INTERNATIONAL

COMPENSATION
MODULE - 6
Meaning: The Employee compensation or remuneration is the
payment that an employee receives in return for his or her
contribution to the organization. Compensation occupies a
major role in the life of employee. His or her standard of
living, status in the society, motivation, loyalty, & productivity
depends upon the compensation he or she receives. For the
employer too, employee compensation is significant because
of its contribution to the cost of production.

Acc to Wayne Mondy: “Compensation is the total of all

rewards provided to employees in return for their services.
The overall purpose of providing compensation is to attract,
retain & motivate employees”.
Factors that influence compensation
policy: Factors influencing compensation
policy

Demand & supply Bargaining power

Condition of product
Cost of living
market

Comparative wages Ability to pay

Productivity of labour Job requirements

Goodwill of the
Government policy company
 Forms of compensation: The compensation payments
received by workers are commonly viewed in
Following two major forms:
1) Financial Compensation: financial compensation
refers to monetary benefits offered & provided to
employees in return of the services they provide to the
organization.. It includes:
i. Direct method
 Basic salary
 Bonus
 Allowances
 incentives
Key components of international compensation:
Components of international
compensation

Base salary Incentives

Allowances
Benefits

1) Base salary
2) Incentives
 Foreign service premiums
 Hardship premiums
 Mobility premiums
3) Allowances
 Cost-of-living allowances
 Housing allowances
 Home leave allowances
 Educational allowances
 Re-location allowances
 Spouse assistance

4) Benefits : entertainment, festival celebrations, gifts, use

of club facilities, conference attendance, employee
welfare, conveyance, tour & travel, hotel boarding &
lodging, vehicles, telephone & other
telecommunications facilities, sponsorship of children.
Approaches to international compensation:
1) Going rate approach: when the compensation packages
of an expatriates are determined on the basis of the salary
structure prevailing in the host nation, it is called the going
rate approach or market rate approach.

Features of going rate approach:

 Based on local market rates
 Compensation based on the selected survey comparison
 Base pay & benefits may be supplemented by additional
payments for low pay countries.
2) Balance sheet approach: it is also known as Build-up
approach. The BSA is arguably the dominant compensation
system used in MNC’s. The objective of this approach is to
ensure that employees can maintain a standard of living in
the country of assignment similar to that which they enjoy
in their home country. This keeps the shock of changes in
standard of living relatively small. The basic fundamental
is that the assignees should neither benefit nor be hurt
economically as result of relocating.
Features of BSA:
 home countries pay & benefits are the foundation
 Adjustment to home packages to balance additional
expenditure in host country
 Financial incentives
 Other approaches:
1) Citizen’s approach: in this approach the
international basket of goods is used for all expatriates,
regardless of country of origin. The basket of goods
includes food, clothing, housing &so forth. However,
expatriates are not provided salary adjustments that would
allow them to purchase same items in host country as in
home country. Rather, they receive adjustments that would
allow them to purchase a comparable local product of the
same nature. Alternatively called global salary system, the
international’s citizens approach is appropriate when an
MNC has a team of dedicated international managers who
are ready to move to any part of the globe easily &
effectively.
2) Lump Sum approach: this involves giving the
expatriate
a predetermined salary & letting the individual to decide
about how to spend it. Finally, there is the regional
system, under which the MNC sets compensation system
for all expatriates who are assigned to a particular region.
Thus everyone going to Europe falls under one particular
system & those who going to South Africa come under
different system.
Compensation practices across the countries:
 Compensation in India
 Compensation in US
 Compensation in Russia
 Compensation in Japan
 Compensation in Saudi
Social security system across the countries:
Social security forms an important part oflabour welfare
providing the ‘security’ which is of great importance to the
workers’ & his family’s well being. Social security is defined
as the security that society furnishes through appropriate
organization against certain risks to which its members are
perennially exposed. These risks are essentially contingencies
against which an individual of small means cannot effectively
provide by his own ability or foresight alone or even in private
combination with his fellows. These contingencies as per ILO
are sickness, medical care for the worker, maternity,
unemployment, work injury, death of worker, widowhood etc.
Acc to friedlander, “Social security is a programme of
protection provided by society against the contingencies of
modern life – sickness, unemployment, old age, dependency,
industrial accidents, against which the individual cannot be
expected to protect himself & his family by his own ability or
foresight”.

Social Securities across Different Countries:

1. Social Security system in Germany
2. Social Security system in Great Britain
3. Social Security system in US
4. Social Security system in Russia
5. Social Security system in Sweden
Global compensation – emerging issues: Today’s
business envt demands flexibility, knowledge-based
organizational culture & multi-skilled workforce, which not
only encourage innovation and creativity in terms of devpt of
product & services, but to maintain, retain & satisfy customers.
various emerging issues are:

 Skill based pay

 Broadbanding
 Variable pay
 Team rewards
INTERNATIONAL LABOUR
RELATIONS

MODULE 7
International labour relations or industrial relations or
employee relations, known as “ER” in many organizations,
is the broad area of human resources dealing with the
nature & quality of the relationship between organsiastions
&their employees. This relationship is characterized by the
manner in which employees are treated with regard to
their physical, psychological & economic well being. This is
also influenced by several external factors such as unions &
government. The main actors of ILR are:

Employees

Employers Government
Key issues in International Labour
Relations:
Kye issues in ILR

Union’s influence int IR

IR policies of MNCs
MNCs’ strategy
towards international
MNC Ch in neutralising IRjlyj
power of labour unions
Response of labour unions to MNC’s
 Form international trade secretariats (ITSs)
 Lobbying for Restrictive National Legislation
 Regulate multinationals by international organization
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