Compensation

Base Salary

Base salaries are the very foundation of international compensation. They are viewed as a minimum entitlement while the employee is working for a company and they are reduced very rarely. Base salary is also very important in the compensation arena because a plethora of other items such as target bonuses, 401(k) or pension contributions, and life insurance are based on the foundation of this critical item in compensation.

Base salaries are also frequently compared among employees. Because of this there must be internal equity that accurately reflects job responsibility and performance to make an international assignment worth an employee’s trouble. Just as critical, there must be external equity that is competitive and attracts and retains employees to work for the company versus going with a competitor.

There are two alternatives in determining the base salary for an expatriate. These include following established policies and procedures of the parent company’s country, including formal job evaluation, or adhering to the policies and practices of the country in which the expatriate works. When an international assignment is specified as short (3 to 5 years), it is usually wise to keep the base salary in line with the salaries in the home country. This will help to make an expatriate’s transition back to the U.S. less complicated since only minor salary changes may have to be made instead of major ones.

Some of the policies recommended by consulting firms specializing in international compensation management include:

• An international compensation management grading system that corresponds identically to a company’s domestic grading system.

• International salary ranges by country that allow a company to smoothly expatriate a manager overseas, or from country to country and back home again without disruption.

• Reliable external compensation market data on competitive pay levels for each major function as well as levels within each...