Describe The Advantages And Disadvantages Of The Going Rate ✓ Solved

Describe The Advantages And Disadvantages Of The Going Rate Approach T

Describe the advantages and disadvantages of the going rate approach to international compensation and the balance sheet approach. Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. Dowling, Peter, Marion Festing, and Allen D. Engle. International Human Resource Management. 6th ed., Pg. . Andover: Cengage Learning, 2013.

Sample Paper For Above instruction

The going rate approach and the balance sheet approach are two prevalent methods used in determining international compensation strategies. Each approach has its unique advantages and disadvantages, which organizations must consider in the context of their global human resource management (Dowling, Festing, & Engle, 2013).

Advantages of the Going Rate Approach

The primary advantage of the going rate approach is its simplicity and ease of implementation. By aligning employee compensation with the prevailing market rates in the host country, organizations can ensure competitive pay structures that attract and retain local talent. This approach also promotes fairness, as employees are compensated similarly to their counterparts in the host country, enhancing morale and motivation (Dowling et al., 2013). Additionally, adopting local market wages helps organizations avoid overpaying, which can lead to unnecessary cost inflation, thereby improving cost efficiency.

Disadvantages of the Going Rate Approach

However, the approach has notable disadvantages. It can lead to inconsistencies and disparities within the organization's global pay structure, especially if not carefully managed. For example, expatriates may receive compensation packages that are significantly different from their home country counterparts, potentially causing dissatisfaction or perceptions of unfairness (Dowling et al., 2013). Furthermore, the approach does not account for the expatriate’s individual circumstances, such as family needs or educational expenses, which can be critical considerations for expatriate assignments. It also may not adequately reflect the strategic importance of specific roles or the organization's compensation philosophy.

Advantages of the Balance Sheet Approach

The balance sheet approach aims to maintain the expatriate’s standard of living consistent with their home country, despite working abroad. Its key advantage is that it ensures fairness and equity for expatriates, reducing dissatisfaction and turnover (Dowling et al., 2013). It allows organizations to attract talented employees in foreign assignments, knowing their compensation will be comparable to what they receive at home. Additionally, it considers various cost-of-living differences, exchange rates, and economic factors, providing a customized compensation package that addresses individual needs.

Disadvantages of the Balance Sheet Approach

Despite its benefits, the balance sheet approach can be costly for organizations, as it often involves complex calculations and additional allowances for cost-of-living adjustments, housing, schooling, and other expatriate-specific expenses (Dowling et al., 2013). It requires extensive data collection and ongoing management, which can complicate administrative processes. Moreover, this approach may create internal pay disparities, as some expatriates may receive significantly different compensation packages based on their circumstances or the cost of living in the host location. This could affect organizational cohesion and perceived fairness among employees.

Conclusion

Both the going rate and balance sheet approaches have their merits and challenges. The choice between them depends on organizational objectives, expatriate management policies, and the specific economic context of host countries. While the going rate approach offers simplicity and market competitiveness, the balance sheet approach provides fairness and individualized compensation but at higher complexity and cost. Strategic alignment and careful planning are essential to effectively implement these approaches in international human resource management (Dowling et al., 2013).

References

• Dowling, P., Festing, M., & Engle, A. D. (2013). International Human Resource Management (6th ed.). Cengage Learning.