Expanding the international workforce to include non-parent-country employees ha

Question

Expanding the international workforce to include non-parent-country employees has brought increased capabilities and decreased costs— along with a new set of compensation problems. For example, the director of international HR for a large multinational IT company faced just such a dilemma: It seems as though our international compensation program has gotten out of hand. I have parent-country expatriates, third-country nationals, and inpatriates yelling at me about their allowances. [In addition] headquarters is yelling at me because the costs are too high. Quite frankly, I can’t seem to get any answers from our consultant about how to handle compensation for such a global workforce, and no one else in the industry seems to know how to approach the problem, either. This IT multinational has 40 highly paid US expatriates working as field engineers and marketing managers in 14 countries. But it also has foreign national employees from the Philippines, Japan, and Bolivia working alongside the US employees in eight locations worldwide. And, finally, it has foreign nationals from Thailand and the Philippines working with US nationals at the organization’s headquarters. In all cases, it is the firm’s policy to send such employees out on foreign assignments for less than five years and then return them to their home countries. An example of the types of complaints that were being received from the expats involves the following problem concerning inpatriate employees working at headquarters. The firm has a field engineer from the Philippines who’s earning the equivalent of US $ 35,000 in Manila. It has another field engineer from Thailand who’s earning the equivalent of US $ 40,000 in Bangkok. And they’ve both been relocated to headquarters and are working side by side with American field engineers who earn $ 80,000 for the same job. Not only do they work side by side, but they live near each other, shop at the same stores, and eat at the same restaurants. The problem that IHR has is that it’s spending a lot of money on cost-of-living cost-of-living adjustment data for expats from two different home countries, both going to headquarters, and yet their current standard of living is the same, and the same as that of their local peers. They’re angry because their allowances don’t reflect how they live in the headquarters’ country. Their allowances also don’t reflect how they lived in their home countries, either. So what we have are two employees, one earning $ 35,000 and the other earning $ 40,000 (plus cost-of-living adjustments), working and living side by side with headquarters’ counterparts who are earning $ 80,000. The solution that most companies have tried is to simply raise the foreign nationals’ salaries to the $ 80,000 level, thereby creating a host-country pay system for a home-country employee. Unfortunately, there’s nothing more pathetic than the tears of your foreign nationals when it’s time to return home, and you have to tell them you’re cutting their salary to the pre-headquarters’ assignment level. What you are looking for is a pay system that will compensate your foreign nationals either by pay or by provided benefits [including, e.g., housing and local transportation], in a consistent, fair and equitable manner, and will allow you to repatriate them with minimal trauma.

Please answer questions 1 and 2 with at least 250 words.
1. What would you do if you were the IHR manager?
2. What kind of global compensation policy would deal effectively with this sort of problem?

Explanation / Answer

1. What would you do if you were the IHR manager?

If I were the IHR manager these were the steps that I would take. It is difficult to match the US salary with expatriates in US and also it does not make sense in paying the expatriates at the same rate as the US. As given in the example in the case study one cannot give the field engineer from Manila US $ 80,000 in US or the equivalent of US $ 80,000 in Manila as the payment that is being given to him is equivalent to that of his peers and the cost of living. At the outset let us understand and specify a painful truth. One cannot satisfy everyone. Every policy that HR comes up with gets criticized for something or the other. The aim should be to make sure that majority of employees benefit from the policy.

There are two steps that can be taken;

Either the company when sending the employee on a foreign assignment state clearly that his salary will be paid in the home country and he will either get the same or more as deemed fit for the role that he will be carrying out; but in the foreign country he will be paid a per diem in the foreign currency to tide him over to make sure that his cost of living, lodging and boarding can be taken care of. When his assignment is over, and if he has money left with him which is given to him per diem he can take it back with him. This way he has a bit more.

The other option is that if he is going to the foreign country with family then his pay needs to match the people residing in the foreign country and all his expenses will be taken care of by the company. However, in the event that he has to come back with or without his family to his home country then his salary will need to be revised back.

The reason for taking this approach is; employees need to understand that salary is paid to make sure that they can meet their daily requirements in whichever country they reside. If they are from Manila then their pay should be such that they can survive there; similarly if they are in the US the pay should be such that they can survive there; albeit in both scenarios if they are deserving they should be able to lead a comfortable life.

Just like if he is in US he will not be happy accepting his Manila level salary, similarly when he is back he should not accept a US level salary when he is in Manila.

2. What kind of global compensation policy would deal effectively with this sort of problem?

A two pronged approach can be taken. Majority of the employees will be satisfied if salary is associated with perks. Companies should try and give these one time perks so that they do not have to incur a recurring expense of increased salary.

As mentioned when an employee goes to the foreign country he can be given his salary at home in home currency. For example, the employee is from India and he is getting INR 50,000 then even if he is going to the US for a period of three years; he should get INR 50,000 only and during his appraisal his Indian salary only should get appraised. However, to tide him over in the foreign country which let us assume it to be US; he gets a per diem of US $ 50 everyday to tackle his travel, boarding and lodging. To make this per diem more appealing the company can provide him with travel and accommodation and food and still pay him US $ 50 so this sort of becomes his pocket money. If he saves his per diem in three years it amounts to a sizeable figure which overall will be a decent payout.

In case, if it is a long term move then the company should look at paying him the US salary as per his peers and industry standards as it is for a long term; also if his family is moving then he will need the money. If the scenario is such that it is a short term move but the employees family is travelling then the company should pay for his travel from home country to foreign country, pay for schooling of children, accommodation food and so on and pay him the salary of his native country and pay a higher per diem so then this per diem is just a bit more than his salary which he can save as all his other expense is paid for.

By doing these they can make the expatriates feel more comfortable and even if they have to return they do not feel the pinch.

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