Compare and contrast international vs. domestic compensation and benefits

Introduction:

Compensation and benefits (abbreviated “C&B”) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. It is also known in the UK as “total reward” and as “remuneration” in Australia and New Zealand. Compensation and benefits are varied in different countries. There are some difference between local and international compensation and benefits scheme.
What is compensation and benefits in work place in present day scenario? Compensation is the employer's feedback for an employee's work. It simply is the monetary value you would give to your four employees in return of their services. In the book Human Resource Management, Gary Dessler defines compensation in these words "Employee compensation refers to all forms of pay going to employees and arising from their employment." The phrase 'all forms of pay' in the definition does not include non-financial benefits, but all the direct and indirect financial compensations. Employees today are not willing to work only for the cash alone, they expect 'extra'. This extra is known as employee benefits. Also known as fringe benefits, Employee benefits are non-financial form of compensation offered in addition to cash salary to enrich workers’ lives. Employee benefits are not performance-based, they are membership-based. Workers receive benefits regardless of their performances. Employee benefits as a whole have no direct affect on employee performance, however, inadequate benefits do contribute to low satisfaction level and increase absenteeism and turnover in employees. Here I will describe both international and domestic compensation and benefits.

The basic components of domestic employee compensation and benefits

Employee compensation and benefits are basically divided into four categories:

1. Guaranteed pay – monetary (cash) reward paid by an employer to an employee based on employee/employer relations. The most common form of guaranteed pay is the basic salary.

2. Variable pay – monetary (cash) reward paid by an employer to an employee that is contingent on discretion, performance or results achieved. The most common forms are bonuses and sales incentives.

3. Benefits – programs an employer uses to supplement employees’ compensation, such as paid time-off, medical insurance, company car, and more.

4. Equity-based compensation – a plan using the employer’s share as compensation. The most common examples are stock options.

Guaranteed pay: Guaranteed pay is a monetary (cash) reward. The basic element of the guaranteed pay is the base salary, paid based on an hourly, daily, weekly, bi-weekly or a monthly rate. The base salary is typically used by employees for ongoing consumption. Many countries dictate the minimum base salary defining a minimum wage. Individual skills and level of experience of employees leave room for differentiation of income-levels within the job-based pay structure.

Variable Pay: Variable pay is a monetary (cash) reward that is contingent on discretion, performance or results achieved. There are different types of variable pay plans, such as bonus schemes, sales incentives (commission), overtime pay, and more. Typically, this type of plan is based on an annual period of time requiring a "resetting" each year back to the starting point of 50%. Sometimes this type of plan is administered so that the sales person never resets and never falls down to a lower level.

Benefits: There is a wide variety of employee benefits, such as

·         paid time-off

·         insurances (life insurance, medical/dental insurance, and work disability insurance),

·          pension plan,

·          company car,

·          And more.

A benefit plan is designed to address a specific need and is often provided not in the form of cash.

Many countries dictate different minimum benefits, such as minimum paid time-off, employer’s pension contribution, sick pay, and more.

Equity based compensation: It is an employer compensation plan using the employer’s shares as employee compensation. The most common form is stock options, yet employers use additional vehicles such as restricted stock, restricted stock units (RSU), employee stock purchase plan (ESPP), and stock appreciation rights (SAR). The classic objectives of equity based compensation plans are retention, attraction of new hires and aligning employees’ and shareholders’ interests.

Main Influencers: Employee compensation and benefits main influencers can be divided into two: internal (company) and external influencers.

The most important internal influencers are the business objectives, labor unions, internal equity (the idea of compensating employees in similar jobs and similar performance in a similar way), organizational culture and organizational structure.

The most important external influencers are the state of the economy, inflation, unemployment rate, the relevant labor market, labor law, tax law, and the relevant industry habits and trends.

                    

Components of International Compensation and benefits:

Base Salary. Two alternatives exist for determining base salary for an expatriate:

(1) Adhering to the established policies and procedures of the parent company's country, including formal job evaluation;

(2) Following the policies and practices of the country in which the expatriate works.

 Since many international assignments are for short durations, usually 3 to 5 years, it may be wise to keep base salary aligned with salaries in the home country. Doing so makes the transition back to the U.S. less complicated since major salary changes do not have to be made.

