Expatriate compensation the balance sheet approach abebooks. The balance sheet approach to expatriate compensation the. Understand the more popular approaches to expat compensation. The balance sheet approach is expensive relative to the. This reference strongly emphasizes the critical importance of considering the differences in the cost of goods and services, housing, and income taxes in international. Balance sheet approach to international compensation packages. An i ncreasing number of countries now split expatriate compensation between the home and current country of residence currencies 4. The longheralded demise of the balance sheet approach has often been. Regardless of the compensation approach underlying your assignment. Localplus can be used as a proxy retrenchment tool for expatriates whose performance in the hostlocation no longer warrants the expense that the balancesheet approach demands. With that approach, pay delivery should be split between the home and host location. As such, effort can be made to contain the cost of this remuneration policy. Start by looking at the different options for expatriate compensation. Balance sheet approach sounds like a financial term and is well meant to reflect the principles of a financial balance sheet.
Within this framework, expatriate compensation is adjusted upward for higher costs of living, but is not adjusted downward if the cost of living in the host country is less than the home country frazee, 1998b. The balance sheet approach is one in which the employee who is posted abroad is maintained in the salary structure he enjoyed at home. Alternative approaches to expatriate compensation eca. When auditing an expatriate program, focus on key points continued 8 if the expatriate is performing the assigned job duties at or above an acceptable level, management is likely to reward this behavior with a merit increase, which boosts the individuals base pay. It also explains the typical components of an expatriate remuneration package, as well as introduces the cost of living and hardship allowances. Dec 08, 2014 expatriate compensation packages expatriate compensation packages can vary enormously from company to company and location to location. The balance sheet approach global hr management series human resource management online. The balance sheet approach the balance sheet approach bsa or the home based approach is the most popular approach and it is used by. Mercers balance sheet calculator makes the balance sheet process easy by integrating mercers powerful cost of living, tax, and quality of living solutions with the flexibility, speed, and accuracy you need to create international compensation statements. What is the purpose of the balance sheet approach to expatriate compensation, and what are its four major components and their respective purposes. Many predicted that the traditional homebased balance sheet approach would gradually disappear. Expatriate balance sheet calculation need help determining expatriate compensation packages. Overman 2000 commented that balance sheet approach is mainly employed for senior and midlevels expatriates transferred to foreign subsidiary that lasts from one year to five years wentland, 2003. What is the purpose of the balancesheet approach to expatriate compensation, and what are its four major components and their respective purposes.
Reducing assignee compensation via localplus helps to minimise perceived inequities between expatriates working with local staff, many of whom perform. The result may be a situation in which the documents. Home based pay structure and the traditional balance sheet approach are still best practice for expatriate assignments because the assignment is intended to be temporary and the assignee is expected to return to the home country. Compensation with initial emphasis on the traditional home country balance sheet approach, modifications to the approach and alternatives used by organizations with international operations. Two minutes to understand local plus compensation approaches. Its important to occasionally reevaluate the effectiveness of your policy. The balancesheet approach is expensive relative to the. Generally, employers use a no loss approach when developing compensation packages. The predictions of the demise of the typical expatriate approach have been greatly exaggerated. What is the transaction approach and balance sheet. The longheralded demise of the balance sheet approach has often been exaggerated, but the growing diversity of the assignee workforce, types of assignments, and cost containment imperative is forcing companies to reconsider their compensation approach or use more than one.
The balance sheet approach provides international employees with an expatriate compensation package that equalizes cost differences between the international assignment and the same assignment in the home country of the individual or the organization. In addition, he is systematically paid allowances so that he can maintain the same standard of living he enjoyed at home. The balance sheet is designed to keep assignees whole or ensure that they are no worse off during the assignment than they were at home. Balance sheet approach starts with the understanding that an employee typically partitions their guaranteed cash compensation in four big buckets.
The balance sheet approach global hr management series by herod, roger and a great selection of related books, art and collectibles available now at. Like in a balance sheet, the sum of items on the lefthand side lhs will equal the sum of items on the righthand side rhs. That is, individual transactions such as each sale, each purchase, and every expense are recorded into general ledger accounts. Pdf using new approaches in expatriate compensation to improve. A second challenge is that expatriate compensation using the balancesheet approach is expensive relative to the fact that a very small proportion of a companys overall total employee workforce e. The balance sheet approach to expatriate compensation is used to ensure employees are able to maintain their home purchasing power while on a temporary international assignment. Expatriate compensation three expatriate compensation. Balance sheet approach mainly deals with two factors of compensation i. Nov 05, 2011 from an organizational perspective, thinking about expatriation often starts with thinking about expatriate compensation. I suggest that the first stop on our expatriate payroll tour should be to develop an understanding of the core of most expatriate policies the structure of policies that support the vast majority of international expatriate assignments is referred to in the mobility world as the balance sheet model this is poorly. Global compensation approaches balance sheet approach compensation plan that equalizes cost differences between identical international and homecountry assignments. Traditional balance sheet approach the traditional balance sheet approach to compensating expatriates has been used for years. At any point you can go to an account such as salaries. Nov 25, 2010 for example, fewer than 25% of companies compensating expatriates using a local plus compensation approach in singapore or an expatriate market rate approach in china enrol these staff in a local social security scheme partly due to residency restrictions.
In the context of expatriate compensation, what is the role of a balance sheet approach. Executive pay a number of major corporations throughout the world have. A second challenge is that expatriate compensation using the balancesheet approach. Many are in a battle to win external talent, and to retain internal talent. International total compensation balance sheet approach.
