Ans to the question no-1

International Compensation Management

Compensation management can be defined as the provisions of monetary and non-monetary

rewards, including base salary, benefits, and perquisites, long and short-term incentives,
valued by employees in accordance with their relative contributions to MNC performance. Its
broad HRM purpose is to attract, retain and motivate that personnel required throughout the
MNC currently and in the future.

Objectives of International Compensation Management

The objectives of compensation package of MNCs are presented in Figure below MNCs
manage the compensation and benefits with the following objectives.

1. Recruitment and Retention of suitable Employees: MNCs design and practice

compensation and benefits in order to attract, and retain suitable employees in terms of job
efficiency and cultural adaptability.
2. Consistency and Equity: MNCs design the salary and benefits package to secure
consistency between pay and performance and equity among employees of different
nationalities and categories, and employees of subsidiaries and parent company.
3. Facilitate Mobility: MNCs design pay package in order to enable the employees to
move from the parent company to foreign subsidiaries and from one foreign subsidiary to
another foreign subsidiary.
4. Adaptability to Foreign Cultures and Environment: MNCs design pay package
that motivates employees and his/her family members to willingly adapt to the cultures and
environment of the foreign countries. For example, providing comfortable housing, highly
reliable medical facilities, security facilities against odds and international standards
schooling facilities encourage employee’s family members to adapt to the foreign country
cultures and environment and allow the employee to concentrate on the job.
5. Organisational performance: MNCs pay package should work as motivator to
enhance employee job performance, learning latest skills and contribute to the enhancement
of organisational performance. In fact, performance based pay package enhances
organisational performance.

Importance of International Compensations

1. Attracting and Retaining Personnel: Most to attract and retain staff in the areas
where the multinational has the greatest needs and opportunities, hence must be competitive
and recognize factors such as the incentive for Foreign Services, tax equalization, and
reimbursement for reasonable costs.
2. Optimizing Cost of Compensation: It is to facilitate the transfer of International
employees in the most cost-effective manner for the firm. Compensation management aims at
optimizing the cost of compensation by establishing some kind of linkage with performance
and compensation. It is not necessary that a higher level of wages and salaries will bring
higher performance automatically but depends on the kind of linkage that is established
between performance and wages and salaries.
3. Consistency in Compensation: It means to be consistent with the overall strategy,
structure and business needs of the multinational. Compensation management tries to achieve
consistency-both internal and external – in compensating employees. Internal consistency
involves payment of the basis of criticality of jobs and employees’ performance on jobs. Thus
higher compensation is attached to higher-level jobs. Similarly, higher compensation attached
to higher performers in the same job. External consistency involves similar compensation for
a job in all organizations. Though there are many factors involved in the determination of
wage and salary structure for a job in an organization which may result into some kind of
disparity in the compensation of a particular job as compared to other organization,
compensation management tries to reduce this disparity.
4. Motivating Personnel: Compensation management aims at motivating personnel for
higher productivity. Monetary compensation has its own limitations in motivating people for
superior performance.

Ans to the question no-2

Key components of an international compensation programme are as follows:

The major focus of most international compensation programme is to keep international
employees at a sufficient financial level during their international assignments so that they do
not lose ground economically.
Components of an international compensation package, in addition to the normal salary and
benefits offered in the home country, frequently include the following. These components are
discussed below:
Components
1. Base salary:
Base salary are the primary component of a package of allowances which are:
(a) Foreign service premium,
(b) Cost-of-living
(c) Housing and utility
(d) Basis for in-service benefits and pension contributions Allowns
Base salary may be paid in home or local currency or in some hard currency like pound or
dollar. The company must have to fill up the employee’s satisfaction if they are not fill up the
expectation then the company’s performance could be decline.
2. Foreign Service inducement/hardship premium:
Parent-country nationals often receive a salary premium as an inducement to accept a foreign
assignment or as compensation for any hardship caused by the transfer. Such payments vary
depending upon the assignment, actual hardship, tax paid to foreign governments and length
of the assignment.
3. Allowances:
Various allowances are paid to expatriates depending upon the assignment. They include:

(a) The cost-of-living allowance (COLA):

It involves a payment to compensate the differences in expenditures between the home
country and the foreign country.
(b) Housing allowance:
Implies that employees should be entitled to maintain their home-country living standards
(or, in some cases, receive accommodations)
(c) Home leaves and travel allowances:
Is given to cover the expense of trips (usually once in a year) back home. These trips allow
the expatriates the opportunity to renew family and business ties, thereby helping them to
avoid adjustment problems when they are repatriated.
4. Education Allowances for Children:
Education allowances are given towards fees for the education of expatriates’ children.
Education allowances include items such as tuition, language class tuition, books,
transportation and uniforms.
5. Relocation Allowances and Moving:
Relocation allowances usually cover moving, shipping; temporary living expenses, and down
payments or lease-related charges.
6. Tax Equalisation Payments:
Many international compensation plans attempt to protect the expatriate from negative tax
consequences by using a tax equalisation plan. Under this plan, the company adjusts an
employee’s base income so that the expatriates will not pay any more or less tax than if they
had stayed in the home country.
7. Spouse Assistance:
To help guard against or offset income lost by an expatriate’s spouse as a result of relocating
abroad. Multinationals generally pay allowances in order to encourage employees to take up
international assignments.