APPROACHES TO
INTERNATIONAL
COMPENSATION
Shamseer P
16382059

1. Going rate approach
2. Balance sheet approach
3. International citizen’s approach
4. Lump sum approach
APPROACHES TO INTERNATIONAL
COMPENSATION

The going rate approach is also known as
‘localization’, ‘destination’ or ‘host country based
approach’. The core of this approach lies in linking the
expatriate compensation to the salary structure of the
host country, taking into account local market and
compensation levels of local employees. The going rate
method aims to treat the expatriate employee as a
citizen of host country.
GOING RATE APPROACH

ADVANTAGES
o Equality with local
nationals
o Simplicity
o Identification with host
country
o Equity amongst deferent
nationalities
DISADVANTAGES
o Variation between
assignment for same
employee.
o Variation between
expatriates of same
nationality in deferent
countries
o Potential re-entry
problems

The balance sheet approach provides
international employees with a compensation package
that equalizes cost differences between the
international assignment and the same assignment in
the home country of the individual or the organization.
The balance sheet approach is based on some key
assumptions and is designed to protect expatriations
from cost differences between their home and host
countries.
BALANCE SHEET APPROACH

ADVANTAGES
o Equity between deferent
assignments and
between assignees of the
same nationality.
o Facilitates assignee re-
entry.
o Easy to communicate to
employees.
DISADVANTAGES
o Can lead to disparities
between assignees of the
deferent nationalities in
the same host country,
and between assignees
and local nationals.
o Administration can be
complex.

In this approach to expatriate compensation, an
international basket of goods is used for all expatriates,
regardless of country of origin. The basket of goods includes
food, clothing, housing. However, expatriates are not provided
salary adjustments that would allow them to purchase exactly
the same items in the host country as in the home country.
Rather, they receive adjustments that would allow them to
purchase a comparable local product of the same nature.
INTERNATIONAL CITIZEN’S
APPROACH

This involves giving expatriate a predetermined
salary and letting the individual decide about how to spend it.
Finally, there is the regional system, under which the MNC sets
a compensation system for all expatriates who are assigned to
a particular region.
LUMPSUM APPROACH