NATIONAL DIFFERENCES AND

COMPENSATION

BY,
G.GUHAN
 NATIONAL DIFFERENCES OF
COMPENSATION
Definition:
One of the key component of IHRM is the
compensation administration in MNCs.
Today, compensation and employee benefits
contribute to 40-50%of the total cost.
compensation is strategically reported
and monitored at the board-levels and with
the investors to assess the health of
organization
OBJECTIVE OF COMPENSATION

 International compensation is understood as

provision of monetary and non monetary
rewards, including base salary, benefits,
perquisites and long and short term
incentives, valued by employees in
accordance with their relative contributions
of performance.
 Attract individual who are competent and
interested in international assignments.
CONT….
 Facilitate movement of expatriates from one
subsidiary to another, from the home country
to subsidiaries, and from subsidiaries back to
the home country.
 Provide a consistent and reasonable
relationship between the pay level of
employees at the headquarters, domestic
affiliates and foreign subsidiaries.
 Be cost effective by minimizing unnecessary
expenses.
 Be consistent with the overall strategy,
structure and business needs.
COMPENSATION PHILOSOPHY
 Compensation philosophy is the set of values
and beliefs that an organization has with
regard to monetary and non monetary
benefits payable to employees.
 Its combined with a set of guiding principles
that further assist in compensation
administration
THEORIES OF COMPENSATION
 Contingency Theory
 Resource Theory
 The Agency theory
 Equity Theory
COMPENSATION STRATEGY
Employee Business and Industry and
inputs and operating labor market
Preferences inputs Practices and
Trends

Compensation Philosophy and Objectives

Based upon Business, Operating and Human Resource Requirement

Organization
Performance or
Variable Pay Non
Base pay Fringe Compensation
monetary and
Delivery Other Monetary Benefits Administration
Rewards and
Recognitions
CONTI….
 Business operating input;
 Business operating input are provided
from the subsidiary’s business plan and
objectives the operating targets.
 Assessment of the type of work force,

skills required, employee number,

nature work, sales and production
targets serve as critical inputs to the
kind of compensation system designed.
CONTI….
 Industry and labor market practices and
trends help assess the demand-supply
relationship prevalent the industry. The
matching of subsidiary objectives with the
availability of competent resources and
competitor pay practices need to careful
attention in order to hire and retain the
request talent pool
 Ex :Variable pay Vs fixed pay components,
 Employee inputs and preferences:
 The degree to which compensation with fixed
competency used structure.
 Whether or ark there exist the scope of
individual skills based negotiation. (like current
salary, institution from where he/she graduated.
 MNS’s could prefer to hire candidate from a
particular institution, from a similar industry and
pay premium salaries.
 Once the philosophy, objectives and strategy are
developed the elements of compensation namely
use pay, variable pay, fringe benefits and
administration can be determined.
 BASE PAY STRUCTURE
 Employeestypically receive 90-100% of the cash
compensation and 2-3rds of their total
compensation from their base pay.

 VARIABLE PAY
 Variable pay are organization system for sharing
the economic benefits of improved productivity,
cost reduction, quality and overall business
performance and are in the form of regular cash
bonuses.
 Most variable pay incorporate existing or
developed enhanced systems of the employee
involvement.
 FRINGE BENEFITS
 Fringe benefits are Set at a corporate level and
are highly influenced by legal requirement.

 COMPENSATION ADMINISTRATION
 Itincludes a collection of activities require to
sustain a effectiveness of compensation strategy.
 KEY COMPENSATION
QUESTIONS
 Base Pay Delivery
 Method of delivery – job-based Vs individual
based
 Number of levels
 Structure of levels
 Pricing strategies
 Adjustment method
 Weighing of individual performance
 Organization performance or variable pay
 Role In Total Compensation Strategy
 Structure
 Measures
 Targets
 Tolerance for pay at risk
 Risk – reward ratios
 Use of other monetary rewards
 Use of non monetary rewards
 Individual performance recognition
 Fringe Benefits
 Usually determined at corporate level; limited
scope at other levels
 Tie to business and human resource objectives
 Coverage
 Cost
 Communications (purpose-coverage-value)
 OU
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