Indirect Monetary Compensation (Benefit): The benefits package for expatriates is generally the same as the one provided in the home country. However, an organization must be aware that specific countries require benefits that may not be offered in the home country. For example, in France employers are required by law to provide every employee with 25 days of vacation. Although an American working for an American company in France is not legally entitled to such a vacation, the organization may want to follow this practice to avoid morale problems with expatriates. Other countries have retirement, disability, and termination that are different from the U.S.

Equalization Benefits: These benefits are intended to keep expatriates in the same financial condition they were in before accepting an overseas assignment and to reduce any negative aspects of living in a foreign country. A limited selection of the benefits available includes the following:

·         Housing allowance

·         Educational allowance for children

·         Foreign service premium

·         Assignment completion bonus

·         Emergency leave

·         Home leave

·         Language training

·         Domestic staff

·         Club membership

·         Spousal employment

·         Cultural training for family

This list only scratches the surface of the equalization benefits that can be offered in terms of financial allowances, social adjustment assistance, and transitional support for the expatriate's family.

Incentives:  Expatriates may receive a variety of incentives ranging from cash bonuses of various kinds, to stock options, and performance-related payments. Crafting an effective international compensation plan requires a careful consideration of the various types of compensation as well as the specifics of the assignment and employee involved.

Why compensations and benefits are advantageous?

It is advantageous for both employers and employees. I am describing both of them in the following part.

For Employers: A well designed compensation and benefits plan helps to attract, motivate and retain talent in an organization. A well designed compensation & benefits plan will benefit employers in the following ways. 

1. Job satisfaction: Employees would be happy with their jobs and would love to work for employers if they get fair rewards in exchange of their services. 
2. Motivation: We all have different kinds of needs. Some of us want money so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way. 
3. Low Absenteeism: Why would anyone want to skip the day and watch not-so-favourite TV program at home, if they enjoy the office environment and are happy with their salaries and get what they need and want? 
4. Low Turnover: Would employees want to work for any other company if employer offers them fair rewards. Rewards which they thought they deserved? 

EMPLOYEES: 

1. Peace of Mind: Employer’s offering of several types of insurances to his workers relieves them from certain fears. His workers as a result now work with relaxed mind. 
2. Increases self-confidence.

Factors affecting Global Compensation and Benefits

Developing suitable compensation policies to meet organizational strategies, while efficiently accommodating different types of employment terms and conditions, poses many distinctive  challenges for global HR practitioners, such as:

1.      Dealing with diverse standards and costs of living and multiple currencies, exchange rates, inflation/deflation rates, tax systems and tax rates.

2.      Maintaining the suitable balance between global consistency and local significance.

3.      Addressing organizational business changes (expansions, mergers and acquisitions, joint ventures, Greenfield operations and investitures).

4.      Complying with local compensation practices, laws and regulations.

5.      Accommodating varied employee values and expectations stemming from differences in cultures, languages and communication preferences.

Conclusion:

Compensation and benefits, including the overall system of rewards – formal and informal – provides the driving force for effectively attracting, retaining, and encouraging human talent at home and abroad. Important and fundamental practices for managing compensation on a global scale include managing global compensation strategically, considering performance-based pay where appropriate, anticipating the influence of local culture, using a total rewards system perspective, and addressing the duality challenge of global integration and localization. Most of the compensation and benefits are quite same but the international has some extra features. We hope that the information given in this article will be of use to Compensation and Benefits Specialists in particular and HR Professionals in general.

Reference:

1.      Compensation and benefits: Definition and Importance By Nair Numann, Last Modified: 02/12/10, Retrieve on: 09/12/12, Available on: http://www.hr.com/en/app/blog/2010/02/compensation-and-benefits-definition-and-importan_g5kiosxm.html

2.      Wikipedia, Compensation and benefits, Last Modified: 17/10/10, Retrieve on: 09/12/12, Available on:  http://en.wikipedia.org/wiki/Compensation_and_benefits

3.       Fundamentals of International Compensation  by Donald L. Caruth, Ph.D., SPHR and Gail D. Handlogten-Caruth, SPHR, Last Modified: 07/07/02, Retrieve on: 09/12/12, Available on:  http://www.winstonbrill.com/bril001/html/article_index/articles/551-600/article557_body.html

4.      Factors affecting Global compensation and benefits , Retrieve on: 09/12/12, Available on: http://www.sanjeevhimachali.com/?p=19