Module 3ihrm

International International Human Resource ManagementHuman Resource Management

Performance ManagementPerformance Management

Performance managementPerformance managementA process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets

Components of Performance Components of Performance ManagementManagement

Constraints in goal Constraints in goal attainmentattainment

Whole versus part.

Non-comparable data.

Volatility of the global environment.

Separation by time and distance.

Variable levels of maturity.

Variables Affecting Expatriate Variables Affecting Expatriate PerformancePerformance

TasksTasks

The task:Chief executive officerStructure reproducerTroubleshooterOperative

Task variables are generally considered more under the control of the multinational than environmental factors.

RolesRoles

A role is the organized set of behaviors assigned to a particular position.Effective role behavior is an interaction between the concept of the role, the interpretation of expectations, the person’s ambitions, and the norms inherent in the role.The difficulty for the expatriate manager is that the role may be defined in one country, but performed in another.

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Headquarters’ SupportHeadquarters’ Support

The support of headquarters is important – both to the individual expatriate and accompanying family members – as a performance variable

The Host EnvironmentThe Host EnvironmentThe external context can be a major

determinant of expatriate performanceDiffering demands in terms of the context:

◦ Societal◦ Legal◦ Economic◦ Technical◦ Physical◦ Type of operation involved (e.g. IJV versus

wholly-owned subsidiary)

Contextual Model of Expatriate Contextual Model of Expatriate Performance ManagementPerformance Management

Expatriate Performance AppraisalExpatriate Performance Appraisal Goals can be used as the basis for performance criteria:

Hard Goals – objective, quantifiable and measurable (e.g.: ROI, market share) Soft Goals – relationship or trait-based (e.g.: leadership style, interpersonal skills) Contextual Goals – Factors that result from the situation or

environment in which an expatriate performs (e.g.: host country regulations and restrictions)

Often, organizations use only hard goals to assess their expatriates.

Things like behaviour of the expatriates and ways of obtaining results (bribery?) must also be considered

Factors Affecting AppraisalFactors Affecting Appraisal

Who conducts the performance appraisal Use of standardized or customized appraisal

form Frequency of appraisal Performance feedback

Timely Geographical distance affects

Conducting of performance appraisalConducting of performance appraisal

Subsidiary managers tend to assess according to subsidiary performance.

Appraisal for other employees is likely to be conducted by subsidiary's chief.

Multiple raters are sometimes used in the domestic context.

Virtual assignment situation.

Appraisal of HCNsAppraisal of HCNs

The practice itself confronts the issue of cultural applicability.

May be necessary to use local staff and a customized form.

Level of position involved is an important consideration.

HCN ROLE CONCEPTION :HCN ROLE CONCEPTION :

Communicates role conception

Cultural boundary

USE HOST COUNTRY NATIONALS TO ASSISTS IN DEVISING A SUITABLE SYSTEM

Parent company

HC StakeholdersRole senders

HCN managerRole recipient

HCN manager’s

role behavior

Important Issues in IHRMImportant Issues in IHRM

There are several important issues in IHRM which are:

organizations which are operating at the international level must face. These include, for example:– Attitudes of Employees and Work Ethics– Recruitment & Selection Policy– Compensation Policy– Training and Development Policy– Ethical Issues (e.g. bribery and corruption) & Corporate

Social Responsibility– Dealing with the host country‘s Bureaucracy and

Government– Host country‘s Legal Framework (relating to Labour etc.)

Ownership IssuesOwnership IssuesSmall and medium-sized firms (SMEs)

◦ International activities place stress on limited resources especially staff

◦ Key individuals often represent the SME’s stock of international competence Retaining key staff critical Converting tacit knowledge into organizational

knowledge a challenge

Family-owned FirmsFamily-owned FirmsNot just a sub-set of SMEsManagement succession presents special

HR planning concernsThe globalization of family-owned firms

has been a remote topic in international business studies

Non-Government OrganizationsNon-Government Organizations As active internationally as for-profit firms, yet

receive less attention, e.g. Red Cross Greenpeace groups

These organizations share similar management and HR concerns

Often operate in high risk areas of the globe Anti-globalization rallies and protest Global terrorism

Broadening our focus of IHRM is important

Research IssuesResearch IssuesThe field of IHRM has been slow to develop a rigorous

body of theory◦ Regarded as a marginal area◦ International studies are more expensive to fund◦ Major methodological problems

Defining culture and the emic-etic distinction Static group comparisons Translation and stimulus equivalence

Theoretical DevelopmentsTheoretical DevelopmentsPossible to identify two streams of inquiry

◦ The micro-level◦ The macro level

Low response to surveys may be a factor of◦ Culture◦ Language used ◦ Lack of use of teams of researchers

Compensation Compensation

IntroductionIntroduction

Global compensation managers deal with two areas of focus◦They must manage highly complex and

turbulent local details, and◦Build and maintain a unified strategic pattern of

compensation policies, practices and values.

● Employment and taxation law,● Customs,● Environment, etc of various countries.

