Effectiveness Of Expatriate Remuneration In Multi National Organisations Management Essay
An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person's upbringing or legal residence. The word comes from the Latin ex (out of) and patria(country, fatherland).
During the latter half of the 20th century expatriation was dominated by professionals sent by their employers to foreign subsidiaries or headquarters. Starting at the end of the 20th century globalization created a global market for skilled professionals and levelled the income of skilled professionals relative to cost of living while the income differences of the unskilled remained large. Cost of intercontinental travel had become sufficiently low, such that employers not finding the skill in a local market could effectively turn to recruitment on a global scale.
Aims and Objectives:
All people have a natural need to feel good about the job they do (Leland and Bailey. 1999). How expatriate remuneration affects the motivation level, job performance and life satisfaction.
Armstrong (2000) confirms that reward strategy provides specific direction on how the organisation will develop and design programme that will ensure that it rewards the behaviours and performance outcomes supporting the achievement of its business goals. Rewards strategy should be founded on the assumption that ultimate source of value is people. This means that remuneration process of expatriate must be developed keeping in mind the needs of individual so that a satisfied expatriate can perform well on his foreign assignment.
To review conceptual models and theoretical framework related to effectiveness of expatriate remuneration.
To indentify the current expatriate remuneration method.
To suggest some strategies that how expatriate remuneration could be made more effective.
The following research questions will be addressed to investigate the effectiveness of expatriate of remuneration:
To what extent expatriate remuneration is effective for employee’s performance, motivation level, and life satisfaction?
Is there any link between expatriate remuneration and employee’s job satisfaction?
Many multinational companies employ expatriates, those who work outside their country of origin, for a variety of reasons. In some cases, these workers fill skill gaps when local staff is unavailable; in other cases, they may be sent to train local staff or to install companywide systems in areas like IT and finance. Some may be sent on developmental assignments to gain skills and experience at an early stage of their careers. Increasingly, part of the motivation is to ensure that the company’s future top-management cadre has some international experience.
First we need to know who are expatriates? Expatriates are employees beyond their country of origin on some particular assignments. They are not permanently resident, on an assignment of typically not more than 3-5 years but is a citizen from another country.
PCN ( parent country national) expatriates are defined as ‘experts and managers’ who are citizens of the country in which the multinational’s corporate headquarter is located assign to work in a foreign country tasked with transplanting corporate culture, competence and strategy to local units (Harris, Brewster and Sparrow 2003; Moore, 2006; Phillips and Fox, 2003).
HCNs (host country nationals) are the employees from the host country where the multinational sets up operations.
TCNs (third country nationals) may be defined as citizens of the country other than headquarters or host country (Phillips and Fox, 2003:466).
Expatriate pay is a complex area of remuneration with complex issues such as volatile exchange rates, weak and strong currencies, constantly changing differences in cost of living between countries, different tax regimes, as well as the reality that there are attractive and not so attractive countries to work and live in. This is an area where a clear philosophy and an aligned practical policy are required to ensure attraction, fairness, equity, motivation and retention.
Warner and DeSimone () claim, that rewards include not only tangible things, such as financial bonuses and plaques, but also intangible things, such as recognition and acceptance. Reward system should ideally provide the outcome desired by members of the organization.
The total reward association 2008 expressed total reward as “All the tools available to the employer to attract, motivate and retain employees. Total reward is the monetary and non monetary return provided to employee in exchange of their time, efforts, talents and results. It involves the deliberate integration of five key elements are: compensation, benefits, performance & recognition work life, and development & career opportunities.
Research Design and Methodology:
The choice of research methodology and design is dependent on philosophical assumption of the researcher. There are two main research paradigms; positivistic or nomothethic and phenomenologist or interpretivist paradigms (Gill and Johnson, 2002).
The positivistic philosophy emphasises the use of methods used in natural sciences. A detached approach is characteristic of positivism in which the fact or causes of a social phenomenon is sought. In this philosophy the researcher prefers to work with an observer able social reality, the result of which can be used to make generalizations (Saunders, Lewis and Thornhill, 2009).
