Introduction

The report stands for International pay systems. This topic was given to us by our honorable faculty Mr.
Abu Baker Siddique. We tried to focus our best work sincerely to cover all aspects regarding the matter.
International Pay Systems
Employee compensation varies in each (prenominal) countries and is built nearly their traditions and way
of life. Companies need to moderate that they render the differences in the countries to be able to successes
when expanding their business internationally
When it comes to international pay there are many areas that are able to be researched. Employee
compensation varies in all countries and is built around their traditions and way of life. Companies need to
ensure that they understand the differences in the countries to be able to be successful when expanding
their business internationally.
Organizations expanding their operations globally often send employees on temporary assignments to other
countries to form strategic alliances, market products and services, and start new ventures. A variety of
factors can impact the total cost of supporting international assignees and how their pay plans are designed
(culpepper.com). In order to be successful an organization needs to know and understand the country's
belief system and their social contracts. The organization must take both into consideration what
strategizing their move. A social contract is defined as a contract between persons in a pre-political or presocial condition specifying the terms upon which they are prepared to enter society or submit to political
authority
Companies are experimenting with variable pay and performance-based (rather than personality-based)
appraisal in their search for ways to improve productivity and control labor costs.

Managing variations: the global guide

Understanding international compensation begins with recognizing differences and similarities
And figuring out how best to manage them. How people get paid around the world
Depends on variations in the factors in the global guide depicted in. Four

General ones are listed: economic, institutional, organizational, and employee, with sub factors.
Globally. But once we shift from a domestic to an international perspective, additional
Factors become important, too. Institutional factors, such as cultural traditions and political
Structures, and economic factors, such as differences in ownership of enterprises and
The development of capital and labor markets, come into play. Further, social contracts
And the role of trade unions must be considered. An example using the global guide illustrates
Its usefulness.

Guide to international compensation

The social contract

Viewed as part of the social contract, the employment relationship is more than an exchange
Between an individual and an employer. It includes the government, all enterprise
Owners (sometimes acting individually and sometimes collectively through owner associations),

And all employees (sometimes acting individually and sometimes in trade

Unions). The relationships and expectations of these parties form the social contract. As
You think about how people get paid around the world, it will be clear that different people
In different countries hold differing beliefs about the role of government, employees,
Unions, and employers. Understanding how to manage employee compensation in any
Country requires an understanding of the social contract in that country.

Culture
Culture is defined as shared mental programming which is rooted in the values, beliefs,
And assumptions held in common by a group of people and which influences how information
Is processed. How critical is culture in managing international pay? Very important,
According to some. The assumption that pay systems must be designed to fit different
National cultures is based on the belief that most of a countrys inhabitants share a
National character. Therefore, the job of the global manager is to define the national characteristics
That influence pay systems.

Social contracts and pay setting

TRADE UNIONS AND EMPLOYEE INVOVEMENT

The role of trade unions has changed significantly over the past 30 years. Global competition, a growing
trend in outsourcing, legal constraints, and employer sponsored forms of employee participation have
combined in precipitating a significant fall in union membership and the coverage of collective bargaining.
The coming decade promises to be equally challenging for the trade union movement. How they respond to
the challenges and opportunities over the next few years will be crucial in determining their level of
influence at work and beyond in the future.
Continuous and pervasive company restructuring is a fact of life in today's economy. Its effects are also a
cause of increasing concern to trade unions and many public authorities - as evinced by recent European
Union initiatives aimed at improving the management of industrial change.
Organization whose membership consists of workers and union leaders, united to protect and promote their
common
The principal purposes of a labor union are to
(1) Negotiate wages and working condition terms,
(2) Regulate relations between workers (its members) and the employer,
(3) Take collective action to enforce the terms of collective bargaining,
(4) Raise new demands on behalf of its members, and
(5) Help settle their grievances. A trade union may be
(a) A company union that represents interests of only one company and may not have any connection with
other unions.
Trade union
Anti-union
with union
Anti-unionkeeps unions out of the company, representative needs are meet outside
With union.gains union co-operation draws on union advice
Trade union representatives in on developing employee involvement and participation arrangements and
procedures. In some cases, especially where trade union density is high. Their co-operation, support and
advice is likely to be an important factor in establishing employee involvement methods.
Companies that were trying to move away from a traditional reactive role for trade unions, to one where
representatives were actively involved in the development of business plans and strategy. Trade unions
were recognized in at least part of all the companies involved in this study and were seen as integral to the
involvement and consultation processes. The trade unions at these organizations felt neither marginalized