Global enterprises require global compensation systems that allow the organization to maintain the flexibility and ease of transfer between countries. A second challenge is that expatriate compensation using the balancesheet approach is expens ive relative to the fact that a very sma ll proportion of a company s overa ll total. Practical implications this article was intended to enhance understanding of expatriate compensation by collectively examining not only the how primary approaches but also the why. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
Global market approach compensation plan that attempts to be more comprehensive in providing base pay, incentives, benefits, and relocation. Basically, the balance sheet approach begins with the employees existing parentcompany compensation salary, benefits, and any other forms of monetary or nonmonetary remuneration. Decrypting expatriate compensation the balance sheet. According to mercers 2017 wiapp survey, 79% of the companies globally and 49% of indian companies follow the balance sheet approach.
Balance sheet remuneration approach, which is a widely used expatriate remuneration approach for expatriates worldwide. Sep 25, 2017 there also needs to be a means to prevent either payroll from duplicating the payment of compensation or expatriate allowance. Expatriate compensation approaches there are a few methods commonly used to determine global compensation and they include but not limited to the following royle, 2011. The balance sheet can work well as an expat compensation system, but there are instances in which an alternative would be a better choice.
Expatriates a new practical guide for determining expatriate. In this approach, employees continue to be paid their home salary, maintain the link to home benefits, and receive a series of allowances to balance host vs. Broadly speaking, we can differentiate between two different approaches to expatriate compensation. To sum, the balance sheet is the policy structure that employers use to protect an employees reserve. The balance sheet approach global hr management series.
Managers deciding whether to send an expatriate on assignment will find the total costsfrom the various allowances and differentials provided to expatriates to relocation costs to home leave trips to international schooling costs for the expatriates childrencarefully laid out in this practical summary. If no private pension is possible this can be the most difficult problem to overcome. Explain the balance sheet approach to international compensation packages. We are witnessing the emergence of new compensation challenges instead, due to the complexity of having to manage multiple types of assignments and. Compensation issues relating to expatriate managers.
Findings a variety of factors can directly affect expatriate compensation, with three primary. Compensation issues relating to expatriate managers 189 depending upon the assignment, actual hardship, tax consequences, and length of assignment. The most common approach used by organizations in international business is the home country approach, also referred to as the balance sheet approach. When auditing an expatriate program, focus on key points. Jul 29, 20 traditional compensation systems for expatriates, such as the balance sheet approach and going rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer. Pdf using new approaches in expatriate compensation to. The balance sheet approach breaks down an expatriates compensation into major expenditure categories such as housing, goods and services, income taxes, etc. Local plus compensation approaches continue to grow more prevalent. What is the transaction approach and balance sheet approach. It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home.
The balance sheet is designed to keep assignees whole or ensure that they are no worse off during the assignment than. The balance sheet approach to expatriate compensation is the most commonly used. Compensation system for multinational corporations. The balance sheet approach the basic objective is to keep the expatriate whole that is, maintaining relativity to pcn colleagues and compensating for the costs of an international assignment through maintenance of homecountry living standard plus a financial inducement to make the package attractive. What is the transaction approach and balance sheet approach to measuring net income. Today, most expatriate compensation strategies can be grouped into six general categories. Balance sheet approach keeping an employee on the home countrys salary structure and also providing additional allowances b. The most common approach used by organizations in international business is the home country approach, also referred to as the balance sheet approach suutari and tornikoski, 2000. Mercer consultants run the calculation for you, simplifying the process and alleviating the inconvenience of managing the details and data required to run such a calculation. Designing competitive international compensation programs.
Expatriate compensation packages expatriate compensation packages can vary enormously from company to company and location to location. The transaction approach to measuring net income is the traditional bookkeeping and accounting method. Under the balance sheet approach, movement in either. A balance sheet approach to financial crisis prepared by mark allen, christoph rosenberg, christian keller, brad setser, and nouriel roubini 1 authorized for distribution by timothy geithner december 2002 abstract the views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf policy. The balance sheet is underpinned by the principle of tax equalisation. The concept of local plus compensation has grown increasingly popular over the past few years as companies look for a viable alternative to the homebased balance sheet compensation approach. Decrypting expatriate compensation the balance sheet approach. Issues concerning allowances can be very challenging to a firm establishing an overall compensation policy, partly because of the various forms of. Tax equalization, consistent with the balance sheet approach to expatriate compensation, is the methodology through which most employers meet these objectives. At the same time, cost pressures to reduce the expense of international assignments is increasing. Expatriate compensation continued to be the primary focus of international personnel specialists.
Text in images, pdf files, word documents or other document types cannot be translated. However, there is no doubt that this pay approach is expensive, given the range of allowances and benefits that are typically provided to assignees receiving this form of compensation delivery. Our expatriate compensation calculation is based on the home balance sheet approach and ensures your expatriates are neither worse or better off during an assignment. The balance sheet approach to expatriate compensation. In a concise and straightforward manner, this guide presents the fundamental issues involved in global staffing, particularly in developing a corporate compensation approach for expatriate assignments. The balance sheet approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country and to provide incentives to offset qualitative differences between assignment locations.
Traditional compensation systems for expatriates, such as the balance sheet approach and going rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer. From an organizational perspective, thinking about expatriation often starts with thinking about expatriate compensation. Mercers balance sheet calculator makes the balance sheet process easy by integrating mercers powerful cost of living, tax, and quality of living solutions with the flexibility, speed, and accuracy you need to create international compensation statements as assignment patterns become more complex, companies are exploring ways to make their compensation approaches more. Even if you are required to file a state tax return while you are abroad, you might.
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