In this paper, the first part focuses on the importance of a compensation system and its objectives for multinational companies. In the further course of the paper, various compensation models are presented and examined for their strengths and weaknesses. In a further chapter, various principles for the design of a company's compensation policy are described. In the last point of this paper the author will give a conclusion.
National borders have become less important in recent years in many ways. Companies are organizing their economic activities increasingly away from national borders. Due to this development towards a global economy, large corporations as well as more and more medium-sized companies are forced to become active worldwide. During globalization, it has been clearly observed in recent decades that requirements for global compensation of employees are changing significantly.
Multinational companies increasingly must make changes in their compensation policies that initially do not match the culture and tradition of their country. A high degree of flexibility is necessary here in order to achieve positive development. Culture is a strong driver for the relationship between basic salary, variable compensation, benefits, and other fringe benefits. As a result of these developments, the tasks of personnel management in multinational companies are becoming more and more diverse and the adjustments to internationalization more and more important.
Among the tasks of personnel management, compensation is of importance. The regulations in the national context are very different from those at international level. In the absence of legal and collective agreement regulations, multinational companies must be able to comply with different country-specific regulations while establishing and maintaining a consistent, strategic pattern of compensation policies and practices. HR managers must have specialist knowledge that extends far beyond the national level.
Table of Contents
1. Introduction
2. Principles of work
2.1 International compensation
2.2 International compensation system and its objectives
3. Types of international compensation models
3.1 Home-Based-Approach
3.2 Host-Based-Approach
3.3 Balance-Sheet-Approach
4. Principles for the development of international compensation
5. Conclusion
Objectives and Topics
This paper explores the complex requirements for employee compensation within multinational companies in a globalized economy. It aims to analyze how organizations can establish consistent and strategic compensation policies that address cultural differences, cost factors, and the motivation of international staff.
- Analysis of the importance of international compensation systems
- Examination of various global compensation models and their specific characteristics
- Evaluation of strengths and weaknesses of home-based and host-based approaches
- Principles for designing fair and cost-efficient international compensation packages
- Balancing corporate goals with the needs of expatriate employees
Excerpt from the Book
3.1 Home-Based-Approach
In practice, the most widespread compensation approach is the home-based approach, which is used by most companies. The home-based approach is characterized by an ethnocentric basic attitude, i.e. remuneration policy is largely determined by the home country. Specifications are developed and set by the parent company. The company orients its remuneration to the home country. For example, the basic salary of an employee who is sent abroad corresponds to the salary of an employee in a comparable position in the home country.14 The salary is developed on the basis of the salary in the home country by creating a so-called net comparative calculation, i.e. a balance sheet. In practice, this means that regardless of whether the employee is posted to a country whose salary level is lower or higher than the salary level in the home country, he is paid on the basis of his salary in the home country in such a way that his purchasing power is maintained.15 The approach is designed to protect expatriates from cost differences between home and host countries. There may be additional allowances for higher costs of living. The allowance is intended to enable the expatriate to consume the same goods and services as in the home country. Location supplements are also possible to compensate the employee for any adjustments to other standards of living. However, the supplements always depend on the country to which the employee is posted and the distance to the home country. For example, if an employee is sent from Stuttgart to Milan, a bonus is not necessary in this case because the cost of living is similar. However, if the employee is sent from a European country to Asia or South America, bonuses are common.16 The home-based approach is particularly suitable for assignments of senior managers who demand an appropriate and attractive salary based on their experience. The advantage for the expatriate is that he/she can maintain the salary that he/she would receive for his/her work and area of responsibility in the home country, including salary increases.17 The advantage of the home-based approach is that the employee is paid the same salary regardless of where he or she works. This means that the employee has no financial disadvantages from working abroad and can maintain his or her standard of living.
Summary of Chapters
1. Introduction: Outlines the shift towards a global economy and the resulting necessity for flexible, strategic compensation policies in multinational companies.
2. Principles of work: Discusses the challenges of remunerating employees in different countries, focusing on the need for systematic approaches to international assignments.
3. Types of international compensation models: Presents and evaluates the home-based, host-based, and balance-sheet approaches regarding their effectiveness and structure.
4. Principles for the development of international compensation: Details core guidelines for determining appropriate allowances, focusing on purchasing power parity and cost optimization.
5. Conclusion: Summarizes that there is no universal model and emphasizes the importance of coordinating compensation with broader HR strategies.
Keywords
Multinational companies, International compensation, Expatriate, Home-Based-Approach, Host-Based-Approach, Balance-Sheet-Approach, Global economy, HR management, Salary determination, Purchasing power, Fringe benefits, Remuneration policy, International assignment, Cost optimization, Personnel management
Frequently Asked Questions
What is the core focus of this work?
The paper focuses on the challenges and strategies of designing compensation systems for employees working in multinational companies, specifically addressing the transition to a global workforce.
What are the central thematic fields covered?
The central fields include international human resource management, the specific design of expatriate compensation, and the comparison of different remuneration models.
What is the primary goal of this research?
The primary goal is to examine various compensation models, identifying their strengths and weaknesses to help multinational companies develop fair and effective remuneration policies.
Which scientific methodology is applied?
The author applies a descriptive and analytical literature-based methodology, synthesizing existing theories and practical approaches in the field of international HR.
What is covered in the main part of the paper?
The main part analyzes the principles of international compensation, details the three major models (home-based, host-based, and balance-sheet), and provides principles for future development.
Which keywords best characterize the work?
Key terms include international compensation, expatriates, remuneration models, and global human resource management.
How does the home-based approach differ from the host-based approach?
The home-based approach maintains salary levels linked to the home country to protect purchasing power, whereas the host-based approach aligns salaries with local market benchmarks in the country of assignment.
Why is the balance-sheet approach frequently used?
It is used as a compromise that aims to ensure an expatriate neither gains nor loses financial status, balancing purchasing power between the domestic and foreign locations.
What role does the corporate culture play in compensation?
The author notes that corporate culture and HR policy dictate whether a company chooses to adopt specific principles, such as offering hardship bonuses for difficult working conditions.
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- Francesca Müller (Autor:in), 2020, Compensation in Multinational Companies. Models and Objectives, München, GRIN Verlag, https://www.grin.com/document/900193
