International Human Resource Management Performance Management

Performance management
A process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets

Components of Performance Management

Constraints in goal attainment

Whole versus part. Non-comparable data. Volatility of the global environment. Separation by time and distance. Variable levels of maturity.

Variables Affecting Expatriate Performance

Tasks
The task: Chief executive officer Structure reproducer Troubleshooter Operative Task variables are generally considered more under the control of the multinational than environmental factors.

Roles
A role is the organized set of behaviors assigned to a particular position. Effective role behavior is an interaction between the concept of the role, the interpretation of expectations, the persons ambitions, and the norms inherent in the role. The difficulty for the expatriate manager is that the role may be defined in one country, but performed in another.

Headquarters Support
The support of headquarters is important both to the individual expatriate and accompanying family members as a performance variable

IBUS 618 Dr. Yang

The Host Environment

The external context can be a major determinant of expatriate performance Differing demands in terms of the context:
Societal Legal Economic Technical Physical Type of operation involved (e.g. IJV versus whollyowned subsidiary)

Contextual Model of Expatriate Performance Management

Expatriate Performance Appraisal

Goals can be used as the basis for performance criteria:

Hard Goals objective, quantifiable and measurable (e.g.: ROI, market share) Soft Goals relationship or trait-based (e.g.: leadership style, interpersonal skills) Contextual Goals Factors that result from the situation or environment in which an expatriate performs (e.g.: host country regulations and restrictions)

Often, organizations use only hard goals to assess their expatriates. Things like behaviour of the expatriates and ways of obtaining results (bribery?) must also be considered

Factors Affecting Appraisal

Who conducts the performance appraisal Use of standardized or customized appraisal form Frequency of appraisal Performance feedback Timely Geographical distance affects

Conducting of performance appraisal

Subsidiary managers tend to assess according to subsidiary performance. Appraisal for other employees is likely to be conducted by subsidiary's chief. Multiple raters are sometimes used in the domestic context. Virtual assignment situation.

Appraisal of HCNs
The practice itself confronts the issue of cultural applicability. May be necessary to use local staff and a customized form. Level of position involved is an important consideration.

HCN ROLE CONCEPTION :

Parent company Communicates role conception

Cultural boundary USE HOST COUNTRY NATIONALS TO ASSISTS IN DEVISING A SUITABLE SYSTEM

HC Stakeholders Role senders

HCN manager Role recipient

HCN managers role behavior

Important Issues in IHRM

There are several important issues in IHRM which are: organizations which are operating at the international level must face. These include, for example: Attitudes of Employees and Work Ethics Recruitment & Selection Policy Compensation Policy Training and Development Policy Ethical Issues (e.g. bribery and corruption) & Corporate Social Responsibility Dealing with the host countrys Bureaucracy and Government Host countrys Legal Framework (relating to Labour etc.)

Ownership Issues

Small and medium-sized firms (SMEs) International activities place stress on limited resources especially staff Key individuals often represent the SMEs stock of international competence Retaining key staff critical Converting tacit knowledge into organizational knowledge a challenge

Family-owned Firms
Not just a sub-set of SMEs Management succession presents special HR planning concerns The globalization of family-owned firms has been a remote topic in international business studies

Non-Government Organizations
As active internationally as for-profit firms, yet receive less attention, e.g. Red Cross Greenpeace groups These organizations share similar management and HR concerns Often operate in high risk areas of the globe Anti-globalization rallies and protest Global terrorism Broadening our focus of IHRM is important

Research Issues

The field of IHRM has been slow to develop a rigorous body of theory Regarded as a marginal area International studies are more expensive to fund Major methodological problems Defining culture and the emic-etic distinction Static group comparisons Translation and stimulus equivalence

Theoretical Developments
Possible to identify two streams of inquiry The micro-level The macro level Low response to surveys may be a factor of Culture Language used Lack of use of teams of researchers

Compensation

Introduction

Global compensation managers deal with two areas of focus

They must manage highly complex and turbulent local details, and Build and maintain a unified strategic pattern of compensation policies, practices and values.

Employment and taxation law, Customs, Environment, etc of various countries.

Objectives of international compensation

1.Policy should be consistent with the overall strategy, structure and business needs of the MNC 2.Policy must work to retain and attract staff 3.Policy should facilitate the transfer of international employees in the most cost effective manner for the firm 4.Policy should give due consideration to equity and ease of administration. 5. Arrange reasonable compensation, in various locations, in relations to the practices of leading affiliates.

