The workplace has changed the last years. The employees enjoy more career opportunities. Their acceptance of an international assignment depends on a large degree on the organisation’s compensation policy. The expatriate compensation policy should follow the same principles as the domestic compensation in order to attract, retain and motivate employees to fulfil the expectations of the company within a determined budget (Jagatsing, 2000). The expatriate defined means “an employee of one company who is sent for a limited period of time from his or her place (country) of domestic employment to a place of assignment, for the purpose of working for and providing services to a receiving company.” (ASN, Services for Expatriates, March 2004). Compensation is “the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.”(United Nations Statistic Division, March 2004).
The difficulties of the compensation of an expatriate lie in different economic systems, development models, political and institutional contexts, different pension systems, taxation issues and different cultures and traditions. Expatriate compensation is very complex and a challenging issue. Black (1991 in Suutari and Tornikoski, 2001) argued that 77 per cent of the expatriate managers were dissatisfied with their salaries and their compensation package. Considering these difficulties and differences in the international context the Human Resource Manager has to ensure that the compensation is fair and that it is also cost-effective in today’s global market place.
Table of Contents
Introduction
Difficulties for multinational companies in utilising expatriates
The taxation issues
The relationship between the salary level and the local salary/cost-of-living level
Currency rate risks and differences in prosperity and spending power
Social security and pension issues
Spouse related and family issues
Conclusion
Objectives and Key Themes
This paper examines the complexities of expatriate compensation policies within multinational corporations, focusing on the difficulties of aligning home-country standards with host-country environments to ensure fair and cost-effective remuneration.
- Strategic challenges in expatriate compensation management.
- The impact of taxation, currency risks, and cost-of-living variations.
- Social security and pension plan alignment.
- Addressing the needs of expatriate families and spouses.
- Evaluation of compensation models such as the balance sheet and local going-rate systems.
Excerpt from the Book
The taxation issues
The taxation issues are very difficult to deal with and the tax situation of an expatriate can be very expensive. In fact if an UK employee is paid abroad (remains out at least on year) normally there will be a local tax liability in the country where the expatriate is doing his assignment. The problem here is that the tax liability varies greatly from one country to another. Torrington (1994, p. 53) gives a good example for such a problem: “In Belgium, for example, the maximum marginal rate is 70 per cent, reached at a salary level of approximately £ 70,000. In Italy it is 62 per cent, reached at £ 280,000, and in Hong Kong it is 16 per cent reached at £ 21,000.” Obviously, these are not actual data because they are from 1994, but they show how much the various tax systems vary in the different countries.
Another issue is the lack of clearance of the taxation systems, the constant changes of the systems and the difficulty of getting up-to-date information about the tax systems. Due to these facts it is very difficult for the expatriates to assess their net income level and the same problem can be applied for the company.
Chapter Summaries
Introduction: Provides a contextual overview of modern workplace changes and defines key terms like expatriates and compensation, establishing the complexity of international HR management.
Difficulties for multinational companies in utilising expatriates: Discusses the isomorphic pressures firms face when balancing home-country versus host-country practices during international assignments.
The taxation issues: Analyzes the complications of varying international tax systems and the impact these discrepancies have on an expatriate's net income.
The relationship between the salary level and the local salary/cost-of-living level: Examines strategies for maintaining salary levels during transfers and the use of 'cushions' or additive benefits.
Currency rate risks and differences in prosperity and spending power: Explores how fluctuations in exchange rates and disparities in local purchasing power influence compensation design.
Social security and pension issues: Highlights the risks of coverage gaps and the challenges of managing multi-jurisdictional social security contributions.
Spouse related and family issues: Focuses on the critical role of family support, including schooling and career assistance for spouses, in ensuring assignment success.
Conclusion: Summarizes the importance of adaptive compensation strategies for multinational success in an increasingly globalized and fast-changing environment.
Keywords
Expatriate, Compensation, International Human Resource Management, Multinational Corporations, Taxation, Currency Risk, Salary, Pension, Social Security, Cost of Living, Isomorphism, Spouse, Relocation, Remuneration, Global Mobility
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on the challenges multinational companies encounter when designing compensation policies for employees working abroad and explores how these organizations can address those specific issues.
What are the central thematic areas covered?
The core themes include international taxation, cost-of-living adjustments, currency risks, social security, pension portability, and the management of family-related concerns during international assignments.
What is the core research question?
The central goal is to illustrate the difficulties inherent in the expatriation process regarding compensation and to demonstrate how companies might effectively address these complex issues.
Which methodology is used to approach the topic?
The research is based on a review of management literature, including academic books, journal articles, and professional handouts, to synthesize existing challenges and common organizational practices.
What topics are discussed in the main body?
The main body details specific expatriation challenges such as varying tax rates, the pressure of isomorphic business practices, salary maintenance strategies, and the implementation of support systems for families.
How would you summarize the work using keywords?
The paper is best characterized by terms like Expatriate, Compensation, Global Mobility, International Human Resource Management, and Taxation.
Why is the 'balance sheet' approach significant?
The balance sheet approach is the most widely used method because its primary goal is to ensure that the expatriate maintains an equivalent net purchasing power in the host country as they had at home.
What is the impact of family issues on expatriate retention?
Family issues are a major factor in assignment failure; the text notes that a significant majority of candidates turn down assignments due to family concerns, making spouse and child support crucial.
How does isomorphism affect multinational firms?
Isomorphism represents the pressure firms face to conform to either local host-country norms or home-country standards, which complicates the standardization of global compensation policies.
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- Manfred Daberto (Autor:in), 2003, Selecting compensation as an element to illustrate the difficulties multinational companies face in utilising expatriates, München, GRIN Verlag, https://www.grin.com/document/85970
