{"id":434032,"date":"2018-06-21T21:44:37","date_gmt":"2018-06-21T21:44:37","guid":{"rendered":"https:\/\/essaypaper.org\/?p=27994"},"modified":"2018-10-24T09:08:39","modified_gmt":"2018-10-24T09:08:39","slug":"general-overview-of-global-compensation","status":"publish","type":"post","link":"https:\/\/www.benedictsol.com\/blogs\/general-overview-of-global-compensation\/","title":{"rendered":"General Overview of Global Compensation"},"content":{"rendered":"

General Overview of Global Compensation<\/strong><\/p>\n

Introduction<\/strong><\/p>\n

Compensation is an essential reward system from the employer to the employee. Employees are the core of almost every organization. In order to attract the best talents, a compensation plan is one of the most important factors that an organization should pay attention to.\u00a0 As organizations head to the global market, the labor relationship is not only between employer and employee, but also goes beyond that to include many other factors (Milkovich & Newman, 2008).\u00a0 Establishing a global compensation plan is not easy because of the differences between the home-country and the host country.\u00a0 The differences are introduced due to many factors, such as cultural differences and political systems.\u00a0 These factors could sometimes cause ethical or legal issues due to the differences in the legal systems.\u00a0 Dealing with these issues is the Human Resources professionals\u2019 responsibility; they go over these obstacles, in order to achieve the organization\u2019s goals.<\/p>\n

Definition of Compensation <\/strong><\/p>\n

Compensation is an essential reward system from the employer to the employee.\u00a0 Employees are rewarded through the organization\u2019s compensation system.\u00a0 Compensation usually includes two major elements: pay and benefits.\u00a0 The pay also has many forms such as base pay, incentives, and differentials (Heneman, 2009).<\/p>\n

Compensation is a very important factor in the employing and retaining operations.\u00a0 Most of the employees are concerned about compensation.\u00a0 They accept or refuse the job mostly depending on the compensation plan.\u00a0 In order to attract and retain best-qualified employees, organizations should have a strong competitive compensation plan; as result, successful organizations invest in their employees.<\/p>\n

Companies need professional employees who are qualified to lead the companies\u2019 production line abroad. Competition is a major risk that organizations have to be ready for; they need to have to compensate strategy to service major competitions.\u00a0 Every organization looks for the most qualified employee who could perform the job tasks and achieve the organization goals.\u00a0 This competition makes it difficult to attract candidates to work with the organization.\u00a0 Establishing a good market-competitive pay plan would help in bringing the highly talented employees.\u00a0 The globalization and open market give organizations no choice but heading to international branches and competing against other organizations in the same field.<\/p>\n

Variety among international compensation<\/strong><\/p>\n

Figure 1 International Labor Compensations \u2500 Image retrieved from U.S. Bureau of Labor Statistics.<\/p>\n

The figure above shows the significant differences among hourly compensation costs in manufacturing in 34 countries. The differences include also the benefits percentage of total compensation. According to the U.S. Bureau of Labor Statistics, some countries spend higher percentages of social insurance expenditures more than direct-paid benefits such as Sweden, Belgium, and France. Other countries, on the other hand, such as New Zealand, Denmark, and the Philippines, spend more on Direct-paid benefits, which includes paying for leave time and bonuses.<\/p>\n

Complexities of global compensation <\/strong><\/p>\n

There are some points that affect the compensation system of organizations internationally. In order to understand the global compensation more attention should occur to these points.\u00a0 Rao (2009) concluded nine points that could cause changes in compensation systems from country to another and affect global compensation.\u00a0 These points are varying the cost of living, employees\u2019 expectations, consistency and equity, country perspectives, the exchange rate of fluctuation, varying tax rate, varying inflation rate, varying local condition, and varying requirements for facilities (Rao, 2009).<\/p>\n

Milkovich and Newman concluded that there are four main factors that influence organizations\u2019 and their compensation system.\u00a0 These factors are institutional, economic, organizational, and individual.\u00a0 Each one of these four factors consists of a group of sub-factors.\u00a0 The institutional factor is influenced by cultural traditions, social contracts, political structures, union power, and business organizations.\u00a0 The economic factor is influenced by market development, competitiveness, tax system, and ownership structures.\u00a0 The organizational factor is influenced by strategic aims, level of autonomy, technology, and innovation.\u00a0 Finally, the individual factor refers to employees and is influenced by their characteristics, knowledge, skills, attitudes, motivations, and preferences (Milkovich& Newman, 2008).<\/p>\n

Milkovich and Newman explain that some of factors and sub-factors are affecting the global compensation systems more than the others.\u00a0 They established five effective factors: social contracts, trade unions, capital markets and ownership structure, management autonomy, and institutional and cultural framework.\u00a0 These factors help in explaining the variations in international compensation practices (Milkovich & Newman, 2008).<\/p>\n