by the employee involvement initiatives, nor compromised in their roles as employee representatives by
partnership working. Employee involvement was seen to confirm and strengthen the role of trade unions
within the organization.

Ownership and Financial markets

The prevailing theory of the firm demonstrates that ownership by dispensable, outside parties is inefficient
relative to ownership by productive agents. To better understand observed patterns of ownership, I analyze
markets for ownership, demonstrating that outside parties will often become asset owners. Outside parties
earn rents only from ownership, whereas productive agents can earn rents even as no owners. Given that
their contribution is complementary with other productive agents, this mutes their willingness to pay for
ownership relative to outsiders. The main conclusion is that the nature of ownership markets stands
alongside incentives as an important predictor of firm boundaries
Definition
The ultimate and exclusive right conferred by a lawful claim or title, and subject to certain restrictions to
enjoy, occupy, possess, rent, sell, use, give away, or even destroy an item of property.
Ownership may be corporeal (title to a tangible object such as a house) or incorporeal (title to an intangible
object, such as a copyright, or a right to recover debt). Possession (as in tenancy) does not necessarily mean
ownership because it does not automatically transfer title
A financial market is a broad term describing any marketplace where buyers and sellers participate in the
trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined
by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining
the prices of securities that trade.
Financial markets can be found in nearly every nation in the world. Some are very small, with only a few
participants, while others - like the New York Stock Exchange (NYSE) and the forex markets - trade
trillions of dollars daily.
Investors have access to a large number of financial markets and exchanges representing a vast array of
financial products. Some of these markets have always been open to private investors; others remained the
exclusive domain of major international banks and financial professionals until the very end of the
twentieth century.

Managerial Autonomy
Autonomy in management basically means allowing a great deal of freedom to make choices in the
workplace. A manager who grants an employee autonomy generally outlines the goal of a project but
allows the employee to decide the best way to achieve that goal. This manager has the same level of

interest in the outcome of the project as a manager who is more involved, but he or she simply chooses to
let the employees work more independently.
Managers tend to have increased autonomy in organizations that are more decentralized. In such
organizations, managers have more latitude to make decisions regarding the work of employees and even
personnel decisions. For example, managers with increased autonomy may be able to assign merit raises to
the employees in their unit at their discretion. As with employee autonomy, this freedom can result in
feelings of motivation and satisfaction for the manager, who may be in a better position to reward and
motivate employees. However, as with employee autonomy, managers who have autonomy may not be
equipped to handle it. If managers make poor decisions, this may be harmful to employees and the
organization as a whole. Using the example of autonomy in deciding pay raises, a manager may give merit
pay increases that are significantly higher than those in other work units, which may cause problems across
the organization.
It is the degree of discretion managers have to make total compensation a strategic tool
It is inversely related to the degree of centralization and regulatory intensity

Comparing Costs
Comparing cost is a cost that differ from competitors in the worlds. In compensation system thats are
obtaining the accurate information of what competitors are pay in the domestic and world market. The
Similar comparison of the compensation system among nations can be very misleading of wages rate to
appear the same rate, expense for health care, living cost and other employer provided allowances on the
organization pay system.
Factors affecting wage comparisons
Labor costs and working time required
Standard living of Costs and purchasing power

