Question

Imagine you are the Chief of Human Resources for a global corporation with operations in three different countries. The CEO of the company wants you to come up with a new compensation plan based on the labor markets of the three (3) countries where the employees live and work, rather than basing it on the parent country’s labor market.

What are some of the biggest advantages and disadvantages of setting up a compensation system like this?\

Please in your own word!

Answer 1

The preparation of the compensation plan on the basis of the country of work, is called as a host country method to issue compensation. It has some biggest advantages. The first advantage is that it follows the compliances with the local labor laws and wage related guidelines that prevent the scope of conflict. The second advantage is the adequate or at par level of the compensation as per the prevailing expenditure pattern and purchasing power of the local currency in the country of work. It makes compensation to be good enough to attract new talents and retain existing talents. The third advantage is to prevent the additional benefits and perks that were issued on the basis of the home country compensation plan. The fourth advantage is the improved level of employer branding in the marketplace that will attract people to work in that location.

Though, there are few disadvantages also. The first disadvantage is that people only want to go in those locations that pay higher compensation than the home country. Hence, the overseas country with less attractive compensation, will not be the attractive destination of work. For example, a person having home country in India, will always look to work in the USA, but not in the country like Bangladesh if compensation on the basis of Bangladesh is given to the person. The second disadvantage is the demotivation among the employees due to the difference in compensation between the overseas country of work and home country. The third disadvantage is the complexity or the administrative burden to maintain the different compensation system in the different country for the same position.