International Compensation for Mega-Widgets Company - Essay Example

? Report on the Concept of International Compensation to the Board of Directors of Mega-Widgets Company of Introduction This report focuses on the concept of International Compensation in Mega-Widgets Company, an Australian semi-medium sized enterprise. The company is involved in the manufacture of high quality widgets and has grown to a point where it is eligible to be listed as a public company on the Australian Stock Exchange. The company is focused on exports and trading with companies around the world. Hence, it has a group of partners and managers in different parts of the world with diverse backgrounds. The company's head office is in Newcastle, NSW Australia. However, it has manufacturing plants in China, India, Indonesia and USA. The company has a tradition of employing senior managers from Australia in its international operations. However, there is the need for the formation and usage of an international compensation system to ensure that remuneration is fair and linked to motivation to enhance productivity and efficiency. This report is presented by the International Human Resource manager to the Board of Directors of the company. It examines the concept of International Compensation and how it affects a firm and how it can be used to enhance Mega-Widgets. It also examines how International Compensation can be implemented in the company and the challenges that comes with it. International Compensation – Defined & Explained There are different perspectives and angles within which the concept of international compensation can be examined. In one angle, it can be seen as “... the provision of monetary and non-monetary rewards including base salary, benefits, prerequisites in accordance with their relative contributions to a multinational's performance” (Harzing & Gusseveldt, 2006, p. 32). This means that international compensation is the provision of different forms of remuneration in a manner that is sensitive and responsive to the different elements and structures relevant to international business (Magnan & St-Onge, 1997). The concept of international compensation is borne out of the fact that compensation for different regions of the world differs because of income disparities and cultural differences (Mathis & Jackson, 2009). Hence, what would motivate one person in one nation might not necessarily motivate another. The remuneration of an international business must reflect the local context of the business as well as the global competitiveness (Dowling et al., 2009). Hence a business would have to fix its remuneration to reflect all these realities. Benefits of International Compensation to Mega-Widgets The concept of international compensation is essential and necessary for the success of our company. Mega-Widgets is seeking to go public and also merge up with other international firms that have their own culture and their own identities. The concept of international compensation is going to help Mega-Widgets to achieve numerous ends and objectives in a positive way and manner. First of all, international compensation would enable Mega-Widgets to streamline its local and regional employees and create a plan that would help the company to would guide the employment and remuneration of these managers and employees (Caruth & Handlogten, 2010). This would involve the strategic alignment of compensation systems in the appropriate contexts of the company (Tosi & Greckhamer, 2004). This would be done through the identification of social contracts, management structures and bargaining cultures in each country that Mega-Widgets would operate in (Gomez-Mejia & Werners, 2010). The centralised international compensation system would take into account local conditions, exchange rates and other elements of all the host countries and Australia in order to integrate all geographical factors (Bjorkman, 2009). Thus, our Executive Director would take recommendations from the human resource department, institute the standardised International Compensation system and ensure that it is operating well and it is meeting our local and international business aspirations. The international compensation system would involve the creation of a well-designed and properly administered system of fixing compensation and taking into account the economic realities of all relevant factors (Aswathappa, 2009). Also, the international compensation system would enable the company to create a consistent and a scientific method of fixing income and this would be independent and free of politics (Oxelheim & Randoy, 2005). This is because the status quo of not having an international compensation structure means that the salaries of the respective members of the company would be set in a subjective manner. An unstructured international compensation system opens up the door for politics and other forms of manipulations (Kalra et al., 2003). This model would enable the remuneration of all members of the organisation to get their salaries for international employees fixed on the basis of their diplomatic skills, language aptitude, cultural empathy and management skills (Sengupta, 2007). These are things that the status quo does not take into account. Another element of motivation is the perception of social justice and equity. Every employee wants to work in a place and environment where he would be deemed to be treated fairly. Hence, it is necessary for transparency and scientific methods to be applied in setting remuneration (Dickman et al., 2011). This implies that Mega-Widgets would be seen as a kind of good and ideal place to work if there is a scientific approach to setting remuneration for our international managers and employees. International compensation system will really Mega-Widgets' corporate governance profile and help us in our bid to become a public company. This would also help the company to become more credible. In order to form joint ventures with the American and Chinese companies, there is the need to create a common ground on which remuneration and other things can be fixed by the company. Finally, the workers