Companies Can Take One Of Four Approaches To Compensation

Companies Can Take One Of Four Approaches To Compensation Which Do Yo

Companies can take one of four approaches to compensation. Which do you think is the best approach? Why? Frame your post as an argument. Learn to support your arguments. 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. 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. 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). The 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. Source: (Note that this source requires a paid subscription to SHRM to view the full article.) Please post initial response by Saturday at 11:59 pm EST and respond to two students (total) by Tuesday at 11:59 pm EST.

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The question of which expatriate compensation approach is most effective remains central to global HR management, especially given the complexities of maintaining equity, motivation, and cost efficiency across diverse geographical locations. Among the four primary approaches—home-country-based, host-country-based, headquarters-based, and balance sheet—the balance sheet approach emerges as the most advantageous for multinational companies aiming to sustain fairness and employee satisfaction during international assignments.

The home-country-based approach, primarily used by 76% of companies for long-term assignments, prioritizes maintaining employees' standard of living akin to their home country. While it promotes consistency and simplifies administration by using a familiar salary structure, it often disregards local economic conditions, leading to potential dissatisfaction among local employees or unrealistic expatriate compensation schemes. Conversely, the host-country-based strategy aligns salaries with local market rates, fostering social integration and cost containment; however, it often diminishes expatriates' purchasing power and can threaten international talent retention if not supplemented adequately with allowances or benefits.

The headquarters-based approach, where all employees receive a uniform salary regardless of location, minimizes administrative complexity and reinforces corporate unity. Nevertheless, it can result in significant disparities between the salaries paid across countries, leading to dissatisfaction and challenges in employee motivation, especially where local living standards are vastly different from the headquarters' country. Indeed, only a small percentage of companies—about 4-5%—adopt this model, indicating its limited practicality.

The balance sheet approach stands out because it combines the strengths of both home and host-based policies. It involves calculating total compensation based on the home-country standard, including allowances for taxes, housing, and discretionary income, then converting the net salary to the local currency, adjusting for cost-of-living differences. This method ensures that expatriates maintain their purchasing power while accounting for local economic realities, thereby fostering higher satisfaction and motivation. It is particularly effective in preserving equity among expatriates and local employees, which is often a critical concern in global talent management.

Furthermore, the balance sheet approach provides flexibility to adjust compensation based on specific expatriate circumstances or changes in local economies, making it more adaptable than rigid models. It also simplifies compliance with tax and social security regulations through standardized procedures, reducing legal and financial risks for multinational firms. While it requires more sophisticated administration and regular updates via worksheets that track major expenses, the benefits of equitable standard of living and employee morale outweigh these administrative burdens.

In conclusion, the balance sheet approach offers a comprehensive, fair, and flexible framework that aligns with the primary goals of international compensation management: maintaining equity, supporting motivation, and controlling costs. Although more complex to implement than simpler approaches, its ability to adapt to diverse local conditions while ensuring expatriate satisfaction makes it the most effective method for multinational companies committed to sustainable global human resource strategies.

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