Lecture on Designing Compensation System

Designing Compensation Systems

by V S Rama Rao on November 28, 2010

For Expatriates:

Developing an equitable and functional compensation plan that combines balance consistent motivation and flexibility is extremely challenging in International operations. This is especially true when a company operates in a number of countries, when it has individuals who work in a number of countries or when the sales force is composed of expatriate and local personnel. Fringe benefits play major role in many countries. Those working in high tax countries prefer liberal expense accounts and fringe benefits that are nontaxable instead of direct income subject to high taxes. Fringe benefit costs are high in Europe, ranging for 35 to 60 percent of salary.

Pay can be a significant factor in making it difficult for a person to be repatriated. Often those returning home realize they have been making considerably more money with a lower cost of living in the overseas market; returning to the home country means a cut in pay and a cut in pay and a cut in standard of living.

Conglomerate operations that include domestic and foreign personnel cause the greatest problems in compensation planning. Expatriates tend to compare their compensation with what they would have received at the home office during the same time, and local personnel and expatriate personnel are likely to compare notes on salary. Although any differences in the compensation level may be easily and logically explained, the group receiving the lower amount almost always feels aggrieved and mistreated.

Short term assignments for expatriates further complicate the compensation issue, particularly when the short term assignments extend into a longer time. In general, short term assignments involve payments of overseas premiums (sometimes called separation allowances if the family does not go along), all excess expenses and allowances for tax differentials. Longer assignments can include home leave benefits or...