Phenomenology on the other hand is simply the science of phenomena. It is concerned with understanding individual behaviour from the view point of the participant. Crucial to this approach is the adoption of an emphatic stance (Saunders, Lewis and Thornhill, 2007) in which the researcher enters the social world of the subject to comprehend their world from their own subjective perspective.
So far as my research is concerned I will use phenomenologist paradigm. The reason to choose this is because my research is concerned with the behaviour of participants. Since I have to investigate the effectiveness of expatriate remuneration in multinational organisations.
There are two types of methods to conduct the research.
Deductive: where hypothesis is stated and methodology is designed to test that hypothesis.
Inductive: based on collecting data and then developing a theory based upon your data analysis.
In my research inductive method will be adopted because I will collect the data from primary and secondary sources and will conclude my research based on available data.
Saunders, Lewis and Thornhill (2007) claim, that the purpose of the research is the threefold one of exploratory, descriptive and explanatory. The research questions can be both descriptive and explanatory depending on the research purpose.
Exploratory Studies: An exploratory study is a valuable means of finding out what is happening; to seek new insights; to ask questions and to assess phenomenon in a new light (Robson, 2002:59). It is useful if you want to clarify your understanding of problem.
Descriptive Studies: The object of the descriptive research is ‘to portray an accurate profile of persons, events or situations’ (Robson, 2002). It is necessary to have a clear picture of the phenomena on which you wish to collect data prior to the collection of the data (Saunders, Lewis and Thornhill, 2007)).
Explanatory Studies: Studies that establish causal relationships between variables may be termed explanatory studies. The emphasis here is on studying a situation or a problem in order to explain the relationships between variables (Saunders, Lewis and Thornhill, 2007).
In my research the combination of descriptive and explanatory will be applied.
There are following types of research strategies:
Experiment: the purpose of experiment is to study casual links; whether a change in one independent variable produces a change in another dependent variable (Hakim, 2002).
Survey: Saunders, Lewis and Thornhill (2007) suggest that survey strategy is usually associated with the deductive approach. It is a popular and common strategy in business and management research and is most frequently used to answer who, what, where, how much and how many questions. It is therefore tends to be used for exploratory and descriptive research.
Case study: Robson (2002) argues that the case study involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. This approach establishes reliable and valid evidence for the research process of a particular subject and present findings which result from the research. The choice of this method is due to the fact that case study presents a practical real life instance of the actual variables at play within the context. Thus it provides a multidimensional picture of the situation (Remenyi et al 1998). The case study strategy also has considerable ability to generate answers to the question ‘why?’ as well as the ‘what?’ and ‘how?’ questions, although ‘what?’ and ‘how?’ questions tend to be more the concern of the survey strategy. For this reason the case study strategy is most often used in explanatory and exploratory research (Saunders, Lewis and Thornhill, 2007).
Action research: Research concerned with the management of a change and involving close collaboration between practitioners and researcher. The result following from action research should also inform other contexts (Saunders, Lewis and Thornhill, 2007).
Grounded theory: Research strategy in which theory is developed from data generated by a series of observation or interviews principally involving in inductive approach (Saunders, Lewis and Thornhill, 2007).
Ethnography: Research strategy that focuses upon describing and interpreting the social world through first hand field study (Saunders, Lewis and Thornhill, 2007).
Archival research: Research strategy that analysis administrative record and document as principal source of data because they are products of day to day activities (Saunders, Lewis and Thornhill, 2007).
Case studies of various multinational organisations to check effectiveness of expatriate remuneration will be critically analysed in our research.
Data is ‘raw’ facts and observations or measurements recorded and processed form of data is called information.
Quantitative data: refers to use of numeric data or measurable elements such as days, units and volume.
Qualitative information: refers to opinion, views, attitudes and feelings. It also adds human dimensions.
In my research as i have to investigate the effectiveness of expatriate remuneration which refers to the feeling of expatriate in term of motivation, life satisfaction and job satisfaction at work place so i shall use qualitative information to conduct this research.
