Key components of an international compensation programme are as follows:
The major focus of most international compensation programme is to keep international employees at a sufficient financial level during their international assignments so that they do not lose ground economically.
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Components of an international compensation package, in addition to the normal salary and benefits offered in the home country, frequently include the following. These components are discussed below:
1. Base salary:
For expatriates, the term base salary means the primary component of a package of allowances which are:
(a) Foreign service premium,
(b) Cost-of-living allowance,
(c) Housing and utility allowance,
(d) Basis for in-service benefits and pension contributions.
Base salary may be paid in home or local currency or in some hard currency like pound or dollar.
2. Foreign Service inducement/hardship premium:
Parent-country nationals often receive a salary premium as an inducement to accept a foreign assignment or as compensation for any hardship caused by the transfer. Such payments vary depending upon the assignment, actual hardship, tax paid to foreign governments and length of the assignment.
Various allowances are paid to expatriates depending upon the assignment. They include:
(a) The cost-of-living allowance (COLA):
It involves a payment to compensate the differences in expenditures between the home country and the foreign country.
(b) Housing allowance:
Implies that employees should be entitled to maintain their home-country living standards (or, in some cases, receive accommodations)
(c) Home leaves and travel allowances:
Is given to cover the expense of trips (usually once in a year) back home. These trips allow the expatriates the opportunity to renew family and business ties, thereby helping them to avoid adjustment problems when they are repatriated.
4. Education Allowances for Children:
Education allowances are given towards fees for the education of expatriates’ children. Education allowances include items such as tuition, language class tuition, books, transportation and uniforms.
5. Relocation Allowances and Moving:
Relocation allowances usually cover moving, shipping; temporary living expenses, and down payments or lease-related charges.
6. Tax Equalisation Payments:
Many international compensation plans attempt to protect the expatriate from negative tax consequences by using a tax equalisation plan. Under this plan, the company adjusts an employee’s base income so that the expatriates will not pay any more or less tax than if they had stayed in the home country.
7. Spouse Assistance:
To help guard against or offset income lost by an expatriate’s spouse as a result of relocating abroad. Multinationals generally pay allowances in order to encourage employees to take up international assignments.