HRM textbook

CHAPTER 17 MANAGING GLOBAL HUMAN RESOURCES 591
in India somewhat negatively if they find his or her use of participative decision
making culturally inappropriate. On the other hand, home-office managers may be so
out of touch that they can t provide valid appraisals. Similarly, the procedure may be
to measure the expatriate by objective criteria such as profits and market share.
However, local events (such as political instability) may affect the manager s performance
while remaining invisible to home-office staff. Some suggestions for improving
expatriate appraisals follow.
1. Stipulate the assignment s difficulty level, and adapt the performance criteria to
the situation.
2. Weigh the evaluation more toward the on-site manager s appraisal than toward
the home-site manager s appraisal.
3. If the home-office manager does the actual written appraisal, have him or her use a
former expatriate from the same overseas location for advice.
Compensating Managers Abroad
The whole area of international compensation presents some tricky problems. On the
one hand, there is logic in maintaining company-wide pay scales and policies so that,
for instance, you pay divisional marketing directors throughout the world within
the same range. This reduces the risk of perceived inequities, and simplifies the job
of keeping track of country-by-country wage rates.
Yet not adapting pay scales to local markets will produce more problems than it
solves. The fact is it can be enormously more expensive to live in some countries (like
Japan) than others (like India); if these cost-of-living differences aren t considered, it
will be almost impossible to get managers to take high-cost assignments. One way
to handle this problem is to pay a similar base salary company-wide, and then add on
various allowances according to individual market conditions. 93
However, determining equitable wage rates in many countries is not simple.
There is a wealth of packaged compensation survey data available in the United
States, but such data are not so easy to come by overseas. As a result, one of the greatest
difficulties in managing multinational compensation is obtaining consistent
compensation measures between countries.
Some multinational companies conduct their own local annual compensation
surveys. For example, Kraft conducts an annual study of total compensation in
Belgium, Germany, Italy, Spain, and the United Kingdom. It focuses on all forms of
compensation paid to each of 10 senior management positions held by local nationals
in these firms.
THE BALANCE SHEET APPROACH The most common approach to formulating
expatriate pay is to equalize purchasing power across countries, a technique known as
the balance sheet approach. 94 More than 85% of North American companies reportedly
use this approach.
The basic idea is that each expatriate should enjoy the same standard of living he
or she would have had at home. The balance sheet approach addresses four groups
of expenses income taxes, housing, goods and services, and discretionary expenses
(child support, car payments, and the like). The employer estimates each of these four
expenses in the expat s home country, and in the host country. The employer then
pays any differences such as additional income taxes or housing expenses.
The base salary will normally be in the same range as the manager s homecountry
salary. In addition, however, there might be an overseas or foreign service
salary premium. The executive receives this as a percentage of his or her base salary,
in part to compensate for the cultural and physical adjustments he or she will have
to make. 95 There may also be several allowances, including a housing allowance and
an education allowance for the expatriate s children. To help the expatriate manage
his or her home and foreign financial obligations, most employers use a split pay
approach; they pay, say, half a person s actual pay in home-country currency and
half in the local currency. 96