Primary information is concerned with generation and collection of original data. The data is collected for the specific purpose. The method of collection can be;
Secondary information is often know as desk research and can be either internal or external. It refers to information that already exists somewhere having be collected for another purpose.
Printed Secondary Sources:
Internet data base
Local private sources
Syndicated data services
To conduct my research i shall collect secondary information from academic sources and journal articles.
Data Collection Technique:
Qualitative and Quantitative data is collected through different techniques but in my research the area of concern is qualitative data.
The following technique are categorised to collect the qualitative data.
Interviews: are often consider the best way to collect qualitative data because it is considered freer from bias than other technique (Greenfield, 1996). There are many ways to conduct an interview ,face to face, group or telephonic and there are three types of interview structure as follows:
Structured: based upon pre set questions.
Semi-structured: based on a list of questions and theme but it may vary interview to interview.
Unstructured: no pre-determined questions are there, the interviewer is allowed to talk freely about the subject.
Observations: are recording, description, analysis and interpretations of people behaviour. There are two types of observation methods.
Direct observation: visiting the physical environment to collect evidence.
Participant observation situation: the involvement of the researcher participating in the work of the organisation which they are studying.
Following questions should be addressed during observation.
What would be observed?
Where will the observation be made? &
How many observations will be made?
Documents: are formal methods of data collection which includes; proposals, contracts, business correspondence, publicity materials, financial information (Saunders, Lewis and Thornhill, 2009).
After collecting qualitative data it can be categorised in two stages.
Sorting of data:
Grounded theory (GT) is a systematic qualitative research methodology in the social sciences (Creswell, 2003) emphasizing generation of theory from data in the process of conducting research. It is a research method that operates almost in a reverse fashion to traditional research and at first may appear to be in contradiction of the scientific method, Rather than beginning by researching & developing a hypothesis, a variety of data collection methods are the first step.
The data collected from this first step, the key points are marked with a series of codes, which are extracted from the text. The codes are grouped into similar concepts, in order to make them more workable. From these concepts categories are formed, which are the basis for the creation of a theory, or a reverse engineered hypothesis. This contradicts the traditional model of research, where the researcher chooses a theoretical framework, and only then applies this model to the studied phenomenon. Grounded theory will be applied in this research to analyze the data collected through research process.
Following ethical issues should be kept in mind while conducting the research which obviously i shall use in my research.
Nature of research should be suitable for study.
Evidences should be provided while collecting data at the same time integrity, honesty and trust of researcher is required.
While processing data accuracy, protection and right sample should be taken.
In reporting research one should keep proper care of referencing, publications, intellectual property & assistance from other, misrepresentation of work and should avoid plagiarism.
Every research design has some strengths and weakness, within in the available resources the best methodology for data collection and analysis should be used. Likewise being in my available resources I shall use secondary data to investigate the effectiveness of expatriate remuneration in multinational organizations. So far as validity, reliability and biasness of this research are concerned, I am dependent on secondary data collected by other researcher for some other purposes.
I shall mostly use journal articles, case studies and academic texts to support my research so my research cannot be generalized one as I have not adopted all the sources of primary data collection and analysis methods.
Boxall and Purcell (2008) suggest that extrinsic rewards such as income and employment security are important drivers of employee satisfaction but intrinsic rewards are also critical. Intrinsic satisfaction is greater when there is a good match between the skills and individual possesses and the skills needed their job. Fortunately for firms, this matching principle is relevant to workers of all skills level, not simply to the most highly educated or the most intelligent. It suggests that there are opportunities in all sorts of roles to faster higher levels of employee satisfaction and this builds greater commitment.
Expatriate remuneration package include; Allowances like Cost of living allowance (COLA) to maintain the standard of living as expatriate is enjoying in his or her home country. Incentives like premiums to motivate employees for foreign assignment. Taxes; firms equate the amount of salary given to expatriate in the home country and pay all the other taxes in the host country. This is done for the tax protection of employee.
Expatriate remuneration can be set on following proposition:
Living standard of home country should be maintained.
