Question

Sitting in the cooperate headquarters of a multinational firm, how can a manager discover what level of compensation and benefits is both fair and functional in other regions of the world? What would you do?

Answer 1

Sitting in the corporate headquarters, the manager will not be able to get a holistic idea about the level of compensation and benefits, which can be critical for the employees in the other regions, spread across the world. Compensation and benefits serve as the motivational factors for an employee and should be decided accurately for employee’s retention in the company.

Global compensation should never be standardized as each nation has different industry standards and different monetary policies. In the above scenario, the manager is trying to decide the global compensation, based on headquarters standards. This approach is called the headquarters based approach of global compensation and is not considered appropriate.

I would rather go for home-country based approach for designing the global compensation of my company. This approach equalizes the monetary standards of the employee with his standard f living in his native country. In this approach, the employee’s salary is divided based on 4 components:

• Discretionary income
• Taxes
• Housing
• Goods and services

This approach is also known as Balance sheet approach in international compensation. The basic objective for designing global compensation in this approach is maintaining the living standards of the employee as per home country plus a financial inducement based on the host country. The main advantages of this approach are:

• Compensation equality among expats of same nationality
• Expatriate re-entry in native country’s compensation block becomes easy