Factors influencing Comp. policy

1. Internal Business factors - Organization/ business specific. - Lobor shortage/surplus influences pay rates. - Orgn cost strategy: (Cost effective pay cut) and performance based culture Performance based pay. 2. Purchasing power and Prosperity. Level of Influences salary & wages. Prosperous country pays higher wages. With High living cost lower purchasing power. 3. Social Factors. -

Key components of an international compensation program

1. Base salary 2. Foreign service inducement/hardship premium 3. Allowances 4. Benefits

1. BASE SALARY
It is a primary component of a package of allowance Basis for in-service benefits and pension contributions Payable in home or local country currency Major difference can occur in the package depending upon whether salary is linked to home country or international rate is paid

2. Foreign service inducement/hardship premium

PCNs often receive this salary The definition of hardship, eligibility, amount and timing has to be addressed. Usually as a percentage of salary (5-40% of base pay)

3. Allowances

Cost-of-living-allowance
Differences in expenditures between the home country and the foreign country

Housing allowance
Employees should be entitled to maintain their home country living standards Company provided housing Fixed housing allowance

Home leave allowance

Employers cover one or more trips back to the home country Renew family ties

Education allowance
Tuition, language class tuition, enrolment fees, books, uniform

Relocation allowance
Moving, shipping and storage charges, temporary living expenses

Spouse assistance
Guard against income lost by an expatriate s spouse as a result of relocation. Providing spouses with employment

4. Benefits
Transportability of pension plans, medical coverage and social security benefits are very difficult to normalize. Therefore many issues have to be addressed

Whether or not to maintain expatriates in homecountry programs particularly if the firm does not receive a tax deduction Whether firms have the option of enrolling expatriates in host-country benefits programs and/or making up any difference in coverage Whether expatriates should receive home-country or host-country social security benefits

Types of benefits
Vacation and special leave Airfares Rest and rehabilitation leave Emergency provisions (death or illness) Additional leave expense payments (hardship location)

Approaches to international compensation

1. Going

rate approach sheet approach

2. Balance

Going rate approach

Based on local market rates Relies on survey comparison among:

local nationals (HCNs) Expatriates of same nationality Expatriates of all nationalities

Compensation based on the selected survey comparison Base pay and benefits may be supplemented by additional payments for low-pay countries

Advantages and disadvantages of the Going Rate Approach

Advantages

Disadvantages
Variation

Equality with local nationals Simplicity Identification with host country Equality amongst different nationalities

between assignments for same employee Variation between expatriates of same nationality in different countries Potential re-entry problems

The Balance Sheet Approach

Basic objective is maintenance of homecountry living standard plus financial inducement Home-country pay and benefits are the foundations of this approach Adjustments to home package to balance additional expenditure in host country Financial incentives added to make the package attractive Most common system in usage by multinational firms

Advantages and disadvantages of the Balance Sheet Approach

Advantages

Disadvantages

Equity Between assignments

Between expatriates of the same nationality

Can result in great disparities

Between expatriates of different nationalities Between expatriates and local nationals

Facilities expatriate re-entry Easy to communicate to employees

Can be complex to administer

Compensation

Two issues: How to adjust compensation to reflect national differences in economic circumstances and compensation practices. How expatriate managers should be paid.

Compensation Issues

Common Elements of Compensation Packages

Most compensation packages are designed around four common elements:

Allowances
COMPENSATION

Taxes
PACKAGE

Base Salary

Benefits

In addition to a base salary, compensation includes:

House rent allowance (HRA*). Medical allowance. Dearness allowance (DA*). Leave travel allowance (LTA*). Commuter allowance.

Common Elements of Compensation Packages

Base salary
Amount of money that an expatriate normally receives in the home country

Benefits
Should host-country legislation regarding termination of employment affects employee benefits entitlements? Is the home or host country responsible for the expatriates social security benefits? Should benefits be subject to the requirements of the home or host country? Which country should pay for the benefits? Should other benefits be used to offset any shortfall in coverage? Should home-country benefits programs be available to local nationals?