from Indonesia and India would be given some degree of social justice and they would feel a sense of equity in the company. Successful Implementation of International Compensation The successful implementation of international compensation demands a lot of critique and examination of the realities of the situation in the host and home countries that are involved in the situation. Thus, first of all, a firm would have to examine the business norms and cultures in the countries involved. The next idea is to identify the labour needs of each of the jobs. Thus, the implementation of international compensation would require a model that would create a critique of the work environment. The model must be mindful of the work demands of the home country and detect the elements of each of the host countries (Boyd, 1994). This would involve very objective models that relates to the company's fundamental operation needs and expectations. The model would set metrics for each nation and how those metrics matter and how important they are. This would be the basis on which remuneration would be fixed and compensation would be varied on the basis of the variations that would come amongst nations. The next thing is to ensure that the different data and information would be acquired in a scientific manner and basis. After that, a business would have to ensure that it communicates the model and the system of international compensation to all members of the organisation and then the company can proceed to begin making payments along those lines. Challenges and Considerations in Implementing International Compensation The main challenge in setting international compensation is the ability to form a model that reflects the realities on the ground. In other words, the metrics and the standards that are used to set international compensation must be scientific and it must present a very good and clear view of the situations in the rightful context. Setting up a standard and system of paying the employees in different frameworks is difficult and it comes with a lot of politics and sensitivities which might be difficult. Secondly, employee views and cultures vary. The variations are so huge that it might present some kinds of compensation systems that might be very unjust. This is because if we consider the realities of some countries, there must be some justification for discrimination. However, this discrimination might be somewhat detrimental to the motivation of employees. Thirdly, the challenge of international compensation is that it could break some of the long-held traditions and culture of a company like Mega-Widgets (Boyd & Salamin, 2001). This makes it difficult for the company to blend its vision and original plan with the changes that international compensation would bring in. Thus, it could encounter some resistance, particularly amongst those to be affected. Obviously, there is a challenge in the implementation of an international compensation system. This is because the international compensation system comes with adjustments which could be difficult to attain. Conclusion International compensation is about the formulation and implementation of a remuneration structure that would embrace all the complexities of an international business. International compensation is a compensation system that is sensitive to all the elements of the host country and home country of an international business. International compensation would streamline an international company and enable it to control employment in the different countries it operates in. This would help in the creation of a centralised compensation system that would promote the corporate governance model and help Mega-Widgets to become more credible and also streamline the international joint ventures arrangements and promote inclusion amongst employees from developing countries. Successful implementation of international compensation involves the study of the work and labour environment of the home and host countries. It involves the creation of a model that would integrate all environments of the job or the work. The next thing is that data would be collected in the company in order to create an ideal system of setting remuneration. Implementation challenges include cultural variations and adjustment issues with the work environment of the business. References Aswathappa, K., & Dash, S. (2008). International human resource management: Text and cases. New Delhi, India: Tata McGraw-Hill. Bjorkman, I. (2009) Handbook of research in international human resource management. Surrey: Edward Elgar Publishing. Boyd, B. K. (1994) Board control and CEO compensation. Strategic Management Journal, 15(5),335-344. Boyd, B. K., & Salamin, A. (2001). Strategic reward systems: A contingency model of pay system design. Strategic Management Journal, 22(8), 777-792. Caruth, D. L., & Handlogten, G. D. (2010). Managing compensation. Darby, PA: Greenwood Publishing Group. Dickman, M., Sparrow, P., & Brewster, C. (2011). International human resource management: A European perspective. London, UK: Routledge. Dowling, P. J., Festing, M., & Engle, A. D. (2009). International human resource management. Mason, OH: Cengage. Gomez-Mejia, L., & Werner, S. (2010). Global compensation. London, UK: Routledge. Harzing, A. W., & Guysseveldt, J. V. (2006). International human resource management. London, UK: SAGE. Kalra, A, Shi, M., & Srinivasan, K. (2003) Salesforce compensation scheme and consumer inferences. Management Science, 49(5), 655-672. Magnan, M. L., & St-Onge, S. (1997) Bank performance and executive compensation: A managerial discretion perspective. Strategic Management Journal, 18(7), 573-581. Mathis, R. L., & Jackson, J. A. (2009). Human resource management. Mason, OH: Cengage. Oxelheim, L, & Randoy, T. (2005). The Anglo-American financial influence on CEO compensation in non-Anglo-American firms. Journal of International Business Studies, 36(4), 470-483. Sengupta, N. (2007). International human resource management. Delhi, India: Excel Books. Tosi, H. L., & Greckhamer, T. (2004). Culture and CEO compensation. Organization Science, 15(6), 657-670. Read More