International Compensation

[Soumaly]

Some of us may have had the opportunities to work outside of our border in different parts of the world whether for the U.S. government or private enterprises myself included. However, during our time of working overseas we tend to get bigger, fatter and better pay check along with the PERKS that come along with our assignments even though we did the same job as we did back home in the United States. I remembered my times very well when I spent time working overseas; I really enjoy getting fatter pay checks along with the perks. At the time, I really don’t know the reason behind it. I now tend to know and understand after having an opportunity to do a research in “International Compensation” to present to my “adult basic literacy class.” In reality whether you work overseas either for the U.S. government or private enterprises there are systems of compensation by these entities. However, for this discussion, I am going to share with you only the international compensation systems of private enterprises.
For the U.S private companies, there are three methods for setting base pay for its employees who are assigned to work overseas: Home country-based, Host country-based and Headquarters-based pay method.
Home country-based pay means that the employees remain on home country payroll for compensation of receiving pay while performing work through either the home or host country payroll. In other words, home country-based pay “compensates expatriates the amount they would receive if they were performing similar work in the United States” (Martocchio, 20011, p. 342). Meanwhile, headquarters-based pay compensates all employees based on the pay scales used at the company headquarters while host country based- pay model compensates its employees based on the pay scales expatriates’ country of assignment.
These three methods of international pay systems have their own strengths and weaknesses. For home country based-pay, it is suitable in compensate employees in shorter assignment usually less than one year therefore expatriates equity problems are not very likely to arise. For this reason, health care, Social Security, pension and other benefits in the home country should be continuing. However, the home country based-pay also has its own disadvantages due to the fact that this pay model is not easily administered to the individual employee and there is a difference in pay with certain circumstances employees can end up losing money when employees assign to a high cost host country. Meanwhile, headquarters based-pay method is having advantages for employees who move from one foreign assignment to another; it is the simplest method to use and easy to administer “because it applies the pay standard of one country to all employees regardless of the location of their foreign assignment or their country of citizenship” (Martocchio, 20011, p. 342). Nevertheless, the method of headquarters based- pay also cannot avoid its own weaknesses especially when sending expatriate to an assignment at lower salary countries, companies will then experience increased high costs and it can cause difficulty for companies to recruit and retain high quality employees from other higher salary paying countries. On the other hand, host country based-pay method is the best method to use in compensating expatriates when employees are given a longer assignment, it also promotes equity and helps strengthening relationships with host countries’ citizens, but this pay method can also cause disadvantages in pay for employees if the expatriates are assigned to a country that have lower standard of living. For these reasons, to offset the disadvantages that employees may encounter, the U.S. companies also provide employees who are assigned overseas with additional benefits such as Foreign Service premiums or supplement income to allow their employees to be able to have standards of living similar or the same as they were working and living in the United States. The supplemental benefit is known as “the balance sheet approach” which provides supplement benefits to employees who assigned to high cost assignment such as London, Tokyo or Moscow…etc with assistance and allowances whenever the cost in the assign countries exceeds the costs in the United States. These costs are housing and utilities, children’s cost of education, good and services, discretionary income and taxes. In other words, the balance sheet approach can protect expatriates’ standards of living and enables U.S. companies to control cost because it relies on objective indexes that measure cost differences between the U.S and the host countries where employees assign. In addition, the objective of the balance sheet approach is to ensure that “the expatriate maintains a similar standard of living (i.e. is “kept whole”) as in the home country and to ensure employee mobility by providing some financial incentives to accept the global assignment” (Ivancevich, 2010, p.106).
Even though, the U.S. Companies have very good compensation systems for its employees assign overseas. Some like it another doesn’t; this is due to the fact that the people who like it they tend to be able to adapt to the foreign living arrangement with ease while others are not. Another reason, people don’t like foreign assignment is because many people think that being away from the headquarters office will give disadvantages in careers advancement and promotion. However, experts cannot agree on this latest disadvantages as stated by John Pepper, former chairman of Procter and Gamble, who said that “international assignments were one of the most powerful development experiences in shaping him as an effective global leader” (Ivancevich, 2010, p.106).
If I don’t bore you yet with this subject of “international compensation” with my conservative low IQ since this is just a subject for adult basic literacy class only, please share your thoughts. Thank you.

Love and kisses
Soumaly

[felic...@gmail.com]

Thanks for sharing your perspectives and real world scenarios.