Objectives of international Objectives of international compensationcompensation

1.Policy should be consistent with the overall strategy, structure and business needs of the MNC

2.Policy must work to retain and attract staff3.Policy should facilitate the transfer of

international employees in the most cost effective manner for the firm

4.Policy should give due consideration to equity and ease of administration.

Key components of an Key components of an international compensation international compensation programprogram

1. Base salary2. Foreign service inducement/hardship

premium3. Allowances4. Benefits

1. BASE SALARY1. BASE SALARY

It is a primary component of a package of allowanceBasis for in-service benefits and pension contributionsPayable in home or local country currencyMajor difference can occur in the package depending upon whether salary is linked to home country or international rate is paid

2. Foreign service 2. Foreign service inducement/hardship premiuminducement/hardship premium

PCNs often receive this salaryThe definition of hardship, eligibility, amount and timing has to be addressed.US firm refer to Hardship Post Differential GuidelinesUsually as a percentage of salary (5-40% of base pay)

3. Allowances3. Allowances

Cost-of-living-allowance Differences in expenditures between the

home country and the foreign country Housing allowance

Employees should be entitled to maintain their home country living standards

Company – provided housing Fixed housing allowance

Home leave allowance Employers cover one or more trips back to

the home country Renew family ties

Education allowance Tuition, language class tuition, enrolment

fees, books, uniform

Relocation allowance Moving, shipping and storage charges,

temporary living expenses Spouse assistance

Guard against income lost by an expatriate’ s spouse as a result of relocation

Providing spouses with employment

4. Benefits4. Benefits

Transportability of pension plans, medical coverage and social security benefits are very difficult to normalize.

Therefore many issues have to be addressed◦ Whether or not to maintain expatriates in home-country

programs particularly if the firm does not receive a tax deduction

◦ Whether firms have the option of enrolling expatriates in host-country benefits programs and/or making up any difference in coverage

◦ Whether expatriates should receive home-country or host-

country social security benefits

Types of benefitsTypes of benefits

Vacation and special leaveAirfaresRest and rehabilitation leaveEmergency provisions (death or

illness)Additional leave expense payments

(hardship location)

Approaches to international Approaches to international compensationcompensation

1.Going rate approach

2.Balance sheet approach

Going rate approachGoing rate approach

Based on local market ratesRelies on survey comparison among:

◦ local nationals (HCNs)◦Expatriates of same nationality◦Expatriates of all nationalities

Compensation based on the selected survey comparison

Base pay and benefits may be supplemented by additional payments for low-pay countries

Advantages and Advantages and disadvantages of the Going disadvantages of the Going

Rate ApproachRate ApproachDisadvantages

Variation between assignments for same employee

Variation between expatriates of same nationality in different countries

Potential re-entry problems

Advantages

● Equality with local nationals● Simplicity● Identification with host country● Equality amongst different

nationalities

The Balance Sheet ApproachThe Balance Sheet Approach

Basic objective is maintenance of home-country living standard plus financial inducements

Home-country pay and benefits are the foundations of this approach

Adjustments to home package to balance additional expenditure in host country

Financial incentives added to make the package attractive

Most common system in usage by multinational firms

Advantages and Advantages and disadvantages of the Balance disadvantages of the Balance

Sheet ApproachSheet Approach Disadvantages

Can result in great disparities◦ Between expatriates of

different nationalities

◦ Between expatriates and local nationals

Can be complex to administer

Advantages

● Equity

Between assignments

Between expatriates of the same nationality

● Facilities expatriate re-entry● Easy to communicate to

employees

CompensationCompensation

Two issues:How to adjust compensation to reflect national differences in economic circumstances and compensation practices.How expatriate managers should be paid.

Compensation IssuesCompensation Issues

Common Elements of Compensation Common Elements of Compensation PackagesPackages

Most compensation packages are designed around four common elements:

Allowances Taxes

Base Salary Benefits

COMPENSATION PACKAGE

In addition to a base salary, compensation includes:◦ House rent allowance (HRA*).◦ Medical allowance.◦ Dearness allowance (DA*).◦ Leave travel allowance (LTA*).◦ Commuter allowance.


Base salary◦ Amount of money that an expatriate normally

receives in the home country Benefits

◦ Should host-country legislation regarding termination of employment affects employee benefits entitlements?

◦ Is the home or host country responsible for the expatriates’ social security benefits?

◦ Should benefits be subject to the requirements of the home or host country?

◦ Which country should pay for the benefits?◦ Should other benefits be used to offset any shortfall

in coverage?◦ Should home-country benefits programs be available

to local nationals?


Allowances◦ Cost-of-Living Allowance

Payment for differences between the home country and the overseas assignment.

