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Expatriates compensation Compensation Management
Prepared By
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Manu Melwin JoyAssistant Professor
Ilahia School of Management Studies
Kerala, India.Phone – 9744551114
Mail – [email protected]
Expatriates compensation
• Expatriation is an expensive
option so the decision to
use an expatriate requires
careful evaluation of the
benefits that the expatriate
will bring.
Expatriates compensation• A company that decides to
transfer an employee to another country must be prepared to propose a compensation package that takes into account a number of elements such as cost of living, housing, education expenses and taxation and not just salary.
Expatriates compensation• From an organizational
perspective, thinking about expatriation often starts with thinking about expatriate compensation. Compensation packages should attract, retain and motivate employees, while at the same time balancing these costs with the expected returns for the organization, which is not an easy task.
Expatriates compensation• Though it may seem
more expensive on the surface to create an expatriate compensation package, the fact is that it is often necessary from a business point of view because that specific skill is not available locally.
Expatriates compensation
• Broadly speaking, we can
differentiate between two
different approaches to
expatriate compensation:
the balance sheet approach
and the going rate
approach.
Expatriates compensation• The balance sheet
approach is the most widely used approach by organizations and its main idea is to maintain the expatriate’s standard of living throughout the assignment at the same level as it was in his/her home country.
Expatriates compensation• Another important notion is
that the balance sheet approach implies matching the expatriate’s salary with home-country peers, not with the host-country colleagues. On top of the home-country salary, host-country cost of living adjustments are usually made.
Expatriates compensation• As argued by Sims and
Schraeder (2005) in their recent review of expatriate compensation practices, such adjustments are made using the ‘no loss’ approach: expatriate compensation is adjusted upward for higher costs of living, but is not adjusted downward if the cost of living in the host country is less than in the home country.
Expatriates compensation
• Contrary to the balance
sheet approach, there is a
second approach, the going
rate approach, which is also
known as the ‘localization’,
‘destination’ or ‘host
country-based’ approach.
Expatriates compensation
• As these names suggest, the
core of this approach lies in
linking the expatriate
compensation to the salary
structure of the host country,
taking into account local
market rates and
compensation levels of local
employees.
Expatriates compensation
• The going rate method aims
to treat the expatriate
employee as a citizen of the
host country, encouraging a
“when in Rome, do as the
Romans do” mentality.
Expatriates compensation
Expatriates compensation
• The going rate method aims
to treat the expatriate
employee as a citizen of the
host country, encouraging a
“when in Rome, do as the
Romans do” mentality.
