Question

For an organization with operations in three different countries, what are some advantages and disadvantages of setting compensation according to the labor markets in the countries where the employees live and work? What are some advantages and disadvantages of setting compensation according to the labor market in the company’s headquarters? Would the best arrangement be different from the company’s top executives and its production workers? Explain.

Answer 1

Organizations today are no more Limited to domestic markets only, instead they plan to expand and penetrate the international markets in order to have a global presence in the industry and therefore organizations while managing their pay structure in different countries have advantages as well as limitations.

If the organization is having a diverse pay structure then the organization needs to pay less to employees in countries who are economically weak and have more number of skiller labors but in countries with better economic structure and less skilled labors the pay will be more. The advantage is that the organization will benefit from such a structure in terms of finance but may generate a sense of negativity due to the difference in pay in different countries and the employees getting paid less may have a negative impact in their performance. Similarly even in the headquarters of the organization the same issue may arise but the organization needs to be efficient to manage such discrepancies and make employees aware of the difference in the way received by them.

The arrangement may differ if the employees are expatriates because then this strategy may not be effective as the employee is from a different country hence the pay needs to be in sync with the structure of both the countries and maintaining or establishing a balance between the two. Top executives may have a different pay structure in comparison to that of the labors because they have stock options as well and generally the pay is based on the norms of the organizations headquarters. The organization needs to be efficient enough to educate and make the employees aware about the differences in the pay structure and should be transparent while following such a strategy.