CM Journal VIII

MHR 6901, Compensation Management 1

Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to:

5. Explain workers’ compensation. 5.1 Describe considerations that must occur when developing international compensation

packages. 5.2 Outline the main components of international compensation packages.

Course/Unit Learning Outcomes

Learning Activity

5.1

Unit Lesson Chapter 13 Chapter 14 Article: “The Challenge of Expatriate Compensation: The Sources of

Satisfaction and Dissatisfaction Among Expatriates” Final Exam

5.2

Unit Lesson Chapter 13 Chapter 14 Article: “The Challenge of Expatriate Compensation: The Sources of

Satisfaction and Dissatisfaction Among Expatriates” Final Exam

Required Unit Resources Chapter 13: Compensating Expatriates Chapter 14: Pay and Benefits Outside the United States In order to access the following resource, click the link below: Please read the following article that outlines various factors that can cause issues with expatriate compensation. Suutari, V., & Tornikoski, C. (2001). The challenge of expatriate compensation: The sources of satisfaction

and dissatisfaction among expatriates. International Journal of Human Resource Management, 12(3), 389–404. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=4793479&site=ehost-live&scope=site

Unit Lesson In this unit, we will address compensation issues as they pertain to those employees who choose to go overseas for the organization—the expatriates. Most organizations are challenged with developing a compensation package that attracts, motivates, and retains expatriates while, at the same time, not offending the host nation.

UNIT VIII STUDY GUIDE

Compensating Expatriates

MHR 6901, Compensation Management 2

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When developing an expatriate compensation package, it is good to start by considering issues such as taxation, visas, family, culture, housing, financial incentives, and other concerns. These issues should align with the expatriate’s expectations. Technical competency and industry knowledge are the primary reasons to use expatriates, especially when local talent is not available. It would be easier to send someone who is familiar with corporate expectations and has the technical competency to train local nationals rather than hope the local nationals can catch on. Also, some countries have a limited talent pool who will need to be trained and developed by the home country experts. Expatriates are typically offered monetary and non-monetary rewards. Compensation packages usually include supplementary salary for additional duties. Bonuses and group incentives are often offered. Children’s tuition and spousal employment are often considerations as well. Security, insurance, education, transportation, accommodation, relocation, and displacement are other important issues used to attract expatriates as well as leave time, quality medical facilities, and elderly or child care. It is important to consider healthcare evacuation coverage in countries where health care is limited in case it becomes necessary to evacuate to the nearest country with adequate medical facilities. Evacuation coverage is also necessary in countries experiencing political and social instability. Those working in challenging countries are often offered honorariums and hardship allowances. Typical components of expatriate compensation include the following items:

 base salary,

 foreign services or hardship allowances,

 allowances, and

 benefits. Base salary is a little different for expatriates as it can be paid in home or local-country currency, and it is the primary component in the compensation package. Foreign service or hardship premium is usually a percent of the base salary, and it is based on the actual hardship, tax consequences, and length of the hardship. Usually, an assignment in a third-world country will include a hardship allowance. Allowances often consist of things such as cost of living, housing, home leave, education allowances, relocation allowances, automobile allowances, and spouse assistance. Cost of living is meant to cover the differences in expenses between the home country and the foreign country in terms of food, utilities, and transportation. The housing allowance compensates for home country housing and foreign country housing so that the expatriates can maintain their home country living standards. Home leave allowance refers to the cost of sending the expatriate home to visit his or her family or the corporate office while overseas. Education allowance covers the cost of tuition, enrollment fees, books and supplies, transportation, room and board, and even uniforms where appropriate. It is not uncommon to find boarding schools with an all-year curriculum as opposed to local schools in foreign countries. Relocation allowances cover moving, shipping, and storage- related charges. Sometimes, it also covers temporary living expenses until a more permanent living arrangement can be secured. An automobile allowance can include a company vehicle or a monthly sum to purchase an automobile. The stipend can also cover insurance, a local driver, and fuel for the vehicle. Some companies also provide assistance in securing employment for the expatriate’s spouse or significant other. Taking an overseas assignment can be a challenge for some employees. An organization can offer the following as potential benefits:

 potential for career progression;

 increased compensation (as outlined in the benefit and allowances above);

 development of professional skill;

 opportunity for travel abroad that otherwise might not be available, particularly for family members;

 learning opportunity with meeting new people and learning different customs and traditions;

 family members being able see and learn a new language and a new country; and

 added value to the company from the overseas assignment. Having an expatriate in a foreign subsidiary allows the same management style and preferences as the home country. It allows for consistency and continuity. Expatiates can break down any barriers that might exist

MHR 6901, Compensation Management 3

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between the home and host country, thereby reducing risk and technical problems. Expatriates can also build relationships with suppliers and improve supply chain relations. While there are advantages associated with employing expatriates, there are also disadvantages. One disadvantage can occur if there is a misunderstanding concerning a political situation, which can result in expulsion or imprisonment. The language barrier can also create issues with the local staff or local community. An organization should recognize the disadvantages and mitigate the risks where possible. Many Fortune 500 companies prefer at least one substantial overseas assignment to climb the executive ladder, but not everyone is successful overseas. It requires someone with knowledge of the overseas assignment and business requirements; someone who can quickly absorb information; someone with an open mind to other cultures, customs, and more; and someone who can bring people together. An opportunity to take an overseas assignment is a good opportunity for the expatriate and his or her family. Having said that, the number one cause of failure overseas is the family. Expatriates and their families need to have an in-depth understanding of the country, the language, and its customs, traditions, and values before taking the assignment. Cultural awareness training is essential prior to departure in order to avoid culture shock and failure. Expatriates experience failure mainly because they or their spouses fail to adapt to the local culture, which can cause issues within the family. This can lead to a lack of motivation to remain within the overseas assignment. Burnout is also a problem with expatiates. Often, the expatriate will experience too much stress while overseas. This can be a result of language barriers, being away from friends and family, dealing with a new culture and way of life, or feeling a sense of isolation. Stress can also come from the visa and work permit requirements that are familiar in the United States. If an expatriate comes home before their contracted time and does not achieve their goals, business can be lost, personal and professional relationships can be damaged, and an expatriate’s career might be over. Going overseas is a tough choice and one neither the organization nor the employee should take lightly. An employee should also ensure they have a job when returning from the overseas assignment. That consideration should be included in the overseas contract.

Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Each chapter of your textbook contains a case study related to the main theory or concept within the chapter. Review the case studies to gain a better understanding of the course materials as they relate to compensation considerations. Feel free to discuss the chapter case studies with your classmates in the Student Break Room forum.