Cost of Living
Because of inflation, compensation rates have had to be adjusted upward periodically to help employees
maintain their purchasing power. This can be achieved through escalator clauses found in various labor
agreements. These clauses provide for quarterly cost-of-living adjustments (COLA) in wages based on
changes in the consumer price index (CPI). The CPI is a measure of the average change in prices over
time in a fixed market basket of goods and services.
The CPI is largely used to set wages. The index is based on prices of food, clothing, shelter, and fuels;
transportation fares; charges for medical services; and prices of other goods and services that people buy
for day-to-day living. The Bureau of Labor Statistics collects price information on a monthly basis and calculates the CPI for the nation as a whole and various U.S. city averages. Separate indexes are also
published by size of city and by region of the country. Employers in a number of communities monitor
changes in the CPI as a basis for compensation decisions.

Comparing System
In Comparing System the pay systems are differ around the globe and that the difference relate to
variations in economic pressure, sociopolitical institutions and the diversity of the organization and
employees. In this system thats are compare several compensation system. This cause about stereo typing
raised earlier applied here as a well. Thats are also in nations are described by some as homogeneous, and
pay systems are differ from business to business.
So, this are typically changes are national systems, remember that difference exist and that changes in these
system is occurring everywhere.

Factor Comparison System

The factor comparison system, like the point system, permits the job evaluation process to be
accomplished on a factor-by-factor basis. It differs from the point system, however, in that the compensable
factors of the jobs to be evaluated are compared against the compensable factors of key jobs within the
organization that serve as the job evaluation scale. Thus, instead of beginning with an established point
scale, the factor comparison system requires a scale to be developed as part of the job evaluation process.

Developing a Factor Comparison Scale

There are four basic steps in developing and using a factor comparison scale: (1) selecting and ranking
key jobs, (2) allocating wage rates for key jobs across compensable factors, (3) setting up the factor
comparison scale, and (4) evaluating non key jobs.
Using the Factor Comparison Scale
The evaluated worth of the jobs added to the scale is computed by adding up the money values for each
factor as determined by where the job
National systems: comparative mind-set
A national system mind-set assumes that most employers in a country adopt similar pay
Practices. Understanding and managing international compensation then consists mainly
Of comparing the Japanese to the German to the US or other national systems.35 this
Method may be useful in nations with centralized approaches (see exhibit 16.4) or where
Homogeneous economic and cultural conditions exist (e.g., Sweden). Some even apply it to regional
systems, as in the European way, the Asian way, or the north American
Way.36 we describe the Japanese and German national systems below.
Japanese national system
Traditionally, Japans employment relationships were supported by three pillars:

1. Lifetime security within the company.

2. Seniority-based pay and promotion systems.
3. Enterprise unions (decentralized unions that represent workers within a single company).
Base pay
Base pay accounts for 60 to 80 percent of an employees monthly pay, depending on the
Individuals rank in the organization. Base pay is not based on job evaluation or market
Pricing (as predominates in North America), nor is it attached to specific job titles.
Rather, it is based on a combination of employee characteristics: career category, years of
Service, and skill/performance level.
Career
Five career categories prevail in japan: (1) general administration, (2) engineer/
Scientific, (3) secretary/office, (4) technician/blue-collar job, and (5) contingent.
Years of service
Seniority remains a major factor in determining base pay. Management
Creates a matrix of pay and years of service for each career category.
Shows a matrix for general administration work. Companies meet periodically to compare
Their matrixes, a practice that accounts for the similarity among companies. In general,
Salary increases with age until workers are 50 years old, when it is reduced. Employees
Can expect annual increases no matter what their performance level until age 50, although
The amount of increase varies according to individual skills and performance.
:

Effort (e.g., enthusiasm, participation, responsiveness).

Skills required for the work (e.g., analytical, decision making, leadership, planning,
Process improvement, teamwork).
Performance (typical mob-style ratings).

