Developing a Compensation Plan for International Personnel - Essay Example

Abstract

Globalization has opened many opportunities for multinational companies that want to expand their businesses into new territories. However, this requires having to assign employees in the home country foreign assignments, to go work in these foreign countries. A comprehensive compensation plan should therefore be in place to cater for the challenges and risks the employee will be exposed to in the new environment. They should cover base salary, premiums, incentives and allowances. Nonetheless, the company equally faces challenges in trying to move business abroad in form of fluctuations in foreign exchange, cultural differences, which may affect preferences, communication barriers among other issues. This paper discusses the components of a comprehensive compensation plan for the human resources manager, the challenges faced when taking business abroad and equally, the management options that a company should consider when making recommendations for the plan.

Keywords: international compensation plan, business, challenges, risks, globalization, multinational corporations (MNCs), markets, human resource

International Compensation Plan

In the 21st century, multinational corporations (MNCs) have proved to be the most important socio-economic developments across the world, and the culture of conducting business overseas is growing among many MNCs. However, such overseas business operations may need high order management skills in organizing and coordinating the complex operational and decision making processes. With the advent of globalization, each business is striving to expand and exploit new markets overseas, although that also comes with the challenge of having a comprehensive compensation plan for employees since the businesses will be exploring new cultures in multiple jurisdictions. Therefore, in order to go global, organizations and businesses will require well structured and equitable compensation systems that have well articulated policies to guide individuals who desire to work overseas (Jiang et al, 2009). Individuals willing to work outside or coming into a country that is not their own deserve some kind of special treatment because not only are they representing their interests, but also those of their country in the international scene hence help in building company or organization reputation globally.

It is therefore crucial for the human resource planner of an organization to understand the norms of international compensation plans because of the coordination and complexity issues that are associated with it. When designing an international compensation plan, one should consider the diverse laws in different jurisdictions, different cultural values and traditional norms of the locals, the runway inflation rates, politics and the varying salary levels among locals and expatriates. Nonetheless, the design and management of such a compensation plan for multiple work forces in different jurisdictions presents its own challenges, and they absorb most of the time of the international human resource planner (Pena, Betton & Reis, 1998). Establishing a successful working compensation plan across all spheres is however difficult to design and most of MNCs from various countries be it Europe, United States or Asia share the same kinds of frustrations. This paper discusses an international compensation plan for employees, its elements and the associated challenges, which come with overseas jobs. Equally, the paper shall provide the available management options and recommendations for the system, which will help the human resource manager understand the structure and components of the international jobs.

Elements of the Compensation and Benefits Program

Development of a comprehensive plan requires the human resource planner to understand the overseas markets and the personnel requirements, which should factor the locals, expatriates and third country nationals. The personnel strategy mix of the three groups of individuals is however dependent on the business philosophy and the company’s strategic agenda, product, markets and the availability of resources. Having such factors in mind, the human resources manager should employ the balanced sheet approach in designing an international compensation plan, where the number of expatriates is kept at minimum. The balance sheet approach basically considers the employee’s existing compensation in form of salary and other associated benefits in monetary form, plus incentives that should be added for accepting overseas assignments. The components of the plan include base salary, indirect monetary benefits, incentives on equalization policy, allowances and premiums and performance pay.

Base salary comprises establishment of salary ranges and the job evaluation plan, where a single job evaluation plan should be employed in grading the jobs of employees in the different jurisdictions. The evaluation exercise serves to provide grades for different job positions and it is important for the human resource planner to have in mind that incentives and allowances will be dependent on the salary grade (Lyons & Ben-Ora, 2002). Salary ranges are dependent of market conditions in various jurisdictions; hence their determination ought to be on country by country basis, so as not to create inequity and distortions in the job evaluation process.

Indirect monetary benefits or compensation should replicate the benefits package that is applicable in the parent company before moving overseas. However, the organization or company should consider the fact that the employee is travelling overseas and that some countries may require different provisions because such benefits and compensation may not apply in the home country (Aswathappa & Dash, 2008). For instance, if one is moving to France, they are entitled to a twenty five days vacation, which is mandatory and for companies where such practice is not applicable, the home company has to abide by such rules so as to avoid any conflicts. Retirement plans, and provisions for disability equally vary in different countries and it is up to the human resource manager to consider such issues when planning for benefits so as to have an equitable compensation structure.

Incentives on equalization policy presents another challenger to the human resource planner because of the diverse local laws and customs coupled with distance from the headquarters, which ultimately complicates the design and administration of the incentive program. After establishing the base salary, the organization should consider the incentives that can aptly convince employees to take overseas assignments. For instance, individuals should be paid overseas premium once they move into a foreign country, which is supposed to help the employee adapt to the new environment and with time, as the employee remains abroad, this should be scrapped out. This is a form of inducement of the salary so that employees can take foreign assignments and the salary premium usually varies from five to forty relative to the base salary (Philips & Fox, 2003). Therefore, the salary range will depend on the assignments and tax exemptions and usually the period of the task. Other benefits include house allowances, special allowances, bonuses for completing assignments, leave for emergencies, trainings, employment for spouse and other cultural trainings. Considerations are at times given for reimbursement of foreign taxes by employing an equal measure applicable to the home country, such as tax equalization. The formulation of fair international plan requires careful consideration on the various types of compensation and benefits.

