T
his article begins with a story. When teaching university students about international
reward
approaches, I always begin by getting them to tell me what they believe is fair. Typically the class comprises international students from multiple countries – some come from countries with high rates of pay (Norway, Switzerland), others from countries with relatively low wages (Morocco, Ethiopia). For the purpose of the exercise all of these students are going to be relocated to the USA, to a relatively high wage and cost of living city, such as San Francisco, and they will all be working together on the same project carrying out similar roles in a team also comprising local people.
WHERE DOES EQUITY LIE? The first reward option presented to the class is the home-based approach to pay. Under this, each of these students’ pay will be based on what they earned previously in their home countries with adjustments made for such factors as cost of living and allowances given for housing, their children’s education and so on, with tax equalisation applied, as would be the norm under the balance sheet method. Under the home-based balance sheet assignees should theoretically be no better or worse off than if they had not moved abroad. This means that each of them will be receive compensation that provides equity with their home country peers (enabling easy assimilation into the home pay structure on repatriation) plus compensatory allowances reflecting their move abroad. I explain that this means that
their reward packages in the USA will not be same as those of local people doing the same jobs as they are, nor will they receive reward that exactly matches each other. I ask ‘is this fair?’ Without exception, they say ‘no’. Yet the use of the home-
based pay system remains the most common approach to expatriate reward. They look puzzled. They see no equity in this approach. The second reward option is the host-based approach. Under this, each of the students will receive the exact same salary as local people. They might receive some additional help (for instance, with housing to recognise the temporary nature of their posting) under a host-plus arrangement, but otherwise their reward package will match those of locals and other assignees doing similar jobs. I explain that this means
that each of them will receive compensation that provides equity with their host country peers and with each other. I ask ‘is this fair?’ Without exception they say ‘yes’. Yet the host-based reward approach, while increasing in popularity, is not anywhere nearly as widely adopted as the balance sheet. Again they look puzzled. They see equity here, so why do organisations not all use this approach? The third reward option is the
globally mobile approach. Under this, each of the students receives a similar reward package which has been designed for employees who are part of a globally mobile cadre. Their salaries will differ from those of local people doing the same jobs. I explain that this means that each of them will be receive compensation that provides equity with their globally mobile peers. I ask ‘is this fair?’ This elicits a mixed response. Returning to their identified
equitable reward method, the host- based approach, I then introduce the notion of moving from especially high paying countries to the chosen destination, explaining that true host-based pay would mean that these students will receive lower salaries than they would have had at home. Again, I ask ‘is this fair?’ Now they think less so. And what of those moving from low pay countries to the US destination who will now receive
more than they received at home? ‘Is that fair?’ Now comes the point when those who will lose out on moving are not happy that other colleagues will gain. The notion of perceived equity flowing from host- based pay has begun to erode now that similar referents that stand to gain more are introduced into the picture. And the final question, for those moving from low pay to high pay countries would they want to go home? Usually, the answer is ‘no’.
THE IMPORTANCE OF PERCEIVED EQUITY When designed and implemented effectively, international assignment reward policies support assignment acceptance, employee satisfaction and motivation outcomes but when poorly constructed, costs can increase and barriers to current and future mobility can be created. Today, it is the norm for
employers to use a range of reward approaches. The home-based approach is often used for senior personnel, those moving abroad to fill critical skills gaps and for assignments when repatriation is envisaged. Where the low/high net pay combination potentially makes sense, host-based approaches may be used. These leaner packages are also used for junior staff, developmental assignments and
” EQUITY THEORY PREDICTS THAT ASSIGNEE REWARD WILL ONLY RESULT IN SATISFACTION IF IT IS CONSIDERED TO BE FAIR. HOWEVER, PERCEPTIONS OF EQUITY ARE RELATED TO A VARIETY OF FACTORS THAT ARE DIFFICULT FOR EMPLOYERS TO PREDICT.”
17
GLOBAL LEADERSHIP SUPPLEMENT REWARD
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86
