SPHR Common International Compensation Approaches

Approach Description Advantages Disadvantages Negotiation Package mutually Generally requires Compensation discrepancies negotiated between minimal planning and between employees can lead employer and employee information to dissatisfaction Common when MNC first Precedents set can have long starts to send employees term consequences abroad or has very few expatriates Headquartersbased Expatriates standard of Simple to communicate, balance sheet living is comparable to easy to administer Often translates to high costs headquarters country Promotes perceptions of for the organization, Expatriates at same job equity among assignees especially with assignees from level are paid same of difference nationalities lowsalary countries regardless of their because it equalizes Can create difficulty in country of origin purchasing power repatriating expatriates to Employer pays lowsalary countries differential between May be unfair to assignees headquarters normal from countries in which costs and assignment expenditure patterns are costs significantly different than headquarters (especially income taxes) May lead to perceptions of inequity among assignees of different nationalities working Homecountry Employer pays Preserves the purchasing in the same host country based balance sheet differential between power of assignees at a Challenging to administer homecountry costs and fixed level because there can be many assignment costs Minimizes repatriation homecountry comparisons to challenges collect data on Accounts for differential Can be challenging to explain, impact of move among especially if adjustments are separate expenditure required during an categories assignment Allow increases and Inappropriate for assignees decreases in expenditure moving from high to low categories to balance out salary Pays expatriates basically All employees performing countries Rewards some assignees with same compensation as same job in same country higherthannecessary local nationals in are paid same Pure localization compensation equivalent positions Simple to communicate, Often ends up requiring easy to administer special supplements or Strong motivation for adjustments (e.g., for housing employees from low and transportation) for salary countries employees from highsalary countries

Source: SHRM Learning System

Approach Description Advantages Disadvantages Higherofhomeor Compares homecountry Simple May lead to perceptions of to communicate host country and true local or host Eliminates the among assignees inequity country approaches and disincentive to move working in the same host pays expatriate higher from highsalary country one countries Often requires special adjustments for employees from highsalary countries Employer pays employee Simple to communicate, Disincentive to repatriate lump sum (instead of easy to administer unless payments made at the Lumpsum time of repatriation allowances and Provides maximum differentials) flexibility for an assignee Decreases corporate control Expatriates may spend of expatriate expenditures; Offers tax advantages to lump sum as they see fit can be costlier than other assignees if paid at home approaches when they are from low May lead to the loss of certain tax countries tax advantages Employer offers several Simple to communicate, Standard options may be options that expatriate easy to administer inappropriate for some can choose from, subject Provides some degree of assignees or some countries Cafeteria to overall limit flexibility for an assignee Assignees may feel constrained by options Provides more corporate offered control of expatriate expenditures

Source: SHRM Learning System