LEGAL AND ADMINISTRATIVE ISSUES

IN COMPENSATION

GLOBAL COMPENSATION
Government: Part of the Employment Relationship
• Government is a key stakeholder in compensation decision
making
• Governments’ usual interests are whether
• Procedures for determining pay are fair (pay discrimination)
• Safety nets for the unemployed and disadvantaged are sufficient
(minimum wage, unemployment insurance)
• Employees are protected from exploitation (overtime pay, child labor)
 Fair Labor Standards Act (1938)
Three Major Provisions
• Minimum wage
• Hours of work
• Overtime pay
• Employee status
• Child labor
 Child Labor Provisions

• Restricts hours and conditions of employment for minors

• Persons under 18 cannot work in hazardous jobs
• Persons under 16 cannot be
employed in jobs involving
interstate commerce
 Prevailing Wage Laws

• Prevailing-wage laws prevent contractors from using their size to

drive down wages
• Contractors must determine the “going rate”
• Normally the “union rate” for labor becomes the going rate
• That rate then becomes the mandated minimum wage on the government-
financed project
 Pay Discrimination: What Is It?
• Law recognizes two types of discrimination
• Access discrimination – denies particular jobs, promotions, or training
opportunities to qualified women or minorities
• Valuation discrimination – looks at pay women and men receive for the
jobs they perform
• Equal pay for equal work. It is discriminatory to pay minorities
or women less than males when performing equal work
 Equal Pay Act (1963)
• Prohibits wage discrimination on the basis of gender when

• Employees perform work in the same

establishment, or
• Employees perform jobs requiring equal skill,
effort, and responsibility under similar working
conditions
 Equal Pay Act (1963) (cont.)
• Differences in pay between men and women doing equal work
are legal if based on an affirmative defense
• Seniority
• Merit or quality of performance
• Quality or quantity of production
• Some factor other than gender
What Is Comparable Worth?

If jobs require comparable skill, effort,

and responsibility, the pay must be
comparable, no matter how dissimilar
the job content may be.
 Comparable Worth
• Steps to establishing a comparable worth plan:
• Adopt a single job evaluation plan for all jobs within a unit
• All jobs with equal job evaluation results should be paid the same
• Identify general representation (percentage male and female employees)
in each job group
• Wage-to-job evaluation point ratio should be based on the wages paid for
male-dominated jobs since they are presumed to be free of pay
discrimination
 Recognizing variations

• Understanding international
compensation begins with recognizing
variations (differences and similarities)
and figuring out how best to manage
them.
 Managing Variations

• How people get paid around the world depends on differences

(and similarities) in the following general factors
• Economic
• Organizational
• Employee
Variation in International Pay Practices

• Social contracts
• Cultures
• Trade unions
• Ownership and financial markets
 The Social Contract
• Viewed as part of the social contract
• Employment relationship is more than an exchange between an individual
and an employer
• It includes
• The government
• All enterprise owners
• All employees
• Relationships and expectations of these parties form the social
contract
 Culture

• Shared mental programming rooted in values, beliefs, and

assumptions shared in common by a group of people
• Provides some information about what kinds of pay attitudes and
beliefs you are likely to find in an area.
 Comparing Costs
• Factors affecting wage comparisons

• Standard of living
costs

• Purchasing power

• Working time required

 Strategic Market Mind-Set
Localizer: “Think Global, Act Local”
• Designs pay systems to be consistent with local
conditions
• Business strategy is to seek competitive
advantage by providing products and services
tailored to local customers
• Operate independently of corporate headquarters
Strategic Market Mind-Set (cont.)
Exporter: “Headquarters Knows Best”
• Basic total pay system designed at headquarters
and is “exported” world-wide for implementation
at all locations
• Exporting a basic system makes it easier to move
managers and professionals among locations
 Types of Expatriates
• Expatriates - Individuals whose citizenship is that of employer’s base
country
• Third country nationals (TCNs) - Individuals whose citizenship is
neither employer’s base country nor location of subsidiary
• Local country nationals (LCNs) - Individuals who are citizens of
country in which subsidiary is located
 Balance Sheet Approach
• Premise – Employees on overseas assignments
should have same spending power as they would in
their home country
• Home country is standard for all payments
• Objectives
• Ensure cost effective mobility of people to global assignments
• Ensure expatriates must nor lose financiall.
 21

Sources of Human Resources

MNCs can use four basic sources for filling overseas positions:
Home-country
Home-country Nationals
Nationals  Expatriate managers who are citizens
(Expatriates)
(Expatriates) of the country where the multinational
corporation is headquartered
 Sometimes called headquarters
nationals
 Most common reason for using home-
country nationals, or expatriates, is to
get the overseas operation under way
 22

