International Human Resource Management Performance Management : International Human Resource Management Performance Management Performance management: Performance management A process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets Components of Performance Management : Components of Performance Management Constraints in goal attainment: Constraints in goal attainment Whole versus part. Non-comparable data. Volatility of the global environment. Separation by time and distance. Variable levels of maturity. Variables Affecting Expatriate Performance : Variables Affecting Expatriate Performance Tasks: Tasks The task: Chief executive officer Structure reproducer Troubleshooter Operative Task variables are generally considered more under the control of the multinational than environmental factors. Roles: Roles A role is the organized set of behaviors assigned to a particular position. Effective role behavior is an interaction between the concept of the role, the interpretation of expectations, the person’s ambitions, and the norms inherent in the role. The difficulty for the expatriate manager is that the role may be defined in one country, but performed in another. Headquarters’ Support: IBUS 618 Dr. Yang 8 Headquarters’ Support The support of headquarters is important – both to the individual expatriate and accompanying family members – as a performance variable The Host Environment: The Host Environment The external context can be a major determinant of expatriate performance Differing demands in terms of the context: Societal Legal Economic Technical Physical Type of operation involved (e.g. IJV versus wholly-owned subsidiary) Contextual Model of Expatriate Performance Management : Contextual Model of Expatriate Performance Management Expatriate Performance Appraisal: Expatriate Performance Appraisal Goals can be used as the basis for performance criteria: Hard Goals – objective, quantifiable and measurable (e.g.: ROI, market share) Soft Goals – relationship or trait-based (e.g.: leadership style, interpersonal skills) Contextual Goals – Factors that result from the situation or environment in which an expatriate performs (e.g.: host country regulations and restrictions) Often, organizations use only hard goals to assess their expatriates. Things like behaviour of the expatriates and ways of obtaining results (bribery?) must also be considered Factors Affecting Appraisal: Factors Affecting Appraisal Who conducts the performance appraisal Use of standardized or customized appraisal form Frequency of appraisal Performance feedback Timely Geographical distance affects Conducting of performance appraisal: Conducting of performance appraisal Subsidiary managers tend to assess according to subsidiary performance. Appraisal for other employees is likely to be conducted by subsidiary's chief. Multiple raters are sometimes used in the domestic context. Virtual assignment situation. Appraisal of HCNs: Appraisal of HCNs The practice itself confronts the issue of cultural applicability. May be necessary to use local staff and a customized form. Level of position involved is an important consideration. HCN ROLE CONCEPTION :: HCN ROLE CONCEPTION : Communicates role conception Cultural boundary USE HOST COUNTRY NATIONALS TO ASSISTS IN DEVISING A SUITABLE SYSTEM Parent company HC Stakeholders Role senders HCN manager Role recipient HCN manager’s role behavior Important Issues in IHRM : Important Issues in IHRM There are several important issues in IHRM which are: organizations which are operating at the international level must face. These include, for example: – Attitudes of Employees and Work Ethics – Recruitment & Selection Policy – Compensation Policy – Training and Development Policy – Ethical Issues (e.g. bribery and corruption) & Corporate Social Responsibility – Dealing with the host country‘s Bureaucracy and Government – Host country‘s Legal Framework (relating to Labour etc.) Ownership Issues: Ownership Issues Small and medium-sized firms (SMEs) International activities place stress on limited resources especially staff Key individuals often represent the SME’s stock of international competence Retaining key staff critical Converting tacit knowledge into organizational knowledge a challenge Family-owned Firms: Family-owned Firms Not just a sub-set of SMEs Management succession presents special HR planning concerns The globalization of family-owned firms has been a remote topic in international business studies Non-Government Organizations:
Non-Government Organizations As active internationally as for-profit firms, yet receive less attention, e.g.
