performance incentives.
Employers in more individulastic national cultures prefer
individual based pay and performance-based incentives
National culture can be thought of as an
average. It provides some information about what kinds of pay attitudes and beliefs one is likely to find in an area.
Managerial autonomy
an organizational factor. It refers to the degree of discretion managers have to make choices that make total compensation a strategic tool. Inversely related to the degree of centralization.
How can purchasing power be calculated?
1) Divide hourly wages by the cost of a standard basket of goods and services
2) Calculate the working time required to buy an item
3 pillars of Japanese employment relationships?
1) Lifetime security within the company
2) Seniority-baed pay and promotion systems
3) Enterprise unions of decentralized unions that represent workers within a single company
Japanese pay systems emphasize
the person rather than the job
Five career categories used in Japan:
1) General Administration
2) Engineer/Scientific
3) Secretary/office
4) Technician/blue-collar job
5) Contingent
Legally mandated benefits in Japan:
social security, unemployment and worker’s compensation, also pay premiums for mandated health insurance, preschool child support and employment of the handicapped
What is total compensation like in Germany?
Consists of base pay, bonuses, allowances, and benefits. Accounts for 70-80% of total comp depending on their job level.
Germany’s social contract includes generous social benefits such as
mandated: liberal social security, unemployment protection, health care, nursing care. Company cars are also popular. Typically receive 30 days of vacation plus about 13 national holidays annually.
3 general compensation strategies
Localizer, exporter, and globalizer
Localizer Approach
“Think Global, Act Local” designs pay systems to be consistent with local conditions. The business strategy is to seek competitive advantage by providing products and services tailored to local customers. Operate independently from corporate headquaters- align with local condtions
Exporter Approach
“One size fits all”. Based on the design of basic total pay systems at headquarters and exports it worldwide to locations for implementation. Used to harmonize or to achieve internal alignment within regions. Makes it easier to move managers and professionals among locations without having to change how they are paid and to communicate consistent corporatewide objectives.
Globalizer Approach
Emphasizes thinking and acting globally and locally. The design of the total pay systems is based on best practices and ideas from around its worldwide operations. It seeks a common system that can be used as part of the glue to support consistency across all global locations. Tries to align pay system in the way it aligns its business.
Expatriate
a person who citizenship is that of the employer’s base country- for example, a Japanese citizen working for Toshiba in Toronto
A 3rd country national (TCN)
someone whose citizenship is neither that of the employer’s base country nor the location of the subsidiary- A german citizen working for Toshiba in Toronto
A Local Country National (LCN)
A citizen of the country in which the subsidiary is lcoated- A canadian citizen working for Toshiba in Toronto
Why use an expatriate?
Opportunity to develop an international perspective among selected employees. Position may be sufficiently confidential, particular talent demanded for a position may not be available or in limited supply
Why hire an LCN?
Relocation expenses are saved. Concerns about adapting to the local culture are avoided. Satisfies national demand for hiring locals.
Major elements of expatriate compensation?
Salary, taxes, housing, allowances and premiums.
Balance Sheet Approach
Based on the premise that employees on overseas assignments should have the same spending power as an employee in the home country. Therefore the home country is the standard for all payments.
Balance sheet approach has 3 obejctives:
1) Ensure mobility of expatriate talent to global assignments as cost effectively as feasible
2) Ensure that expatriates neither gain nor lose finanically
3) Minimize adjusments required of expatriates and their dependents
Basic building blocks of expatriates salaries
1) Home country’s salary for the job the expatriate will be doing
2) The norms of home country expenditures by the typical expartiate in the host country where the assignemtn is located.
Negotiation
The employer and the employee find a mutually agreeable package
Localization
ties salary to the host of local country salary sclaes and provides some cost-of-living allowances for taxes, housing and dependents
Modified balance sheet ties salary
to a region.
Decrease allowance over time
The longer the employee is in the host country, the standard of living should become closer to that of a national employee
Lump-sum cafeteria appraoch
Sets salaries according to the home country system and simply offers employees lump sums of money to offset differences in standards of living
What does reserach show are employee preferences for international assignments?
1) Most do not know what their jobs will be when they return
2) Most return to lower level jobs- only 11% are promoted
3) Only 5% believe their company values overseas experience
4) Most have less disposable income when they return
5) Only 13% are women
6) More than 1/2 leave their company within one year
Cadre of Globalists
Managers who operate anywhere in the world in a borderless manner.
