Question

Companies can take one of four approaches to compensation. Which do you think is the best approach? Why?

• The home-country-based approach. The objective of a home-based compensation program is to equalize the employee to a standard of living enjoyed in his or her home country. The 2016 Cartus Global Mobility Policy & Practices Survey found that 76 percent of long-term assignments and 75 percent of short-term assignments use a home country pay structure.1 Under this system, the employee's base salary is broken down into four general categories: taxes, housing, goods and services, and discretionary income.
• The host-country-based approach. With this approach, the expatriate employee's compensation is based on local national rates. Many companies continue to cover the employee in its defined contribution or defined benefit pension schemes and provide housing allowances. Only 14 percent of long-term assignments and 5 percent of short-term assignments base pay on local rates, according to the Cartus survey.2
• The headquarters-based approach. This approach assumes that all assignees, regardless of location, are in one country (i.e., a U.S. company pays all assignees a U.S.-based salary, regardless of geography). Cartus found that a small percentage of companies use headquarters-based approaches for long-term assignments (4 percent) and short-term assignments (5 percent).3
• Balance sheet approach. In this scenario, the compensation is calculated using the home-country-based approach with all allowances, deductions and reimbursements. After the net salary has been determined, it is then converted to the host country's currency. Since one of the primary goals of an international compensation management program is to maintain the expatriate's current standard of living, developing an equitable and functional compensation plan that combines balance and flexibility is extremely challenging for multinational companies. To this end, many companies adopt a balance sheet approach. This approach guarantees that employees in international assignments maintain the same standard of living they enjoyed in their home country. A worksheet lists the costs of major expenses in the home and host countries, and any differences are used to increase or decrease the compensation to keep it in balance.

Answer 1

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A good compensation package is one that is considered fair by an immigrant but should also be cost-effective for the organization. The goal of mobility and staffing of the organization should be achieved. This includes a home-based approach (also known as a balance sheet approach), a host-based approach, and a global market approach.

1. Home-based approach:-

The home approach or balance sheet approach is the most popular of these approaches and is used by more than 85% of US multinationals. The balance sheet provides international workers with a package of foreign compensation that compares the cost difference at home to international obligations and the same compulsory organization.

2. Host-based approach:-

The host-based approach means that the recipient goes to the host country and is sent according to the rules and practices of the host country. Host salaries generally provide basic salaries for salaries and incentives and previous supplements.

3. Global Market approach:-

This approach is much more comprehensive. Recipients receive the most important benefits regardless of country. All employees have the same salary level, regardless of their hometown.

Each approach has advantages and disadvantages.

When deciding on foreign compensation, you should consider changing laws, living expenses, tax policies, and other factors. So, because you are sure that the international awards are very complex, you cannot choose one because you want to be fair and consistent in the group of immigrants.