Greenpeace groups These organizations share similar management and HR concerns Often operate in high risk areas of the globe Anti-globalization rallies and protest Global terrorism Broadening our focus of IHRM is important
Research Issues: Research Issues The field of IHRM has been slow to develop a rigorous body of theory Regarded as a marginal area International studies are more expensive to fund Major methodological problems Defining culture and the emic-etic distinction Static group comparisons Translation and stimulus equivalence Theoretical Developments: Theoretical Developments Possible to identify two streams of inquiry The micro-level The macro level Low response to surveys may be a factor of Culture Language used Lack of use of teams of researchers Compensation : Compensation Introduction: Introduction Global compensation managers deal with two areas of focus They must manage highly complex and turbulent local details, and Build and maintain a unified strategic pattern of compensation policies, practices and values. Employment and taxation law, Customs, Environment, etc of various countries. Objectives of international compensation: Objectives of international compensation Policy should be consistent with the overall strategy, structure and business needs of the MNC Policy must work to retain and attract staff Policy should facilitate the transfer of international employees in the most cost effective manner for the firm Policy should give due consideration to equity and ease of administration. Key components of an international compensation program: Key components of an international compensation program 1. Base salary 2. Foreign service inducement/hardship premium 3. Allowances 4. Benefits 1. BASE SALARY: 1. BASE SALARY It is a primary component of a package of allowance Basis for in-service benefits and pension contributions Payable in home or local country currency Major difference can occur in the package depending upon whether salary is linked to home country or international rate is paid 2. Foreign service inducement/hardship premium: 2. Foreign service inducement/hardship premium PCNs often receive this salary The definition of hardship, eligibility, amount and timing has to be addressed. US firm refer to Hardship Post Differential Guidelines Usually as a percentage of salary (5-40% of base pay) 3. Allowances: 3. Allowances Cost-of-living-allowance Differences in expenditures between the home country and the foreign country Housing allowance Employees should be entitled to maintain their home country living standards Company – provided housing Fixed housing allowance PowerPoint Presentation: Home leave allowance Employers cover one or more trips back to the home country Renew family ties Education allowance Tuition, language class tuition, enrolment fees, books, uniform PowerPoint Presentation: Relocation allowance Moving, shipping and storage charges, temporary living expenses Spouse assistance Guard against income lost by an expatriate’ s spouse as a result of relocation Providing spouses with employment 4. Benefits: 4. Benefits Transportability of pension plans, medical coverage and social security benefits are very difficult to normalize. Therefore many issues have to be addressed Whether or not to maintain expatriates in home-country programs particularly if the firm does not receive a tax deduction Whether firms have the option of enrolling expatriates in host-country benefits programs and/or making up any difference in coverage Whether expatriates should receive home-country or host-country social security benefits Types of benefits: Types of benefits Vacation and special leave Airfares Rest and rehabilitation leave Emergency provisions (death or illness) Additional leave expense payments (hardship location) Approaches to international compensation: Approaches to international compensation Going rate approach Balance sheet approach Going rate approach: Going rate approach Based on local market rates Relies on survey comparison among: local nationals (HCNs) Expatriates of same nationality Expatriates of all nationalities Compensation based on the selected survey comparison Base pay and benefits may be supplemented by additional payments for low-pay countries Advantages and disadvantages of the Going Rate Approach: Advantages and disadvantages of the Going Rate Approach Disadvantages Variation between assignments for same employee Variation between expatriates of same nationality in different countries Potential re-entry problems Advantages Equality with local nationals Simplicity Identification with host country Equality amongst different nationalities The Balance Sheet Approach: The Balance Sheet Approach Basic objective is maintenance of home-country living standard plus financial inducements Home-country pay and benefits are the foundations of this approach Adjustments to home package to balance additional expenditure in host country Financial incentives added to make the package attractive Most common system in usage by multinational firms Advantages and disadvantages of the Balance Sheet Approach: Advantages and disadvantages of the Balance Sheet Approach Disadvantages Can result in great disparities Between expatriates of different nationalities Between expatriates and local nationals Can be complex to administer Advantages Equity Between assignments Between expatriates of the same nationality Facilities expatriate re-entry Easy to communicate to employees Compensation: Compensation Two issues: How to adjust compensation to reflect national differences in economic circumstances and compensation practices. How expatriate managers should be paid. Compensation Issues: Compensation Issues Common Elements of Compensation Packages: Common Elements of Compensation Packages Most compensation packages are designed around four common elements: Allowances Taxes Base Salary Benefits COMPENSATION PACKAGE : In addition to a base salary, compensation includes: House rent allowance (HRA*). Medical allowance. Dearness allowance (DA*). Leave travel allowance (LTA*). Commuter allowance. Common Elements of Compensation Packages: Common Elements of Compensation Packages Base salary Amount of money that an expatriate normally receives in the home country Benefits Should host-country legislation regarding termination of employment affects employee benefits entitlements? Is the home or host country responsible for the expatriates’ social security benefits? Should benefits be subject to the requirements of the home or host country? Which country should pay for the benefits? Should other benefits be used to offset any shortfall in coverage? Should home-country benefits programs be available