Sources of Human Resources

MNCs can use four basic sources for filling overseas positions:
Home-country
Home-country Nationals
Nationals  Local managers hired by the MNC
(Expatriates)
(Expatriates)  They are familiar with the culture
 They know the language
Host-country
Host-country Nationals
Nationals
 They are less expensive than home-
country personnel
 Hiring them is good public relations
 23

Sources of Human Resources

MNCs can use four basic sources for filling overseas positions:
Home-country
Home-country Nationals
Nationals  Managers who are citizens of
(Expatriates)
(Expatriates) countries other than the country in
which the MNC is headquartered or
Host-country the one in which the managers are
Host-country Nationals
Nationals
assigned to work by the MNC
 These people have the necessary
Third-country
Third-country Nationals
Nationals expertise for the job
 24

Sources of Human Resources

MNCs can use four basic sources for filling overseas positions:
 Individuals from a host country or a
Home-country
Home-country Nationals
Nationals
(Expatriates) third-country national who are
(Expatriates)
assigned to work in the home country
 The use of inpatriates recognizes the
Host-country
Host-country Nationals
Nationals need for diversity at the home office
 Use of inpats helps MNCs better
Third-country
Third-country Nationals
Nationals develop their global core competencies
 MNCs can subcontract or outsource to
take advantage of lower human
Inpatriates
Inpatriates resource costs and increase flexibility
 25

Selection Criteria for International Assignments

General Criteria

 Many criteria are used in selecting managers for overseas

assignments including:
 Adaptability  Education
 Independence  Knowledge of local language
 Self-reliance  Motivation
 Physical & emotional health  Support of spouse & children
 Age  Leadership
 Experience
 26

Common Elements of
Compensation Packages
 Compensating expatriates can be difficult because
there are many variables to consider
 Most compensation packages are designed around
four common elements:

Allowances Taxes

COMPENSATION PACKAGE

Base Salary Benefits

 27

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 affect 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?
 28

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 etc
 Incentives
 A growing number of firms have replaced the ongoing premium for overseas assignments
with a one-time, lump-sum premium
 29

Common Elements of
Compensation Packages

Taxes
 30

Repatriation of Expatriates
 Reasons for returning to home country
 Most expatriates return home from overseas assignments when their formally agreed-on
tour of duty is over
 Some want their children educated in a home-country school
 Some are not happy in their overseas assignment
 Some return because they failed to do a good job
 Readjustment problems
 “Out of sight, out of mind” syndrome

 Organizational changes
 Technological advances
 Adjusting to the new job back home
 31

Repatriation of Expatriates
 Transition strategies
 Repatriation Agreements
 Firm agrees with individual how long she or he will be posted overseas and
promises to give the individual, on return, a job that is mutually acceptable
 Some of the main problems of repatriation include:
 Adjusting to life back home
 Facing a financial package that is not as good as that overseas
 Not receiving any career counseling from the company
 32

Tailoring the
Compensation Packages
 Balance-sheet approach
 Ensure the expatriate does not lose money from the assignment
 Complementary approach
 Negotiate to work out an acceptable standard arrangement
 Localization
 Pay the expatriate a salary comparable to local nationals
 Lump sum method
 give expatriate a lump sum of money
 Cafeteria approach
 Compensation package that gives the individual a series of options
 Regional system
 Set a compensation system for all expatriates who are assigned to a particular region
 33

Training in International Management

Four basic philosophic positions

Ethnocentric  Stresses nationalism and often
Ethnocentric MNC
MNC
puts home-office people in
charge of key international
management positions
 34

Training in International Management

Four basic philosophic positions

Ethnocentric  Places local nationals in key
Ethnocentric MNC
MNC
positions and allows these
managers to appoint and develop
Polycentric
Polycentric MNC
MNC their own people
 35

Training in International Management

Four basic philosophic positions

Ethnocentric  Relies on local managers from a
Ethnocentric MNC
MNC
particular geographic region to
handle operations in and around
Polycentric
Polycentric MNC
MNC that area

Regiocentric
Regiocentric MNC
MNC
 36

Training in International Management

Four basic philosophic positions

 MNC’s hire the most suitable
Ethnocentric
Ethnocentric MNC
MNC
profiles for the job irrespective of
their nationality.
Polycentric
Polycentric MNC
MNC

Regiocentric
Regiocentric MNC
MNC

Geocentric
Geocentric MNC
MNC