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Approaches to international compensation

  2. 1. Going rate approach 2. Balance sheet approach 3. International citizen’s approach 4. Lump sum approach APPROACHES TO INTERNATIONAL COMPENSATION
  3. 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
  4. 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
  5. 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
  6. 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.
  7. 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
  8. 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