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Monday 19 June 2017

International HRM: Reward

Compensation problems with a global workforce

Expanding the international workforce to include non-parent country employees has brought increased capabilities and decreased costs – along with a new set of compensation problems. For example, the director of international HRM for a large multinational IT company faced such a dilemma.

It seems as though our international compensation program has gotten out of hand. I have parent-country expatriates, third-country nationals and inpatriates yelling at me about their allowances. In addition, headquarters is yelling at me because the costs are too high. Quite frankly I can’t seem to get any answers from our consultants about how to handle compensation for such a global workforce and no one else in the industry seems to know how to approach the problem either.

This IT multinational has 40 highly paid US expatriates working as field engineers and marketing managers in 14 countries. But it also has foreign national employees from the Philippines, Japan and Bolivia working alongside the US employees in eight locations worldwide. And, finally, it has foreign nationals from Thailand and the Philippines working with US nationals at the organization’s headquarters. In all cases it is the firm’s policy to send such employees out on foreign assignments for less than five years and then return them to their home countries. An example of the types of complaints that were being received from the expats involves the following problem concerning inpatriate employees working at headquarters.

The firm has a field engineer from the Philippines who’s earning the equivalent of US$25,000 in Manila. It has another field engineer from Thailand who‘s earning the equivalent of US$30,000 in Bangkok. And they’ve both been relocated to headquarters and are working side-by-side with American field engineers who earn US$60,000 for the same job. Not only do they work side-by-side but they live near each other, shop at the same stores and eat in the same restaurants. The problem that IHR has is that it’s spending a lot of money on cost-of-living adjustment data for expats from two different home countries, both going to headquarters, and yet their current standard of living is the same, and the same as their local peers. They are angry because their allowances don’t reflect how they live in the headquarters’ country. Their allowances also don’t reflect how they lived in their home countries either.

So what we have are two employees, one earning US$25,000 and the other earning US$30,000 (plus cost of living adjustments), working and living side-by-side with headquarters’ counterparts who are earning US$60,000. The solution that most countries have tried is to simply raise the foreign nationals’ salaries to the US$60,000 level, thereby creating a host-country pay system for a home country employee.

Unfortunately, there’s nothing more pathetic than the tears of your foreign nationals when it’s time to return home and you have to tell them you are cutting their salary to the pre-headquarters’ assignment level. What you are looking for is a pay system that  will compensate your foreign nationals either by pay or by provided benefits (including housing and local transportation), in a consistent, fair and equitable manner, and will allow you to repatriate them with minimal trauma.

1.      Design a compensation policy that would deal effectively with this problem.
2.      What are the strengths and weaknesses of your policy?

For Quality Research Projects: kojalajohn12@yahoo.com

Japan’s Canon uses incentive compensation (Japan)

As multinational forms open more and more operations in more and more countries, they must make basic decisions about what structure they want for their compensation system in each country. Trying to use a centralised system everywhere can cause problems in countries that may utilise different compensation systems. And, yet, trying to localise the compensation system may also run up against cultural assumptions about what might and might not work, as the following example shows.

At the end of 1995, Canon ranked 43rd in market value on the Tokyo stock exchange. By the end of 2001 it has shot up to 8th.  Canon’s performance is driven by a competitive company culture that sets it apart in Japan. Canon has long based compensation on performance instead of seniority, creating significant wage differentials, greater than other Japanese companies. For example, in March 2002, 21 of its best assembly workers were each awarded a bonus and the title ‘Meister.’ This clearly goes against the traditional Japanese culture of group performance and recognition and seniority-based pay.

Canon’s R&D also runs on competitive principles. Cash-flow management reduces development time and cost. Unprofitable products are cut mercilessly. Patents protect newly developed technology. Researchers can achieve unlimited awards for big patents, and such incentives    have spurred epoch-making products such as the laser beam printer and bubble jet printer.

CEO Fujio Mitarai says, ‘Canon works on competitive principles. It does not treat people equally – but it does treat them fairly.’ Canon has adopted decidedly non-Japanese incentive schemes to support its successful global competitiveness. Clearly, MNEs must assess carefully what will work best where.

Discussion Questions.
1.      Are there any constraints on the use of different forms of compensation such as bonuses or incentive schemes? What would these constraints be and why?
2.      What would a cultural perspective have predicted for the acceptance or rejection of the incentive compensation scheme at Canon?

3.      From an organizational strategic perspective, does it make sense to implement a centralised and standardised compensation system globally?
  
      For Quality Research Projects: kojalajohn12@yahoo.com


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