Discuss The Major Factors Associated With Appraisal Of Expatriate

Managerial Performance?

An expatriate is a manager from a company who is sent abroad for a

mission.

The mission varies depending on the need of the multinationals in the host
country, it can be the control of quality or establishing the MNE’s procedures
in a subsidiary. Multinationals need to form it managers to go overseas
because the international environment is very difficult.

• Client Relationships.
Feedback from existing clients is useful in appraising how well a manager
is performing. This is possibly the most direct method: A client complaint or
compliment is easily understood and such information can be easily
gathered by simply asking the clients.

• Operations.
This links into productivity. The company will show variations in operational
performance in response to local economic and social conditions. 
Interpreting and understanding a marked improvement or degeneration of
existing conditions may be difficult from one country to another unless there
are pre-existing regulations and routines already in place to monitor
operation performance.

• Productivity.
Expatriate managers must conform and adapt to local conditions in the
countries of operation. An inability to adapt will lead to a drop in productivity
of the company as the individual cannot correctly manage the situation.

• Personnel Resources.
Anyone working in a foreign *environment must have specific knowledge of
how to deal with workers on their own terms rather than the terms dictated
by their own culture. Managerial appointments should reflect this.

• Human Resources.
Japanese Bridgestone's acquisition of Firestones was complicated by the
need to recruit new Japanese managers to complete the acquisition. The
existing personnel were unable to adapt to the more intimidating American
methods of working.  The Japanese favor a more subtle approach. This
was apparently not known at the time.  As such, any major turnovers in
personnel levels, particularly at managerial levels would be a means of
appraising managerial performance.

• Training.
Many multinational companies will place their management trainees and
managers in a variety of roles and environments specifically to allow them
to gain experience. Multinationals can assess how well managers are
adapting to such conditions by regular assessments and examinations.

Why is it important to include hard soft and contextual goals when

assessing managerial performance?

The Job description and job specification are two important evaluators
since the specific goals and tasks are clearly defined. Goals can be
translated into performance appraisal criteria, so measurability and
specificity issues are essential aspects and therefore the need for hard, soft
and contextual goals are often used as the basis for performance appraisal
criteria.

Hard goals- criteria that are quantifiable, objective and directly measured
for e.g. Market share, Return on Investment, profits, etc. Hard goals are
appropriate to compare performance across employees and departments.

Soft goals- criteria based on relationships or traits, such as interpersonal

skills or leadership style. In order to have an accurate performance
appraisal of the employees it is essential to have soft goals especially when
hard criteria are not available.

Contextual goals- consideration factors that may result from the situation in
which the employees are performing. These factors are indomitable by
foreign operations and external conditions associated with it. For e.g.
Multinational organizations use arbitrary transfer pricing in order to
minimise foreign exchange risks and tax expenditures. (Dowling and
Welch, 2005)

Our company will be using hard, soft, and contextual goals since hard
criteria is supplemented by frequent visits by parent country staff and
executives also relying on financial measurements mentioned above to
evaluate how well a manager operates a foreign subsidiary. We will be
using soft criteria to complement these hard goals and to take areas that
are hard to quantify. Using all of the three criteria’s for our appraisal system
will help our company to build upon the strengths and to reduce their
disadvantages.

constraints in managing the performance internationally

PCNs (Parent Country Nationals)
Those personnel who are of the same nationality as the contracting
government or personnel from headquarters

They come from the home country of the operation.

The policy of using PCNs is usually employed when one or more of the
following situations exist: (1) the host country cannot readily supply desired
managerial personnel, (2) efficient communication with headquarters is
required, and (3) the company adopts a centralized approach to
globalization.

TCNs (Third Country Nationals)

Those personnel of a separate nationality to both the contracting
government and the area of operations i.e. whose nation of residence is
neither the host country nor the home country.

Such an employee normally is recruited from outside the host country and
relocated from the point of recruitment to the host country.
KEY COMPONENTS OF AN INTERNATIONAL COMPENSATION
PROGRAM
The area of international compensation is complex primarily because
multinationals must cater to three categories of employees: PCNs, TCNs
and HCNs.

Key components of international compensation are as follows:

COMPONENTS OF MNC’S COMPENSATION

BASIC SALARY
ALLOWANCES
OTHER BENEFITS
1. Base Salary
In a domestic context, base salary denotes the amount of cash
compensation serving as a benchmark for other compensation elements
(such as bonuses and benefits).

For expatriates, it is the primary component of a package of allowances,

many of which are directly related to base salary (e.g. Foreign Service
premium, cost-of-living allowance, housing allowance) and also the basis
for in-service benefits and pension contributions. It may be paid in home or
local-country currency.

The base salary is the foundation block for international compensation

whether the employee is a PCN or TCN. Major differences can occur in the
employee’s package depending on whether the base salary is linked to the
home country of the PCN or TCN, or whether an international rate is paid.

Foreign Service inducement/hardship premium

Parent-country nationals often receive a salary premium as an inducement
to accept a foreign assignment or as compensation for any hardship
caused by the transfer.

The definition of hardship, eligibility for the premium and amount and timing
of payment must be addressed. In cases in which hardship is determined,
US firms often refer to the US Department of State’s Hardship Post
Differentials Guidelines to determine an appropriate level of payment.
Making international comparisons of the cost of living is problematic. These
payments are more commonly paid to PCNs than TCNs. Foreign service
inducements, if used, are usually made in the form of a percentage of
salary, usually 5-40 per cent of base pay. Such payments vary, depending
upon the assignment, actual hardship, tax consequences and length of
assignment.

