Copyrighted Material. Third Edition. How-to Series for the HR Professional. Compensating. Globally Mobile Employees. Roger Herod. Copyrighted Material

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1 Third Edition How-to Series for the HR Professional Compensating Globally Mobile Employees Roger Herod

2 About WorldatWork : The Total Rewards Association WorldatWork ( is a nonprofit human resources association for professionals and organizations focused on compensation, benefits, work-life effectiveness and total rewards strategies to attract, motivate and retain an engaged and productive workforce. WorldatWork and its affiliates provide comprehensive education, certification, research, advocacy and community, enhancing careers of professionals and, ultimately, achieving better results for the organizations they serve. WorldatWork has more than 65,000 members and subscribers worldwide; 95 percent of Fortune 500 companies employ a WorldatWork member. Founded in 1955, WorldatWork is affiliated with more than 70 local human resources associations and has offices in Scottsdale, Ariz., and Washington, D.C. WorldatWork Society of Certified Professionals is the certifying body for six prestigious designations: the Certified Compensation Professional (CCP ), Certified Benefits Professional (CBP), Global Remuneration Professional (GRP ), Work-Life Certified Professional (WLCP ), Certified Sales Compensation Professional (CSCP) and Certified Executive Compensation Professional (CECP). The WorldatWork group of registered marks also includes: Alliance for Work-Life Progress or AWLP, workspan and WorldatWork Journal. Any laws, regulations or other legal requirements noted in this publication are, to the best of the publisher s knowledge, accurate and current as of this book s publishing date. WorldatWork is providing this information with the understanding that WorldatWork is not engaged, directly or by implication, in rendering legal, accounting or other related professional services. You are urged to consult with an attorney, accountant or other qualified professional concerning your own specific situation and any questions that you may have related to that. This book is published by WorldatWork Press. The interpretations, conclusions and recommendations in this book are those of the author and do not necessarily represent those of WorldatWork. No portion of this publication may be reproduced in any form without express written permission from WorldatWork. Prior editions of this book were authored by Calvin Reynolds. 2013, 2006, 1995 WorldatWork Press ISBN (Spiral bound) (E-book) Project Lead: Wendy Anderson, WLCP Senior Practice Leader: Adam Sorensen, GRP Production: Deb Shenenberg

3 Table of Contents Introduction 5 1: Preliminary Definitions 7 2: International Start-up Phase 11 3: International Division Phase 15 4: Emerging Multinational Phase 23 5: Mature Multinational Phase 31 6: Global Corporation Phase 33 7: Expatriate Compensation Strategies for the Future 37

4 4 Compensating Globally Mobile Employees

5 5 Introduction When an organization decides to go global, one of the first human resources challenges it faces is how to select and compensate the first employee it sends abroad from headquarters in other words, the first expatriate. At this point in its development into a global corporation, an organization will begin to make decisions that affect the future configuration of its expatriate compensation programs, not to mention the success of the entire globalization process. Some key questions the organizations must address are whether to: Conduct or purchase a survey of corporate compensation practices Hire a consultant Follow the competition Be creative in designing pay strategies Negotiate with each expatriate candidate or simply pay the second expatriate the way the first one was paid, and so on. Typically, during the early stages of globalization, only one or two employees are professionally qualified for the assignment. The organization may not be in a position to place great importance on such factors as a potential expatriate s cultural sensitivity or language fluency. It is not unusual for the first expatriate selected to be a domestic whiz but an international disaster, and for an organization s internationalization program to be short-lived as a result. In an environment of international inexperience, expatriate compensation from the organization s perspective often consists of paying the candidate whatever it takes to persuade him or her to relocate, or cutting the most appropriate deal. From a pioneering

6 6 Compensating Globally Mobile Employees expatriate s point of view, the assignment is a big risk, so he or she is likely to expect big dollars. The pay package that results will inevitably become a protracted and often acrimonious negotiation between the company and the employee. During the early stages of developing an international compensation program, the headquarters international compensation administrator (probably the director of compensation or the vice president of human resources) faces two major challenges: How to compensate expatriates from headquarters, and How to pay local nationals. The first challenge, how to pay expatriates, is the focus of the following discussion. The second challenge, how to pay local nationals, is extremely important and becomes more critical with international growth, but it is beyond the scope of this discussion. Suffice it to say that it is important to get professional help locally, starting with the initial phase of globalization and following through until the organization becomes a truly global corporation.