Compensation Practices in the Multinational Companies
Introduction
With the advent of the multinational companies (MNCs), their operation and management have been a subject of discussion. ... Compensation system, including salary and non-salary elements, is the vital factors provided by the MNCs to attract people to join them, remain with them and perform well for them. This paper talks about the compensation practices in MNCs. At the beginning, the key elements of compensation such as base salary, benefits, allowances and taxes, and the different compensation packages are introduced. In the main part of the paper, the three significant reasons for the MNCs to understand the compensation practices of the countries in which it operates are discussed. ... Lastly, morale is another consideration should be mentioned in compensation practices.
There are usually four common elements in the typical expatriate compensation package, including base salary, benefits, allowances, and taxes. ... 183-187;)
Base Salary
Base Salary is the amount of cash compensation that serves as a benchmark for other compensation elements. ...
Benefits
Benefits are parts of compensation for employees compose a proportion of approximately one-third. Multinational firms provide not only salary adjustments, but also special forms of benefits for their expatriate managers in addition to standard benefits such as health insurance and pension benefits. ...
Allowances
Four types of allowances are often included in an expatriate¡¯s compensation package: cost-of-living allowance involves payment for difference between the home country and the overseas assignment, housing allowance covers all associated expenses the expatriate with a residence during the assignment, education allowance refers the expenses for the expatriate¡¯s children and hardship allowance is paid when the expatriate is being sent to a difficult location. ...
Taxes
Tax laws also vary greatly from country to country, so tax equalization become another major part of expatriate compensation. ... In additional, multinational firms normally make the reasonable adjustment to equalise the two tax rates (Hodgetts & Luthans, 1993).
Compensation packages
According to these elements mentioned above, different companies should choose different but suitable compensation packages. ... Two of them are widely used in multinational firms, balance sheet approach and going rate approach (Dowling, Welch & Schuler, 1999, p. ...
The most widely used approach in international compensation is the balance sheet approach. ...
The reason for MNCs to understand the compensation practices
After explaining the main elements of compensation and the different compensation packages, one issue coming out to discuss is why it is important for a multinational firm to understand the compensation practices of the countries in which it operates.
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