Bonuses
Bonuses account for between 20 and 40 percent of annual salary, depending on the level
In the organization. Generally, the higher up you are, the larger the percent of annual

Salary received as bonus. Typical Japanese companies pay bonuses twice a year (july and
December). The bonuses are an expectable additional payment to be made twice a year,
Even in bad financial times. They are not necessarily related to performance.
Benefits and allowances
The third characteristic of Japanese pay systems, the allowance, comes in a variety of
Forms: family allowances, commuting allowances, housing and geographic differential allowances,
And so on. Company housing in the form of dormitories for single employees
Or rent or mortgage subsidies is a substantial amount. Life-passage payments are made
When an employee marries or experiences a death in the immediate family. Commuting
Allowances are also important.
Legally mandated benefits
Legally mandated benefits in japan include social security,
Unemployment, and workers compensation. Although these three are similar to the benefits
In the United States, Japanese employers also pay premiums for mandated health insurance,
Preschool child support, and employment of the handicapped.
The lack of economic growth that japan has been experiencing over the last decade, Coupled with the
nations heavy emphasis on seniority-based pay, means that Japanese Companies labor costs have climbed
faster than those of many of their global competitors.

Strategic market mindset:

During the recession, the managers focused on strategic thinking, using past data and future projections to
see what changes needed to be made. A global study of pay systems used by companies with worldwide
operations identifies three general compensation strategies:

Localizer: Compensation Localizer simplifies putting an employee on a host-based compensation

program, if a localizer operates in 100 countries, it may have 100 different systems.
Exporter: Exporter are virtual opposites of localizers. It communicates consistent corporate wide
objectives. One manager complained that headquarters rarely consulted managers in the field. There is no

notion that ideas can go both ways. Its a one-way bridge.

Globalizer: Similar to exporters, globalizer seek a common system that can be used as part of the
glue to support consistency across all global location

These approaches reflect the companys business strategy. Compensation policy depends more on tax
policies and the dynamics of four business than it does on national culture. The culture argument is
something politicians hide behind.

Expatriate pay:
Expatriate compensation can vary enormously from company to company and location to location. It is
important that you carefully consider several factors. There are several different types of expatriate contract
and these will determine what the employment obligations will beElements of Expatriate compensation: There has been little real innovation in the expatriate
compensation field in years, according to a leading consultant. Usually such lists are organized into four
major components. There are salary, taxes, housing, and allowances and premiums.
The Balance Sheet Approach: The name stems from accounting, where credits must balance. It is based
on the premise that employees on overseas assignment should have the same spending power as they would
in their home country.

Expatriate systems: Paying for expatriate support is a necessary cost of doing business. And that cost
becomes more and more difficult to control as expatriate assignments increase in number and geographic
diversity.

Borderless world:
Some corporations, particularly those attempting to become globally integrated enterprise, are creating cadres of
globalists. Managers who operate anywhere in the world in a borderless manner. There is a lot of exchange of cultures
happening in a borderless world. Managing the employees belonging to different cultures creates many challenges to
the human resource management department. The aim in a global business is to get the best ideas from everyone,
everywhere. To support this global flow of idea and people, some companies are also designing borderless, or at least
regionalized, pay systems.

Limitation of international pay system

Not focusing on outcomes for improving workforce performance

Organizations yet dont know what they really need
No plan for the program for total compensation management.
Not obtaining credible salary survey sources.
Not collaborating with finance.
The managers dont have the tools they required.

Recommendation
Focus on outcomes for improving workforce performance: Before an organization can take action
to realize the benefits of investment in total compensation management, HR and finance
must ensure they agree on direction. The benefit companies most desire is the ability to
align their workforce to their business strategy and goals.

Understand what you really need: make sure the organization know what the executives and managers
want from compensation system so that the organization can determine.
Plan your program for total compensation management: Demand and a lack of confidence in
existing processes among more than half of organizations are two compelling reasons to
make building a plan for total compensation management a top priority.

Obtain credible salary survey: participate and collect market information from salary surveys that include
data for positions in industries and geographic areas where the organization competes for talent.
Collaborate with finance: work with finance to come up with an affordable budget that can be spent on
compensation.
Give managers the tools they need: Train managers on how the compensation systems works