Sometimes, MNCs can offer long term incentives in form of stock option schemes so as to reward top layer management of the business or organization overseas. For instance, the human resource planner should consider the employee’s stock option plan, in which shares can be reserved for purchase by the employees. In some cases, the employee might want to sell their shares; therefore, the organization should put in place a stock purchase plan where the company will sell shares to individuals going overseas to work at a discount (Sims & Schraeder, 2005). Such incentives help the company to maintain a long term relationship with the employee and equally build its value and image.

Besides the considerations above, performance pay issues usually form part of the complex areas in the development of an international compensation plan. Although performance pay is acceptable as the guiding principle in many companies in the US, the practice however does not apply in the less individualistic cultures; hence the human resource planner should consider that premise that performance pay meets individual needs of equity (Pena, Betton & Reis, 1998). Since the concept may not apply in multiple cultures, it is therefore essential to pay adequate attention to different cultural values when making the decision on whether or not to adopt such a form of compensation.

Challenges of doing Business Abroad

Although working overseas may look lucrative, it is not as glamorous as it may seem to others because of the challenges that are associated with moving to a new environment. To some employees, they may consider this as a success to their career, while others may consider it as a hindrance, thus it is the obligation of the human resource planner to cautiously communicate to individuals taking international assignments, since they will e representing the home company. In the process of policy formulation, the organization should maintain an open door to its employees and each should be provided with possible information of the potential risks associated with the international assignment. Apart from having a comprehensive compensation plan, the organization ought to look at issues that may make accomplishing an assignment difficult. Some of the challenges include political instability, market dynamism, cultural differences, international logistics, different tastes and preference, communication barrier and foreign exchange fluctuations.

The global political climate is among the considerations that an organization should make whenever they want to take business overseas. Political instabilities and incidences of terrorism can sometimes discourage individuals who want to grow their careers abroad. For instance, in the recent past, there have been several incidences targeting American employees, which can lead to strained trade relations that may affect business either directly or indirectly (Suutari & Tomikoski, 2001). When going global, international companies have to consider having to deal with issues like terrorism and also the different working patterns. Political stability in different jurisdictions is very essential when the company may be exploring options of expanding business on global scale, and the company should understand the government of the day so that it can be able to carry on smoothly.

Assessment of market potential in foreign country is another challenge that the business has to consider if it is going to grow and expand internationally. The company should be able to forecast the possible returns from investing in overseas countries (Haile, 2002). However, the main challenge of going abroad is assessing the future market potential in a given country and judging people based on that. Every step should be considered carefully in the evaluation and understanding of the market size is very essential when moving abroad. Therefore, it is advisable for the company to take considerable time in evaluating the prospects of the foreign market and weigh if they are appealing to the company goals and objectives.

Having an understanding of the future business and local environment of the foreign nation is very essential, in that the company should have in mind the quality of the tastes and preferences in various countries. In the process of establishing business overseas, the company should look for ways to change its strategies in the foreign land. Among the things the company should do is recruit a lot of local people so to make the company get a glimpse of the local tastes and preferences of the people, hence enabling them formulate strategies that enable them remain competitive. In order to succeed in the international scene, the motive of the company should be to ensure they establish friendly ties with the locals so that they are able to understand the nerve of the local consumer preferences and tastes (Haile, 2002). By making consideration of such factors, the company will be in a position to bridge the wide gap of cultural differences that often influence individual preferences that in most cases, are considered to come between consumers and the company.

Cultural diversity can sometimes derail the operations of a company in a foreign country thus understanding these different cultural diversities is important in establishing a better lee way in an alien environment. Since each country has different diverse cultural values and norms, it’s necessary to carry out reconnaissance research about such cultural issues so as to avoid making mistakes that may lead to the company incurring losses. Understanding the culture of another country’s business has been one of the greatest challenges for most countries seeking to expand abroad. Therefore, there is need to understand the diverse cultures in different states for companies that want to take their businesses into the international platform since what may be acceptable in the home country may turn out to be a taboo in the foreign country, and may likely draw some sentiments from the local people thus making it challenging to establish the their operations in the foreign environment (Suutari & Tomikoski, 2001). Understanding the local culture is also advantageous to the company in that it can be able to understand the local people in a better way, and equally get knowledge of the consumption trends which gives it an edge on how it plans its foreign strategies.

International logistics are equally a major concern for companies looking to expand overseas, in that they need to understand the foreign markets and the logistic policies the extra taxes they have to face when shipping their products and services overseas. The most important thing for the company is to understand the foreign market and the various companies that handle logistics in these countries, and the various types of duties and taxes that are involved (Aswathappa & Dash, 2008). Besides, the company will get to understand the logistics which are very important and are likely to greatly help it meet the requirements that are necessary so as to ensure there is no stumbling block in shipping of products across the globe.

