Week 5 – Global Compensation
LEARNING RESOURCES
1. Read Chapter 6 of the Bhebe book
2. Read Introduction to Global Compensation.
3. Compensation and total rewards practices differ greatly across countries. Read this article on International
Compensation Practices: A Ten-Country Comparative Analysis: International Compensation Comparative
4. Look at this example of a balance sheet approach: Balance Sheet sample
5. Read how to avoid problems and issues in global compensation and benefits: Avoid Global Compensation
Obstacles
Week 5 Activities
Must use the provided resources. Occasionally it may be helpful to search other resources, and some assignments may
call for additional research, but I am really looking for evidence that you read the course material and can apply it.
Companies can take one of four approaches to compensation. Which do you think is the best approach? Why?
Frame your post as an argument.
Learn to support your arguments
The home-country-based approach. The objective of a home-based compensation program is to equalize the employee
to a standard of living enjoyed in their home country. The 2016 Cartus Global Mobility Policy & Practices Survey found
that 76 percent of long-term assignments and 75 percent of short-term assignments use a home country pay structure.1
Under this system, the employee’s base salary is broken down into four general categories: taxes, housing, goods and
services, and discretionary income.
The host-country-based approach. With this approach, the expatriate employee’s compensation is based on local
national rates. Many companies continue to cover the employee in its defined contribution or defined benefit pension
schemes and provide housing allowances. Only 14 percent of long-term assignments and 5 percent of short-term
assignments base pay on local rates, according to the Cartus survey.2
The headquarters-based approach. This approach assumes that all assignees, regardless of location, are in one country
(i.e., a U.S. company pays all assignees a U.S.-based salary, regardless of geography). Cartus found that a small
percentage of companies use headquarters-based approaches for long-term assignments (4 percent) and short-term
assignments (5 percent).3
Balance sheet approach. In this scenario, the compensation is calculated using the home-country-based approach with
all allowances, deductions, and reimbursements. After the net salary has been determined, it is then converted to the
host country’s currency. Since one of the primary goals of an international compensation management program is to
maintain the expatriate’s current standard of living, developing an equitable and functional compensation plan that
combines balance and flexibility is extremely challenging for multinational companies. To this end, many companies
adopt a balance sheet approach. This approach guarantees that employees in international assignments maintain the
same standard of living they enjoyed in their home country. A worksheet lists the costs of major expenses in the home
and host countries, and any differences are used to increase or decrease the compensation to keep it in balance.
Source: https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/designingglobalcompensation.aspx
(Note that this source requires a paid subscription to SHRM to view the full article.)