The International Compensation Challenge
Let’s learn more about the International Compensation Challenge
- Compensation is one of the most complex areas of international human resource management
- Pay systems must conform to local laws and customs for employee compensation while also fitting into global MNC policies
- Managers face diverse political systems, laws & regulations; confront different economic climates, economic development, tax policies, diverse culture, customs, the role of labor unions, standard of living
- For example, union influences may play an important role in determining wage policies in some countries such as Australia where the Australian Government and unions negotiate pay rates for workers that apply nationwide.
- In Hong Kong, by contrast, labor unions are extremely weak, and wage rates are determined by the free market
- All these different factors between international communities affect international compensation systems. Therefore, finding the right method for TNC/MNCs to determine a compensation package in an international market is simply becoming a nightmare
- It is also important for MNCs to consider carefully the motivational use of incentives and rewards among the employees drawn from three national or country categories
- The traditional function of pay to attract, retain and motivate employees has not changed
- The emphasis has shifted from the attraction and retention functions to the motivation Function.
- TNC/MNCs must ensure that those skilled employees are compensated for achieving goals that make the international business operations succeed
- As different countries have different norms for employee compensation, HR managers should consider carefully the motivational use of incentives and rewards among international community:
- For Americans money is likely to be the driving force even though no financial incentives such as prestige, independence, and influence may be motivators
- Other cultures are more likely to emphasize respect, family, job security, a satisfying personal life, social acceptance, advancement, or power
- Since there are many alternatives to money, the rule is to match the reward with the values of the culture
- There are wide variations both between countries and among organizations within countries concerning how to compensate workers
- The principal problem is salary levels for the same job and the jobs are different between countries in which a TNC/MNC operates
- Compensation policies can create conflict if local nationals compare their pay packages to the expatriate‘s and conclude that they are being treated unfairly
- Can create resentment and envy on the part of HCN managers and lower their morale and productivity