Foreign exchange fluctuations and increase in financial costs can also become a challenge for a company that wants to move to new territories. It should be noted that finances and money are an integral aspect of ay business and for the company to expand its operations to an international level, it has to overcome the challenges of foreign exchange fluctuations and the costs associated. In addition to factoring the foreign exchange fluctuations, it is necessary to understand the payment terms prior to finalizing any deal that aims at taking the company closer to the overseas foreign country norms and values (Suutari & Tomikoski, 2001). In assessing market fluctuations, the company should consider the financial costs involved relative to the new foreign market and the cost should be within the limit of the local establishment. It is advisable for the company to have a sound backup plan that will ensure the business is shielded to protect the company from any kind of financial mishap that may be ill advised.

Communication barriers are challenges that business moving abroad are likely to encounter because of diverse languages in different countries. For a US company planning to expand, it should not just assume that English is universal. Rather, there should be consideration for other languages such as French and Spanish among others, and a clear know how of the national language of the foreign country as this may help in making strategy decisions (Jiang et al, 2009). Understanding the foreign country’s national language is important because neglecting this part may lead to the company loosing on major opportunities as a result of communication barriers and language breakdown. Therefore, the company needs to expand knowledge of the languages by offering trainings on local language to its expatriates, and the locals who work in the company should also be trained of the universal language that is applicable in the daily operations of the company (Haile, 2002). For instance, English is considered a universal international language therefore most companies expanding their business should consider having an understanding of this language so that they can be able to eliminate communication barriers.

For a company moving a broad to take their business into the international platform, they need to be a lot more patient in the process of trying to study and understand the international markets by creating sound policies and strategies. It however requires sufficient time to fully understand the markets and thus the tricks of trade in these foreign markets. At the same time, a company needs should be more sensitive at the international platform and it should be able to adjust and accommodate the needs of the local people. This however can be achieved by taking initiatives that are aimed at bridging the gap between the people and the business.

Management Options and a Recommendation for a Plan

In the quest to expand a business into a global sphere, it is essential to understand and plan on various issues and recommendations that the business should adapt to, when making considerations of sending their employees for international assignments, and equally the nature of the markets.

The first management option to consider when planning to go global is the size of the business and any future prospects that the company may want to exploit. It is necessary to spend sufficient time in understanding any future prospects and opportunities that may arise if the company goes overseas (Harold & Manulife, 2003). Apart from having an understanding of the future of employees in the foreign country, the business should try to project market prospects and the future of the company in the new territory. By doing so, the company will be in a position to secure the future of its employees and ensure them that expanding to new territories will improve their prospects and also help them develop and grow their career.

The aspect of profitability of the business is another management option that should be considered before moving abroad. The company needs to plan its operations properly so as to ensure it prospers in the new territories by weighing how profitable the business will be once it moves abroad. Proper planning ensures that the future of the business and equally employees are secure and that returns from the venture are going to be high (Pena, Betton & Reis, 1998). Convincing employees to take foreign assignments especially in volatile nations is not an easy task, but if the business shows prospects of profitability and chances of expanding, then that can motivate them to take the new assignments in these new countries.

It is recommended that the company should have an understanding of the legal issues it is likely to encounter in the process of taking business abroad, as such will guide in understanding the new market dynamics in the new country. Making such consideration will equally ensure that the safety of employees who are taking the foreign assignments in the new countries is safeguarded (Aswathappa & Dash, 2008). Legally, systems of establishing business differ in different countries, from tax laws, duties and licenses hence understanding these differences from the home country will help the company implement its strategies and operations effectively without any hitch.

Establishing a working relationship with the local people before deciding to move the business is very essential as it builds confidence thus resulting in a welcoming mood from the local people. The management plan of moving the business and strategies are supposed to focus on drawing an understanding of the local market and the tastes and preferences of the local population (Philips & Fox, 2003). Such establishments will help the employees to settle easily and equally ensure the business runs smoothly without any mishaps.

In conclusion, globalization has opened many doors for businesses and companies offering several avenues to exploit and make high returns. However, the whole adventure is not an easy task since there are a lot of considerations that need to be considered. For instance, taking foreign assignments for employees; although the profits seem to be high, there are equally many risks associated such as terrorism, and unstable markets. Therefore, compensation plans for employees moving overseas should be designed in a sensitive and extra care way because in situations where things don’t work out in these foreign markets, it is the employee working abroad who first gets affected besides the company. It is essential for the company to have solutions at hand to handle such occurrences, and address any problems that may be associated with working overseas. According to the paper, the basis of the international compensation plan and its components and the considerations the company should factor in whenever it wants to move its business abroad have been discussed. There are however challenges that the company may face in the process of going global such as cultural differences, language, foreign exchange fluctuations and logistics among others that need to be addressed through proper recommendations and management options for the business to succeed.