International Compensation Management
Compensation management can be defined as the provisions of monetary and non-monetary rewards, including base salary, benefits, perquisites, long and short-term incentives, valued by employees in accordance with their relative contributions to MNC performance. Its broad HRM purpose is to attract, retain and motivate that personnel required throughout the MNC currently and in the future. Job evaluation is the means by which internal relatives and compensable factors, those elements an individual’s work role in the MNC and contribute to its performance are determined.
Objectives of International Compensation Management
The objectives of compensation package of MNCs are presented in Figure below MNCs manage the compensation and benefits with the following objectives.
- Recruitment and Retention of suitable Employees: MNCs design and practice compensation and benefits in order to attract, and retain suitable employees in terms of job efficiency and cultural adaptability.
- Consistency and Equity: MNCs design the salary and benefits package to secure consistency between pay and performance and equity among employees of different nationalities and categories, and employees of subsidiaries and parent company.
- Facilitate Mobility: MNCs design pay package in order to enable the employees to move from the parent company to foreign subsidiaries and from one foreign subsidiary to another foreign subsidiary.
- Adaptability to Foreign Cultures and Environment: MNCs design pay package that motivates employees and his/her family members to willingly adapt to the cultures and environment of the foreign countries. For example, providing comfortable housing, highly reliable medical facilities, security facilities against odds and international standards schooling facilities encourage employee’s family members to adapt to the foreign country cultures and environment and allow the employee to concentrate on the job.
- Organisational performance: MNCs pay package should work as motivator to enhance employee job performance, learning latest skills and contribute to the enhancement of organisational performance. In fact, performance based pay package enhances organisational performance.
Importance of International Compensations
- Attracting and Retaining Personnel: Most to attract and retain staff in the areas where the multinational has the greatest needs and opportunities, hence must be competitive and recognize factors such as the incentive for Foreign Services, tax equalization, and reimbursement for reasonable costs.
- Optimizing Cost of Compensation: It is to facilitate the transfer of International employees in the most cost-effective manner for the firm. Compensation management aims at optimizing the cost of compensation by establishing some kind of linkage with performance and compensation. It is not necessary that a higher level of wages and salaries will bring higher performance automatically but depends on the kind of linkage that is established between performance and wages and salaries.
- Consistency in Compensation: It means to be consistent with the overall strategy, structure and business needs of the multinational. Compensation management tries to achieve consistency-both internal and external – in compensating employees. Internal consistency involves payment of the basis of criticality of jobs and employees’ performance on jobs. Thus higher compensation is attached to higher-level jobs. Similarly, higher compensation attached to higher performers in the same job. External consistency involves similar compensation for a job in all organizations. Though there are many factors involved in the determination of wage and salary structure for a job in an organization which may result into some kind of disparity in the compensation of a particular job as compared to other organization, compensation management tries to reduce this disparity.
- Motivating Personnel: Compensation management aims at motivating personnel for higher productivity. Monetary compensation has its own limitations in motivating people for superior performance.