Global QuickReview Flashcards

SECTION THREE
GLOBAL COMPENSATION AND
BENEFITS
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 GPHR Test Specifications
Global Compensation and Benefits
(17%)
 From the HR Certification Institute Global
Body of Knowledge
“The establishment and evaluation of a global
compensation strategy aligned with the
business objectives. This includes financial
and non-financial rewards.”

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U.S. Fair Labor Standards Act
 Establishes a minimum wage, overtime
provisions, and child labor regulations;

 Applies to most non-managerial employees

in private industry.

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 U.S. Equal Pay Act
 Requires equal pay for equal work,
regardless of sex.

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 U.S. Consolidated Omnibus
Budget Reconciliation Act
(COBRA)
 Provides for temporary continuation of
group health coverage, at group rates, that
otherwise might be terminated.

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 U.S. Family and Medical
Leave Act (FMLA)
 Mandates up to twelve weeks of unpaid
leave in any 12-month period for covered
employees to care for family or medical
emergencies.

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 U.S. Health Insurance
Portability and Accountability
Act (HIPAA)
 Gives new enrollees credit for prior health
insurance coverage and limits the duration
of preexisting condition exclusions; and
 Protects the privacy of health information.

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 EU Working Time Directive
 Each member state of the EU must ensure
that every worker is entitled to:
A limit to weekly working time;
Minimum daily and weekly rest periods;
Paid annual leave of at least four weeks per
year.

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 Equity
 The perceived fairness regarding what an
individual does and what is received.

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 Pay Equity
 The similarity of pay for jobs requiring
comparable levels of knowledge, skills, and
abilities.

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 Host-Based (going rate)
Compensation System
 Compensation package for international
assignments that adjusts wages to the local
cost of living and lifestyle.

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Balance-Sheet (home country)
Approach
 Compensation package for international
assignments that equalizes the cost
differences between the host country and
the home country.

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 Modified Balance-Sheet
Approach
 The company chooses the best
compensation results between the home
and the host compensation approach;
 Also called the mixed compensation
approach.

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 Localization
 Transforming an expatriate compensation package
(including base salary, incentive compensation,
risk benefits, perks, social security and retirement
plans) into one that is identical to host-country
workers, with the understanding that the employee
does not intend to return to the original country of
employment.

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Global Market Compensation
System
 Compensation package for continuous
international assignments using a
worldwide standard that is adjusted as the
expatriate is reassigned to different global
locations.

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 Base Pay
 The basic compensation for a specialized
position of employment;
 For expatriates, it is the primary component
of a package of allowances which may
include a foreign service premium, cost-of-
living allowance, housing allowance, etc.

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 Global Compensation
Allowances
 Additional pay provided for expatriates to
assist them in establishing themselves, their
spouse and dependants in the host country;
 May include housing, home leave,
dependent education, and relocation.

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 Cost of Living Allowance
(COLA)
 Payment to compensate for the differences
in expenditures between the home and host
countries. It adjusts for inflation.

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 Hardship Allowance
 Additional compensation for expatriates
assigned to locations with difficult living
and working conditions

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 Mobility Bonus
 An incentive designed to increase the
international mobility of employees;
 Purpose is to compensate for some of the
inconveniences relating to the move, such
as separation from family, friends and the
home environment.

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 Foreign Service Premium
 A cash allowance given to an employee
who agrees to transfer to a foreign location;
 Also called an International Adjustment
Allowance or International Assignment
Premium.

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 Hypothetical Tax
 Expatriate taxed on norm of home country
tax, factoring in exemptions and
deductions.

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 Gross-Up
 Amount of money the company gives
expatriate to offset additional taxes.

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 Tax Equalization
 Method used to ensure that expatriates pay no
more than the amount of assumed home country
income taxes;
 An amount equal to the home-country tax obligation is
withheld from the expatriate’s pay;
 The employer then pays all taxes in the host country.

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 Tax Protection
 The expatriate pays up to the amount of taxes that
would have been owed in the home country;
 The expatriate is entitled to any windfall received
if total host country taxes are less than the home
country.

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 Double-Tax Treaties
 Treaties between the home and host countries
allowing expatriates to be taxed at a reduced rate
for income received within the country they are
working in.

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 Totalization Agreement
 Agreements to coordinate Social Security
protection across national boundaries.

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 Split Payroll Approach
 A method of compensating expatriates in which
part of the pay is made in home country currency
and the remainder in host country currency.

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 QuickReview

Expatriate Compensation

 Balance Sheet/Home Country Approach

 Host Country/Going Rate Approach
 Global Market Approach

 Tax Issues

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 Long-Term Cash Incentives

 A performance driven award that pays

compensation based on a three to five year
performance period and calculated as a multiple of
base salary.

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 Deferred Compensation

 An arrangement to defer some portion of

current income until a specified future date;

 Wages earned in one period are actually paid

at a later date.

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 Perquisites (PERKS)

 Special “status enhancing” executive benefits,

usually non-cash items, and often non-taxable.

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 Stock options

 An employee’s right to purchase a specific

number of shares of company stock during a
time and at a price the employer specifies.

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 Stock Purchase Plan

 A plan allowing employees of a company to

purchase shares of the company, often at a
discount or with matching employer funds.

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 Phantom stock

 A promise to pay a bonus in the form of the

equivalent of either the value of company
shares of stock or the increase in that value over
a period of time.

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 Stock Appreciation Right
(SAR)

 Provides the right to the monetary equivalent of

the increase in the value of a specified number
of shares over a specified period of time;
 Similar to phantom stock.

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Employee Stock Option Plans
(ESOP)
 Profit sharing plan that gives employees shares
of stock in the company;
 Designed to increase employees effort,
commitment and loyalty since they have a stake
in the organization’s success.

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 Quick Review

Objectives of Multinational
Compensation Policies
 Consistent with overall staffing structures and
business needs;
 Ability to attract and retain staff in targeted
foreign countries;
 Cost effective and fair to expatriates; and
 Ease of administration.
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 Benefit
 A collection of non-cash compensation
elements, including but not limited to
income protection, health coverage,
retirement savings, vacation and income
supplements for employees, provided in
whole or in part by employer payments.

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 Mandated Benefits
 Employee benefits that employers must
provide by law.

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 Voluntary Benefits
 Employer provided benefits that are not
mandated by law.

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 Severance/Redundancy
 Money paid to employee who lost his/her
job because he/she is no longer needed. In
many countries the amount is proscribed by
law. In the U.S. this is not required and is
based on company policy.

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 Defined Benefit Retirement
Plan to pay employees
 An employer’s promise
a fixed amount each year at retirement;
 Regardless of the rate of inflation,
employees will receive a pre-determined
amount.

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 Defined Contribution
Retirement
 A retirement Plan
plan in which the employee
and/or the employer contributes;
 Employees are usually responsible for
choosing investments in these accounts and
income taxes are deferred until the
proceeds are withdrawn after age 59 ½.

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 Multinational Insurance
Pooling
 System in which group employee benefits
insurance in various countries is brought
together into one "pool" to reduce expenses
and provide a more favorable experience
rating.

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