International Compensation

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In today’s increasingly competitive environment, businesses are globalizing their firms in order to maximize their profitability and compete effectively. This has led to an increase in Multinational Corporations (MNCs), which are enterprises that deliver services or manage production in more than one country. With the rise of MNCs, managers have to deal with diverse challenges, one of the most important issues is to determine how to appropriately compensate and incentivize their employees.

International compensation is defined as ‘the provision of monetary and non-monetary rewards valued by employees according to their relative contributions to MNC performance’ (Harzing, 2004). The main objective of any international compensation is to attract and retain the most talented people who are qualified for international assignments. In most situations, managers would want to hire expatriates as they already have a good understanding of the business. Management must then determine how to reward the expatriates and local managers fairly in order to avoid discrimination.

The main challenge in international compensation is to facilitate international mobility and ensure equity. However, due to the multiple international contexts and employee groups, it is very complex to achieve this balance in multinational companies (Harzing and Ruysseveldt, 2004). For example, there is an inequity challenge through comparing the salaries of employees who transfer from one country to another, and equitable salaries among various businesses operations are difficult to be provided. Moreover, there are also some inequity problems between locals and expatriates of compensation gap.

With the challenge of international compensation, there are four approaches to deal with equity issue of international staff, which are Balance Sheet Approach, Host country approach, regional systems and Going-rate approach. Taking going-rate approach as an example, it is a key approach to compensation...
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