Case2.

Conflicting Expectations: Where Pay and Performance Collide This short case is designed for use for small group discussion for classroom purposes, and as an examination case. It can be quickly read in class, though it is preferable if students have read it beforehand and given the issues some consideration. The case is best used with Chapter 6 Compensation. It aims to draw out expatriate perceptions and reactions to financial aspects of the international assignment, and the problems that arise when packages are compared to that of others, and this includes how other companies treat expatriate compensation. It also introduces career expectations arising from international experience and students can be referred back to the discussion of the psychological contract in Chapter 4. The inter-relationships between work and home and their impact on expatriate satisfaction and performance are also highlighted in the case. The fictitious company has limited international activities and can be seen as somewhat unsophisticated: policy-making on the run. Unlike other cases that deal with the issue of expatriate compensation packages, this one concerns a third country national (TCN). As an expatriate who had been in Pierres situation commented: TCN stands for Third Class National, as that is how we were regarded by head office. PCNs are always treated better when it comes to compensation. Suggested Answers to Case Questions 1. What information, other than comparative salary levels should the HR Director, Steve Hegworth, have specifically asked his assistant to collect prior to his meeting with Jessica Kellaway? How would you access this extra data? One of the aspects of compensation is importance of the base salary in determining the total package whether the going rate or balance sheet approach is adopted. Finding comparative data on salary levels between France, the United States and Australia is a step in the right direction, late though it is. However, Pierre has raised issues relating to various allowances Steve should have therefore looked at the cost of living index to see if Pierre is correct in his perception that there is a loss of purchasing power. This information can be accessed from the Internet through a simple Google search. The English newspaper, The Financial Times, is another source, where COLA details are published annually. The magazine The Economist, updates its famous Big Mac Indicator yearly to demonstrate currency relativities that can be a useful guide to what one can buy with a particular currency. Specialist consulting firms are another source of information related to expatriate compensation but SMEs (small and medium firms) may not have the resources to employ such services. The issue of a cost of living allowance (COLA) can then be addressed based on factual information relating to base salary differentials and exchange rates. Benchmarking against other firms of a similar size can be useful in determining what allowances should be provided on top of the COLA. The firm has already agreed to pay half of the education expenses but the issue of a second car also needs addressing. Should Steve have investigated what other firms of a similar size provide to their expatriates? Pierres point of reference is France, though he is becoming aware of the Australian situation. He has limited 1

understanding of U.S. practices. How can Steve find out what is the practice in Australia and France so that he is more informed? One avenue could be to contact an industry body or professional HR group and find out what other firms provide, whether U.S. or French-based. This will allow him to made a more informed recommendation to Jessica. 2. How would you recommend the company proceed in this case? This question requires students to resolve the situation between the company and Pierre. One suggestion is that Pierre be flown to the U.S. for a face-to-face meeting. Alternatively, either Jessica as head of the international division, or Steve as the HR Director, could fly out to Sydney. This would enable Headquarters staff to see the local operation and get a more realistic impression of what Pierre and his family face. Either way, the issues confronting these individuals are better sorted out in person than through electronic media such as email. The meeting should cover the specifics of the compensation package starting with the COLA and provision of a car. The situation is not beyond resolution in a mutually satisfactory (winwin) manner. For example, there could be a trade-off between the COLA amount (company) and a second car (Pierre). Performance is important to both parties so discussions should also deal with Pierres future. From the companys perspective, it is important that Pierre refocuses on the job given the strategic objectives that the company has for the Australian subsidiary. It is in Pierres interest to resolve the issue, if he is to move to a position with Headquarters. If a position for Pierre at Headquarters remains vague for the foreseeable future, it may be possible to consider transferring Pierre into the Canadian operation. Steve and Jessica may consider a swap between the person currently in charge of the Canadian operation and Pierre, as an interim measure. If this is not possible, Pierre should be encouraged to consider the need to develop local staff with a view to training his own replacement. 3. Should HiTech Systems develop expatriate compensation policies or continue to treat each expatriate case on an ad hoc basis? While the company is relatively small, it can feasibly continue to operate on an ad hoc basis. However, policies have a way of taking on a life of their own in the sense that Pierres treatment in a specific way in the Australian context establishes expectations that others should also receive similar packages. For example, if the person from Canada was to replace Pierre, he would expect a similar package to that provided to Pierre, and Pierre would assume that his package for the Canadian assignment would contain the same allowances as he now receives regardless of the base salary. Details about compensation packages are difficult to keep confidential, so it would be only a matter of time before Pierre and his Canadian counterpart compared notes. Equity of treatment becomes a force for standardisation, though most companies admit that the fact that individual expatriate situations vary (for example, number and age of accompanying children) will always mean that some modification or adjustment will be necessary. A challenge is for the IHR staff at Headquarters to be aware of what is being promised by subsidiary HR staff who assign staff to international assignments so that there is consistency on the major approaches to and composition of compensation for expatriates.

Another force for some standard policy on compensation will be the companys international growth and hence growth in expatriate numbers. The more expatriates are used, the greater the need for equity of treatment, so making concessions on an ad hoc basis now can raise expectations beyond what the company will be able to afford as the pool of expatriates grows. If not considered at this early stage, at some point the need for cost containment will force a scaling back of entitlements, and give rise to discontent. There is a need to strike a balance between what is fair and equitable and what is affordable now and longer term.