Marin gives many examples to clarify these factors (Marin, 2008). The social contract, from the global perspectives, does not consist of employee-employer relationship; it goes beyond that to include all employees and their unions, the owners of the other companies, and the government.\u00a0 This social contract changes from country to another because of differences among people, different union and governmental regulations, and different organizational rules.\u00a0 The social contract appears in the level of centralization in the compensation system in the country.\u00a0 Some countries like the United Kingdom and Canada have low level of centralized compensation systems. In Denmark and Belgium, on the other hand, they have high level of government involvement in the compensation system (Marin, 2008).<\/p>\n

Organizations in some countries need collective agreement with employees to establish the system (Marin, 2008).\u00a0 Marin refers to the existence of trade unions as another element of the social contract that impacts the international compensation design.\u00a0 Some countries such as Denmark and Sweden have high union membership, while other countries such as United Kingdom and the USA have low union membership.\u00a0 Union presence affects the organizations, when it comes to employees\u2019 compensation systems.<\/p>\n

The financial and ownership structures affect the international compensation systems.\u00a0 For example, the economic structure in some countries such as South Korea depends on limited numbers of corporations.\u00a0 Also, Germany has high ownership concentrations by limited numbers of large banks.\u00a0 Marin illustrates the ownership structures impact on the international compensation systems by using China as an example.\u00a0 China has various forms of ownership as a result of the social and political confusions. China has wholly foreign companies, private companies with foreign shareholders, and state-owned companies.\u00a0 The employers and employees\u2019 expectations in the new private companies differ from the old public companies.\u00a0 The compensation system in the private companies tends to be linked more to performance than in the public companies (Marin, 2008).<\/p>\n

Management autonomy is defined as the amount of freedom that the manager has while dealing with compensation system.\u00a0 Countries that have high level of centralization of the compensation system have less amount of autonomy such as in EU countries and Japan.\u00a0 Contrariwise, in the USA and United Kingdom, most of the companies have more autonomy in designing or changing the compensation system (Marin, 2008).<\/p>\n

Culture is a set of values and beliefs that are shared by a group of people and very difficult to change (Mejia & Werner, 2008).\u00a0 Countries\u2019 cultures are the product of history, climate, geography and other factors of these countries. Cultural values impact everything in the organizations. These values affect organization\u2019s philosophy, management\u2019s style and motivation techniques (Mejia & Werner, 2008). Understanding the national culture helps in understanding the compensation system in these organizations. For example, cultures high in individualism prefer a pay for performance method (Marin, 2008).<\/p>\n

Planning, Establishing and Maintaining Global Compensation.<\/strong><\/p>\n

Krupp determines 7 points that human resource professionals need to understand prior to creating a competitive compensation plan.\u00a0 The 7 points are payroll tax and legal requirements, benefit norms, compensation information about benchmark jobs, staffing issues, payroll provisions, employment practices, and incentive opportunities (Krupp, 2002).<\/p>\n

Building an international compensation plan has three stages: philosophy, design, and implementation.\u00a0 In the philosophy stage, the human resources professional should understand the organization\u2019s global and regional goals. Also, he\/she should address the global compensation plan and consider program alternatives.\u00a0 Furthermore, he\/she should try to combine global strategies with cultural practices (Krupp, 2002).<\/p>\n

The second stage in Krupp\u2019s compensation plan is designing.\u00a0 In this stage, the HR professional determines the employment and work conditions, labor laws, and employment contracts in that targeted country.\u00a0 The professional should monitor the local workforce mobility and the existing talent pool.\u00a0 Also, he\/she should observe the competitive hiring practices in order to design a competitive plan; furthermore, there are some points that should be discussed such as economic trends, employment costs, payroll options, and legal requirements (Krupp, 2002).<\/p>\n

The last stage to design a compensation plan is implementation.\u00a0 Based on the collected information, the HR professional establishes processes such as making surveys about the competitive companies.\u00a0 With the surveys\u2019 results, the HR professional makes concerns and recommendations about the overall compensation plan (Krupp, 2002).<\/p>\n

While designing an international compensation plan, Organizations should pay attention to employment legislation for each country such as discrimination laws, immigration issues and work visas.\u00a0 Also, countries\u2019 tax laws differ from one country to another; therefore, organizations should offer benefits that consistent with the county\u2019s tax laws (Krupp, 2002).<\/p>\n

Expatriate compensation<\/strong><\/p>\n

International companies bring professional employees from their home-country, expatriates, to benefit their experiences in establishing and leading the new branch outside the country. Global organizations need to establish a strong compensation plan for these expatriates that motivate them to travel abroad.\u00a0 At the same time, this plan should be equitable otherwise local employees would feel unfairness towards the organization.\u00a0 According to (KPMG), Internet-based International Human Resources Survey, 35% of companies surveyed choose to send employees from the home country to fill an international position.\u00a0 The survey stated that the average of employee\u2019s mission length is greater than three years (Dwyer, 1999).<\/p>\n