Designed to provide the expatriate the same standard of living enjoyed in the home country

◦ May cover a variety of expenses, including relocation, housing, education and hardship

◦ Incentives

A growing number of firms have replaced the ongoing premium for overseas assignments with a one-time, lump-sum premium


Taxes◦ Tax equalization◦ An expatriate may have two tax bills for the

same pay Host country U.S. Internal Revenue Service

◦ MNCs usually pay the extra tax burden

The "Expat Package" Hardship bonus (often between 10% - 30% of base

income) Executive housing for the family (including utility costs) Automobile including fuel and maintenance (often with a

driver) International private schooling for children Round-trip airfare to the home country for entire family (at

least once per year) Executive relocation for the entire family (before and after

the posting) Sale or safeguarding of original family home Tax equalization with the home country Financial planning advice Executive healthcare coverage for family

Social security systemsSocial security systems

Social Security is a federal program that taxes workers to provide income support for the elderly.

Over the next 75 years, the program has promised $3.7 trillion more in benefit payments than it plans to collect in taxes from workers.


It is the single largest income source of the elderly

Social Security is also the largest social insurance program in the U.S.◦ By making payroll tax payments to Social

Security, workers purchase insurance against earnings loss when they die or retire.


The institutional features of Social Security provides economic motivations for government intervention.

It examines behavioral responses, such as crowding out of saving and encouraging early retirement.

WHAT IS SOCIAL SECURITYWHAT IS SOCIAL SECURITY

Social Security began in 1935, during the height of the Great Depression. The main motivation was to provide a means of support for this unfortunate generation of elderly.

Basic structure is that workers (and employers) pay a payroll tax, and the money is used to pay benefits to the current generation of elderly.

Origins of Social SecurityOrigins of Social Security

Social Security is a system by which living wages are paid to those who are retired. It is designed to enable the elderly and disabled to retire, but to still earn monthly incomes.

In 1898, Chile was one of the first American Nations to implement a Social Security program.

The United States did not adopt Social Security until 1935.

Social Security and the Military CoupSocial Security and the Military Coup

The new military government eliminated the traditional “pay-as-you-go” (PAYG) system.◦ This system was similar to the system still used

by the United States, involving mandatory tax based contributions.

Laid the groundwork for the current privatized social security system, which involves mandatory contributions, with fixed exceptions.

“ “Pay-as-you-go”Pay-as-you-go”

The government takes a percent of workers’ monthly salaries and deposits it into a general social security fund.◦This fund directly finances social security

benefits paid to those currently retired.A PAYG type system relies entirely on

the willingness of younger generations to work.

How Many People Get Social How Many People Get Social Security?Security?

47.7 million people receive Social Security each month

1 in 6 Americans get Social Security benefits

Nearly 1 in 4 households get income from Social Security

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Who Gets Social Security?Who Gets Social Security?

30.0 million retired workers4.8 million widows and widowers6.2 million disabled workers0.8 million adults disabled since

childhood3.1 million children

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Financing Social SecurityFinancing Social Security

Workers and their employers pay with Social Security taxes

Workers pay◦ 6.2% of their earning for Social Security, and◦ 1.45% of their earnings for Hospital Insurance under

Medicare (Part A)Employers pay an equal amountThe total is 12.4% for Social Security and 2.9%

for HISocial Security tax base is $97,500 in 2007

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Worker BenefitsWorker Benefits

Workers over 62 are eligible◦If they have worked 10 years

Benefits are based on a workers earnings history◦Career-average earnings◦Average Indexed Monthly Earnings (AIME)

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Only 3 Ways to Fix Social SecurityOnly 3 Ways to Fix Social Security

Raise TaxesCut BenefitsIncrease Investment Returns

◦Private investment◦Either government or individual

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Options: Raise TaxesOptions: Raise Taxes

OPTIONIncrease tax rate by 2%

totalTax all earningsTax 90% of earningsInclude new state & local

govt. workersTax SS benefits like

pensions

% of Deficit Eliminated

104%

93%

40%

10%

20%

Options: Cut BenefitsOptions: Cut Benefits

OPTIONRaise retirement age (to 67

faster & index)Reduce COLA by ½% each

yearCut benefits by 5% for

those starting to get benefits in 2005

Increase # years in wage avg. to 40

% of Deficit Eliminated

28%

41%

32%

21%

Options: Increase Investment Options: Increase Investment ReturnsReturns

OPTION

Investments in equities% of Deficit Eliminated

36% - 50%

Lower birth rates and increasing life Lower birth rates and increasing life expectancies mean fewer workers to supportexpectancies mean fewer workers to support each Social Security recipient each Social Security recipient

1960: 5.1 to 1 Today: 3.4 to 1 2030: 2.1 to 1

Worker-to-Retiree Ratio

Table 2: Social Security System of Thailand/1Table 2: Social Security System of Thailand/1

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Global compensation issues:Global compensation issues:

i. The drivers of workforce engagement and i. The drivers of workforce engagement and their role in global total reward strategies their role in global total reward strategiesii. The impact of shifts in labor markets on ii. The impact of shifts in labor markets on global remuneration data, planning, and global remuneration data, planning, and pay structures pay structures iii. Redefining global equity practices and the iii. Redefining global equity practices and the impact of behavioral economics on impact of behavioral economics on workforce response workforce response iv. Complying with new global governance iv. Complying with new global governance initiatives related to pay-for-performance initiatives related to pay-for-performance programs and risk management programs and risk management

Business

Module 3ihrm