APPROACHES TO

INTERNATIONAL
COMPENSATION
MAHESH K S
4VP19MBA23
INTRODUCTION
Compensation is the amount of remuneration paid to an
employee by the employer in return to the employee’s
services to the company.
Compensation is extrinsic reward for an employee. Extrinsic
rewards include praise from a superior, salary, employee
benefits, career progression etc.
Almost all the employees accept jobs in MNC’s take-up
assignments in various countries, & take-up the risk, bear
inconveniences & discomforts in foreign assignments mostly
based on the compensation package.
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APPROACHES TO INTERNATIONAL COMPENSATION

1. Going rate approach

2. Balance sheet approach
3. International citizen’s approach
4. Lump sum approach

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 1. GOING RATE APPROACH
The going rate approach is also known as ‘localization’,
‘destination’ or ‘host country based approach’. The core of
this approach lies in linking the expatriate compensation to
the salary structure of the host country, taking into account
local market and compensation levels of local employees.
The going rate method aims to treat the expatriate employee
as a citizen of host country.

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ADVANTAGES
o Equality with local nationals
o Simplicity
o Identification with host country
o Equity amongst deferent nationalities
DISADVANTAGES
o Variation between assignment for same employee.
o Variation between expatriates of same nationality in deferent countries
o Potential re-entry problems

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2. BALANCE SHEET APPROACH

The balance sheet approach provides international employees

with a compensation package that equalizes cost differences
between the international assignment and the same
assignment in the home country of the individual or the
organization. The balance sheet approach is based on some
key assumptions and is designed to protect expatriations from
cost differences between their home and host countries.

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ADVANTAGES
o Equity between deferent assignments and between assignees of the same
nationality.
o Facilitates assignee re- entry.
o Easy to communicate to employees.
DISADVANTAGES
o Can lead to disparities between assignees of the deferent nationalities in the
same host country, and between assignees and local nationals.
o Administration can be complex.

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3. INTERNATIONAL CITIZEN’S APPROACH

In this approach to expatriate compensation, an international

basket of goods is used for all expatriates, regardless of
country of origin. The basket of goods includes food,
clothing, housing. However, expatriates are not provided
salary adjustments that would allow them to purchase exactly
the same items in the host country as in the home country.
Rather, they receive adjustments that would allow them to
purchase a comparable local product of the same nature.

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 4. LUMPSUM APPROACH

This involves giving expatriate a predetermined salary and

letting the individual decide about how to spend it. Finally,
there is the regional system, under which the MNC sets a
compensation system for all expatriates who are assigned to a
particular region.

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