2. Allowances
Issues concerning allowances can be very challenging to a firm
establishing an overall compensation policy, partly because of the various
forms of allowances that exist.

(a)The cost-of-living allowance (COLA), which typically receives the most

attention, involves a payment to compensate for differences in
expenditures between the home country and the foreign country (to
account for inflation differentials, for example). The COLA may also include
payments for housing and utilities, personal income tax or discretionary
items.

(b)The provision of a housing allowance implies that employees should be

entitled to maintain their home-country living standards (or, in some cases,
receive accommodation that is equivalent to that provided for similar
foreign employees and peers).

Other alternatives include company-provided housing, either mandatory or

optional, a fixed housing allowance or assessment of a portion of income,
out of which actual housing costs are paid. As a firm internationalizes,
formal policies become more necessary and efficient.

(c)There is also a provision for home leave allowances. Many employers

cover the expense of one or more trips back to the home country each
year. Firms allowing use of home leave allowances for foreign travel need
to be aware that expatriate employees with limited international experience
who opt for foreign travel rather than returning home may become more
homesick than other expatriates who return home for a ‘reality check’ with
fellow employees and friends.

(d)Education allowances for expatriates’ children are also an integral part of

any international compensation policy. Allowances for education can cover
items such as tuition, language class tuition, enrolment fees, books and
supplies, transportation, room and board and uniforms. PCNs and TCNs
usually receive the same treatment concerning educational expenses.

(e)Relocation allowances usually cover moving, shipping and storage

charges, temporary living expenses, subsidies regarding appliance or car
purchases (or sales) and down payments or lease-related charges.
Allowances regarding perquisites (cars, club memberships, servants10 and
so on) may also need to be considered (usually for more senior positions,
but this varies according to location). These allowances are often
contingent upon tax-equalization policies and practices in both the home
and the host countries.

(f)Spouse assistance to help guard against or offset income lost by an

expatriate’s spouse as a result of relocating abroad. Although some firms
may pay an allowance to make up for a spouse’s lost income, US firms are
beginning to focus on providing spouses with employment opportunities
abroad, either by offering job-search assistance or employment in the firm’s
foreign office (subject to a work visa being available).

(g)Multinationals generally pay allowances in order to encourage

employees to take international assignments and to keep employees
‘whole’ relative to home standards. In terms of housing, companies usually
pay a tax-equalized housing allowance in order to discourage the purchase
of housing and/or to compensate for higher housing costs. This allowance
is adjusted periodically based on estimates of both local and foreign
housing costs.

difference between balance sheet approach and going rate

Although different situational factors such as the attractiveness of the

assignment destination and the number of potential candidates require
flexibility in compensation practices, some general guidelines and methods
exist. Broadly speaking, we can differentiate between two different
approaches to expatriate compensation: the balance sheet approach and
the going rate approach (see Reiche, Harzing & Garcia 2009).
The balance sheet approach is the most widely used approach by
organizations and its main idea is to maintain the expatriate’s standard of
living throughout the assignment at the same level as it was in his/her
home country. In other words, it is about ensuring the same purchasing
power, which helps to maintain the home country’s lifestyle. Another
important notion is that the balance sheet approach implies matching the
expatriate’s salary with home-country peers, not with the host-country
colleagues. On top of the home-country salary, host-country cost of living
adjustments are usually made. As argued by Sims and Schraeder (2005) in
their recent review of expatriate compensation practices, such adjustments
are made using the ‘no loss’ approach: expatriate compensation is adjusted
upward for higher costs of living, but is not adjusted downward if the cost of
living in the host country is less than in the home country.

Contrary to the balance sheet approach, there is a second approach,

the going rate approach, which is also known as the ‘localization’,
‘destination’ or ‘host country-based’ approach (Sims & Schraeder 2005). As
these names suggest, the core of this approach lies in linking the expatriate
compensation to the salary structure of the host country, taking into
account local market rates and compensation levels of local employees.
The going rate method aims to treat the expatriate employee as a citizen of
the host country, encouraging a “when in Rome, do as the Romans do”
mentality (Sims & Schraeder 2005).

Thus, the two approaches have different foci and hence also different
advantages and disadvantages (see the following table):

Apart from the stated differences in the two approaches and the related
benefits and drawbacks, the going rate approach seems to be more cost-
effective than the balance sheet approach. In other words, ‘going local’ may
reduce the host-country market adjustment costs, which may be especially
tempting for Western multinationals sending people to countries with lower
salary levels. Despite these advantages, the balance sheet approach
continues to be the most widely used method. According to the Brookfield
Global Relocation Trends survey, 62% of respondents used a home-
country approach (i.e. balance sheet approach) to determine compensation
for long-term assignments, only 6% a host-country approach and 32%
various combinations of home/host-country approaches. This suggests that
attraction/motivation of potential candidates for assignments is clearly more
important than cost saving.

However, no matter which compensation approach is used, the certain

basic needs of expatriates should be still met. Organizations should not
forget about the daily life challenges faced by employees in a foreign
country, and hence there is a need for extra attention to security, medical
care, housing, education of children, spouse matters and home trips.

In the end, it is important to consider the concept of ‘wholeness’ with regard

to the goals of compensation packages. The concept refers to the
organization’s desire to ensure that the expatriate does not experience an
overt gain or loss when all elements of the compensation package are
combined (Wentland, 2003). While finding a balance between the
organization’s and expatriates’ perceptions of ‘wholeness’ can sometimes
be difficult, the intentions of ‘keeping the employee as a whole’ by not
letting expatriates experience drastic lifestyle changes are paramount.