to local nationals? Common Elements of Compensation Packages: Common Elements of Compensation Packages Allowances Cost-of-Living Allowance Payment for differences between the home country and the overseas assignment. Designed to provide the expatriate the same standard of living enjoyed in the home country May cover a variety of expenses, including relocation, housing, education and hardship Incentives A growing number of firms have replaced the ongoing premium for overseas assignments with a one-time, lump-sum premium Common Elements of Compensation Packages: Common Elements of Compensation Packages Taxes Tax equalization An expatriate may have two tax bills for the same pay Host country U.S. Internal Revenue Service MNCs usually pay the extra tax burden PowerPoint Presentation: The "Expat Package" Hardship bonus (often between 10% - 30% of base income) Executive housing for the family (including utility costs) Automobile including fuel and maintenance (often with a driver) International private schooling for children Round-trip airfare to the home country for entire family (at least once per year) Executive relocation for the entire family (before and after the posting) Sale or safeguarding of original family home Tax equalization with the home country Financial planning advice Executive healthcare coverage for family Social security systems: Social security systems Social Security is a federal program that taxes workers to provide income support for the elderly. Over the next 75 years, the program has promised $3.7 trillion more in benefit payments than it plans to collect in taxes from workers. Introduction: Introduction It is the single largest income source of the elderly Social Security is also the largest social insurance program in the U.S. By making payroll tax payments to Social Security, workers purchase insurance against earnings loss when they die or retire. Introduction: Introduction The institutional features of Social Security provides economic motivations for government intervention. It examines behavioral responses, such as crowding out of saving and encouraging early retirement. WHAT IS SOCIAL SECURITY: WHAT IS SOCIAL SECURITY Social Security began in 1935, during the height of the Great Depression. The main motivation was to provide a means of support for this unfortunate generation of elderly. Basic structure is that workers (and employers) pay a payroll tax, and the money is used to pay benefits to the current generation of elderly. Origins of Social Security : Origins of Social Security Social Security is a system by which living wages are paid to those who are retired. It is designed to enable the elderly and disabled to retire, but to still earn monthly incomes. In 1898, Chile was one of the first American Nations to implement a Social Security program. The United States did not adopt Social Security until 1935. Social Security and the Military Coup: Social Security and the Military Coup The new military government eliminated the traditional “pay-as-you-go” (PAYG) system. This system was similar to the system still used by the United States, involving mandatory tax based contributions. Laid the groundwork for the current privatized social security system, which involves mandatory contributions, with fixed exceptions. “Pay-as-you-go”: “Pay-as-you-go” The government takes a percent of workers’ monthly salaries and deposits it into a general social security fund. This fund directly finances social security benefits paid to those currently retired. A PAYG type system relies entirely on the willingness of younger generations to work. How Many People Get Social Security?: How Many People Get Social Security? 47.7 million people receive Social Security each month 1 in 6 Americans get Social Security benefits Nearly 1 in 4 households get income from Social Security 53 Who Gets Social Security?: Who Gets Social Security? 30.0 million retired workers 4.8 million widows and widowers 6.2 million disabled workers 0.8 million adults disabled since childhood 3.1 million children 54 Financing Social Security: Financing Social Security Workers and their employers pay with Social Security taxes Workers pay 6.2% of their earning for Social Security, and 1.45% of their earnings for Hospital Insurance under Medicare (Part A) Employers pay an equal amount The total is 12.4% for Social Security and 2.9% for HI Social Security tax base is $97,500 in 2007 55 Worker Benefits: Worker Benefits Workers over 62 are eligible If they have worked 10 years Benefits are based on a workers earnings history Career-average earnings Average Indexed Monthly Earnings (AIME) 56 Only 3 Ways to Fix Social Security: Only 3 Ways to Fix Social Security Raise Taxes Cut Benefits Increase Investment Returns Private investment Either government or individual 57 Options: Raise Taxes: Options: Raise Taxes OPTION Increase tax rate by 2% total Tax all earnings Tax 90% of earnings Include new state & local govt. workers Tax SS benefits like pensions % of Deficit Eliminated 104% 93% 40% 10% 20% Options: Cut Benefits: Options: Cut Benefits OPTION Raise retirement age (to 67 faster & index) Reduce COLA by ½% each year Cut benefits by 5% for those starting to get benefits in 2005 Increase # years in wage avg. to 40 % of Deficit Eliminated 28% 41% 32% 21% Options: Increase Investment Returns: Options: Increase Investment Returns OPTION Investments in equities % of Deficit Eliminated 36% - 50% Lower birth rates and increasing life expectancies mean fewer workers to support each Social Security recipient: Lower birth rates and increasing life expectancies mean fewer workers to support each Social Security recipient 1960: 5.1 to 1 Today: 3.4 to 1 2030: 2.1 to 1 Worker-to-Retiree Ratio Table 2: Social Security System of Thailand/1: Table 2: Social Security System of Thailand/1 62 Global compensation issues: i. The drivers of workforce engagement and their role in global total reward strategies ii. The impact of shifts in labor markets on global remuneration data, planning, and pay structures iii. Redefining global equity practices and the impact of behavioral economics on workforce response iv. Complying with new global governance initiatives related to pay-for-performance programs and risk management : Global compensation issues: i. The drivers of workforce engagement and their role in global total reward strategies ii. The impact of shifts in labor markets on global remuneration data, planning, and pay structures iii. Redefining global equity practices and the impact of behavioral economics on workforce response iv. Complying with new global governance initiatives related to pay-for-performance programs and risk management