The salary package should be market competitive.
While setting the remuneration package company should keep in mind the working conditions of foreign country.
Expatriate pay is set in four methods;
Selected country &
Home Country Basis:
Incentive Premium:-Incentive premium gives attraction to expatriate to accept the assignment. This is offered as a compensation for the disruption of the family life. In similar cultures like in Europe this incentive premium is low.
Hardship Allowance:-Hardship allowance includes compensation of discomfort, climate adaptability, and difference of language, home sickness, and health issues.
Separation Allowance: - If the expatriate does not take his spouse with him/her this allowance is paid. The expatriate has to live alone apart from their family.
Clothing Allowance:-Expatriate has to purchase extra clothing due to difference of weather or due cultural compatibility so clothing allowance is paid for this extra head.
Relocation Allowance: Relocation allowance includes cost to cover to move from one country to another country. Like travelling and cargo expenses.
Housing Allowance: Housing allowance is given for supplementary cost to cover up the accommodation problems being faced by expatriate.
Other benefits offered to expatriate include car in a host country, cost to cover education expenses of children, rest leaves if the expatriate is working in tough environment.
Net to Net Comparisons Method
The starting point for any analysis is to look at any offer in terms of how your net (after tax) take home salary – inclusive of any government and social security allowances – compares to your net salary in your host country. You may be entitled, in parts of Europe and elsewhere, for social security payments but you should not assume so in the absence of direct advice from your employer.
In traditional “expatriate” remuneration systems it was normal to protect a part of the package called “discretionary expenditure and savings” from exchange rate changes and to adjust it for changes in tax rates in the base country. There has, however, been a marked shift to expatriates being employed on “host country plus” arrangements and, in these circumstances, for better or worse, expatriates are totally exposed to exchange rate changes
Cost of Living Adjustment Factors (COLAF) (Case Study of Australia)
Of course, net to net comparisons are not the whole story – you need to factor in cost differentials in your host country. A number of consultancies currently carry out cost living surveys in even the most remote corners of the world, and they may tell you, for instance, that London is 30% more expensive than Melbourne. Notionally that means that the part of your package that you would normally spend on every day living, not that which you would “save”, should be increased by 30% just to keep you “whole”. Of course, the reverse situation can apply and you may be sent to a lower cost environment and in theory you could be paid less and still live as comfortably. Somewhat understandably, individuals often find the latter hard to accept.
However, just as in other parts of expatriate remuneration, this area is more complicated than first appears. For example, COLAF’s rely on a number of assumptions that normally don’t fit any family or individual with exactitude. Thus, assumptions may be made about the composition of the basket of goods you buy, how you will live in terms of accommodation, your family size (eg. 2 adults and 2 children) and the age of your children. Of course, if your circumstances are well outside these norms (eg. single individual vs. large family) you may find the remuneration results generate too much or too little income – although to some extent this probably mirrors your situation in Australia.
Some things you need to specifically consider though – because they can be (very) big budget items – is whether your employer will pay for accommodation, school and health insurance costs, and how much. If they don’t, and this is often the case on so-called local packages, then you need to very carefully research local costs for both these items. If the employer does pay for accommodation costs then you have also got to satisfy yourself that the quality of housing provided is acceptable. In certain parts of the world even (extraordinarily) high rental costs do not equate with luxury, and particularly of concern for many Australians used to large homes, to a “lot of space”. This should be one of the main focuses of any familiarisation trip, if available. It is not uncommon to find expatriates, in a number of locations, using part of their salary, in addition to rental allowances to improve their standard of accommodation in the second or latter years of an assignment.
Finally, remember that COLAF’s are usually quoted at specific exchange rates – if there have been significant movements in the cross rates during the intervening period then the COLAF’s should be adjusted accordingly.
Apart from simply keeping you “whole” from a base country perspective, most expatriate remuneration systems will also provide an allowance or additional salary to compensate for the innate difficulties posed by an expatriate lifestyle and to assist employee mobility. Other payments may also be payable based on geographic location and an assessment of relative “hardship” in these locations.
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