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Premium member Presentation Transcript Slide 1: Nidhi Dubey MBA -HR Global Compensation Its Objectives & Approaches Introduction : 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. Slide 3: Complexities of Global Compensation Slide 4: Components Of Global Compensation Package Slide 5: Objectives Of Global Compensation Factors that affect Global Compensation : Factors that affect Global Compensation MNC’s Internal Environment Goal Orientation & compensation objectives Competitive strategy Organisational Culture Human Resource Structure Employee-Employer Relations Subsidiary role Level of Technology MNC’S External Environment Parent Country Labour Market Characteristics Local conditions Home & Host Country govt. roles Industry type Competitor’s Strategies Founder’s Philosophy MNC’s Compensation Package Slide 7: Approaches of Global Compensation Management Salary Level in Host Country Approach : Salary Level in Host Country Approach It is also called Localization Approach Global compensation is based on salary levels for similar jobs in comparable organizations in the host country For example, HSBS in India pays salaries to Indians(host country nationals), Chinese(parent country nationals) & Americans(third country nationals)based on: salary levels of Indian banks like ICICI,IDBI,HDFC or salary levels of foreign banks operating in India like Citi bank or salary levels of other Chinese financial institutions operating in India. Negotiation/Bargaining Approach : Negotiation/Bargaining Approach Some employees as well as MNC’s prefer to determine the compensation package through mutual negotiations between the employee & the employer. It would be possible when – The number of expatriates is relatively less The company & prospective employee have full knowledge of on-going salary levels, The skills of the prospective employee are in short supply. Lumpsum Approach : Lumpsum Approach Under this, MNC determines the total package in money value that covers the base salary, all kinds of allowances and benefits. The employee is provided with the freedom of allocating the money & deciding up on the type and quality of housing, medical, conveyance, education for self & family members, air travel, recreational facilities, taxation, repatriation of savings, seeting-in, setting-out, exchange rate production etc. Buffet Approach : Buffet Approach Under this, the total salary level is determined by the organisation & the employee given an option to decide the cash component & benefits component in the total compensation package Employees normally select more components of benefits depending upon their needs & remaining portion of the compensation in the form of cash. This option reduces the tax burden Cluster Systems Approach : Cluster Systems Approach MNC’s segment the countries and/or cities into clusters based on the cost of living & other factors like hardships & danger issues that affect the compensation package. They determine more or less same compensation package for each job within the same cluster of cities. This approach reduces the cost of complexities in the compensation administration. Global Approach : Global Approach Under this approach, MNC determine the uniform pay scales for such jobs throughout all the countries where they operate. Further, these pay scales are applicable uniformly for all categories of employees including the host country nationals This approach is based on the concept of national pay scales with in a country. Performance Based Approach : Performance Based Approach This approach provides the opportunity for best performers to earn high salary irrespective of nationality including host country nationals. This approach provides a minimum guaranteed base salary irrespective of performance that would be enough to meet the basic needs of employees. This approach is organisation friendly as it enhances organisation performance & increases value & productivity. Double Home Country Salary & Living Compensation at the Host Country Approach : Double Home Country Salary & Living Compensation at the Host Country Approach Under this approach, MNC’s determine the package in such a way that the expatriates get compensation best domestic salary plus living host country compensation. Double home country salary would be the double of the best salary that a best candidate gets in the home country for a similar job. Balance Sheet Approach : Balance Sheet Approach Basic objective of global compensation is maintenance of home-country living standard plus financial inducement Home-country pay and benefits are the foundations of this approach Adjustments to home package to balance additionalexpenditure in host country Financial incentives (expatriate/hardship premium) addedto make the package attractive Most common system in usage by multinational firms Contd… : Contd… The four Balance Sheet Approach categories: Goods and services – home-country outlays for items such as food, personal care, clothing, household furnishings, recreation, transportation and medical care. Housing – the major costs associated with housing in the host country. Income taxes – parent-country and host-country income taxes. Reserve – contributions to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc. Compensation Approach in various countries : Compensation Approach in various countries In USA - Compensation package includes: base salary, bonus, long term incentives & other benefits and peaks. The base salary is the small part of the total package. In Europe – Paid less compensation than that of American executives. In Japan – The compensation levels of CEO’s of large companies are just one-third of those of American CEO’s. Japanese compensation is based on seniority of employees. Thank You : Thank You You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.