Common Elements of Compensation Packages

Allowances
Cost-of-Living Allowance
Payment for differences between the home country and the overseas assignment. Designed to provide the expatriate the same standard of living enjoyed in the home country

May cover a variety of expenses, including relocation, housing, education and hardship Incentives
A growing number of firms have replaced the ongoing premium for overseas assignments with a one-time, lump-sum premium

Common Elements of Compensation Packages

Taxes
Tax equalization An expatriate may have two tax bills for the same pay
Host country U.S. Internal Revenue Service

MNCs usually pay the extra tax burden

The "Expat Package" Hardship bonus (often between 10% - 30% of base income) Executive housing for the family (including utility costs) Automobile including fuel and maintenance (often with a driver) International private schooling for children Round-trip airfare to the home country for entire family (at least once per year) Executive relocation for the entire family (before and after the posting) Sale or safeguarding of original family home Tax equalization with the home country Financial planning advice Executive healthcare coverage for family

Social security systems

Social Security is a federal program that

taxes workers to provide income support for the elderly. It is the single largest income source of the elderly Social Security is also the largest social insurance program in the U.S.
By making payroll tax payments to Social Security, workers purchase insurance against earnings loss when they die or retire.

WHAT IS SOCIAL SECURITY

Social Security began in 1935, during the height of the Great Depression. The main motivation was to provide a means of support for this unfortunate generation of elderly. Basic structure is that workers (and employers) pay a payroll tax, and the money is used to pay benefits to the current generation of elderly.

Origins of Social Security

Social Security is a system by which living wages are paid to those who are retired. It is designed to enable the elderly and disabled to retire, but to still earn monthly incomes. In 1898, Chile was one of the first American Nations to implement a Social Security program. The United States did not adopt Social Security until 1935.

Social Security and the Military Coup

The new military government eliminated the traditional pay-as-you-go (PAYG) system.
This system was similar to the system still used by the United States, involving mandatory tax based contributions.

Laid the groundwork for the current privatized social security system, which involves mandatory contributions, with fixed exceptions.

Pay-as-you-go

The government takes a percent of workers monthly salaries and deposits it into a general social security fund.
This fund directly finances social security benefits paid to those currently retired.

A PAYG type system relies entirely on the willingness of younger generations to work.

How Many People Get Social Security?

47.7 million people receive Social Security each month 1 in 6 Americans get Social Security benefits Nearly 1 in 4 households get income from Social Security

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Who Gets Social Security?

30.0 million retired workers 4.8 million widows and widowers 6.2 million disabled workers 0.8 million adults disabled since childhood 3.1 million children

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Financing Social Security

Workers and their employers pay with Social Security taxes Workers pay
6.2% of their earning for Social Security, and 1.45% of their earnings for Hospital Insurance under Medicare (Part A)

Employers pay an equal amount The total is 12.4% for Social Security and 2.9% for HI Social Security tax base is $97,500 in 2007

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Worker Benefits

Workers over 62 are eligible

If they have worked 10 years

Benefits are based on a workers earnings history

Career-average earnings Average Indexed Monthly Earnings (AIME)

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Only 3 Ways to Fix Social Security

Raise Taxes Cut Benefits Increase Investment Returns

Private investment Either government or individual

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Options: Raise Taxes

OPTION % of Deficit Eliminated Increase tax rate by 2% 104% total Tax all earnings 93% Tax 90% of earnings 40% Include new state & local 10% govt. workers Tax SS benefits like 20% pensions

Options: Cut Benefits

OPTION Raise retirement age (to 67 faster & index) Reduce COLA by % each year Cut benefits by 5% for those starting to get benefits in 2005 Increase # years in wage avg. to 40 % of Deficit Eliminated 28% 41% 32%

21%

Options: Increase Investment Returns

OPTION Investments in equities

% of Deficit Eliminated 36% - 50%

Lower birth rates and increasing life expectancies mean fewer workers to support each Social Security recipient

1960: 5.1 to 1

Today: 3.4 to 1 Worker-to-Retiree Ratio

2030: 2.1 to 1

Table 2: Social Security System of Thailand/1

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Global compensation issues:

i. The drivers of workforce engagement and their role in global total reward strategies ii. The impact of shifts in labor markets on global remuneration data, planning, and pay structures iii. Redefining global equity practices and the impact of behavioral economics on workforce response iv. Complying with new global governance initiatives related to pay-for-performance programs and risk management