Salimaki and Heneman divide the expatriate compensation system into three approaches: host-country approach, global approach, and home-country approach.\u00a0 The host-country approach is used when the organization replaces a local hire with an expatriate. This method is less expensive and treat expatriate equally to local hire; however, it does not motivate international mobility.\u00a0 The global, or the full balance sheet, approach works with an international scale. Organizations adopt this method usually when the expatriate moves among many foreign countries and loses the direct connection with home country compensation policy. This method costs the most among the three approaches. Finally, the home-country approach is common and it helps expatriates to live like home country life style; however, this approach creates a feel of unfairness among expatriates and local hires (Salimaki & Heneman, 2008).\u00a0 Usually this system pays expatriates home country base salary, housing allowance, and cost-of-living.\u00a0 With this approach, the company attracts employees to move to overseas locations.<\/p>\n

Incentives and allowances help organizations to attract employees traveling to the undesirable destinations such as war-torn countries.\u00a0 Organizations that adopt outsourcing tend to use variety of incentives, such as foreign service premiums, hardship\/danger pay, mobility premiums, and relocation allowances (Dwyer, 1999).<\/p>\n

Conclusion<\/strong><\/p>\n

Organizations need strong compensation system in order to attract qualified talents and to overcome the competitions from competed organizations. Compensation philosophy and practices should follow the organization\u2019s goals and objectives.\u00a0 Global competitive creates a pressure on organizations to build a stronger compensation plan.\u00a0 Human resources management plays essential role in the success of international organizations and in adopting a global strategy.\u00a0 Human resources practices study the new country\u2019s culture and what organizations should concern about when establishing multinational enterprises.<\/p>\n

There are many factors that could affect global compensation, such as individuals, policies, cultures, and economy.\u00a0 International organizations, in order to reach their goals, should study and understand the local culture and labor law systems in the targeted country to design a compensation plan that fits with this country.\u00a0 Another issue that international organizations should concern about is deciding whether choosing local employees or expatriates would benefit them the most.<\/p>\n

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References:<\/strong><\/p>\n

Dessler, G. (2013). Human resource management (13th ed.). Boston, Mass.: Pearson Education.<\/p>\n

Dwyer, T. (1999). Trends in global compensation. Compensation and Benefits Review, 31(4), 48-53. Retrieved from http:\/\/search.proquest.com\/docview\/213666969?accountid=27424<\/p>\n

Freedman, R. J., & Bout, A. (1999). Compensation issues facing companies in the global marketplace. ACA News, 42(10), 14-19. Retrieved from http:\/\/search.proquest.com\/docview\/194697886?accountid=27424<\/p>\n

Heneman, H. & Judge, T. (2009). Staffing organizations. Middleton, WI Boston: Mendota House McGraw-Hill Irwin.<\/p>\n

Herod, R. (2008). Global compensation and benefits developing policies for local nationals. Alexandria, VA: Society for Human Resource Management.<\/p>\n

International Comparisons of Hourly Compensation Costs in Manufacturing, 2012. (2013, January 1). U.S. Bureau of Labor Statistics. Retrieved October 10, 2014 from:<\/p>\n

http:\/\/www.bls.gov\/fls\/ichcc.pdf<\/p>\n

Krupp, N. B. (2002). Global compensation planning–establishing and maintaining a competitive edge in the international marketplace. Compensation & Benefits Management, 18(2), 54-56. Retrieved from http:\/\/search.proquest.com\/docview\/206603545?accountid=27424<\/p>\n

Marin, G. (2008). The influence of institutional and cultural factors on compensation practices around the world. In: L. Mejia & S. Werner (Eds.), Global Compensation: Foundations and Perspectives (p. 248). Routledge.<\/p>\n

Mejia, L., & Werner, S. (2008). Global compensation: Foundations and perspectives. London: Routledge.<\/p>\n

Milkovich, G., & Newman, J. (2008). Compensation (9th ed.). Boston: McGraw-Hill\/Irwin.<\/p>\n

Mishra, R. K., Singh, P., & Sarkar, S. (2012). Cross-cultural dimension of compensation management: Global Perspectives. Journal of Strategic Human Resource Management, 1(2), 63-71. Retrieved from http:\/\/search.proquest.com\/docview\/1478028071?accountid=27424<\/p>\n

Rao, S. (2009). International Human Resource Management, (pp. 14,330). Mumbai: Himalaya Publishing House.<\/p>\n

Salimaki, A.& Heneman, R. (2008). Pay for performance for global employees. In: L. Mejia & S. Werner (Eds.), Global Compensation: Foundations and Perspectives (p. 248). Routledge.<\/p>\n","protected":false},"excerpt":{"rendered":"

General Overview of Global Compensation Introduction Compensation is an essential reward system from the employer to the employee. Employees are the core of almost every organization. In order to attract the best talents, a compensation plan is one of the Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-434032","post","type-post","status-publish","format-standard","hentry","category-essay-paper-writing"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/434032","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=434032"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/434032\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=434032"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=434032"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=434032"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}