Discuss the challenges of taxation.

BHR 4501, International Human Resource Management 1

Course Learning Outcomes for Unit VI Upon completion of this unit, students should be able to:

1. Evaluate the key components of an international compensation program. 5.1 Describe the main three main international compensation approaches. 5.2 Discuss the challenges of taxation. 5.3 Discuss the six most common types of international compensation allowances.

Course/Unit Learning Outcomes

Learning Activity

5.1

Unit Lesson Chapter 8 Chapter 8 PowerPoint Presentation Article: “The Challenge of Expatriate Compensation: The Sources of Satisfaction and Dissatisfaction Among Expatriates” Unit VI Scholarly Activity

5.2

Unit Lesson Chapter 8 Chapter 8 PowerPoint Presentation Unit VI Scholarly Activity

5.3

Unit Lesson Chapter 8 Chapter 8 PowerPoint Presentation Unit VI Scholarly Activity

Reading Assignment Chapter 8: International Compensation In order to access the following resources, click the links below. Suutari, V, & Tornikoski, C. (2001). The challenge of expatriate compensation: The sources of satisfaction

and dissatisfaction among expatriates. International Journal of Human Resource Management, 12(3), 389–404. Retrieved from https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bth&AN=4793479&site=ehost-live&scope=site

The textbook includes a PowerPoint presentation to accompany the required reading. Click here to view the Chapter 8 PowerPoint Presentation. Click here to access a PDF of the presentation.

Unit Lesson The last few units focused on how the multinational enterprise (MNE) carries out the all-important tasks of recruitment, selection, training, and appraising the performance of appropriate staff members. These tasks are at the heart of all human resource activities because successful organizations understand that human capital is their most important resource. After working through the previous units, it should now be clear just how important these tasks are to the MNE. Finding ways to find the right staff and keeping them in place for a long period is paramount to the overall success.

UNIT VI STUDY GUIDE

International Compensation

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BHR 4501, International Human Resource Management 2

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As previously stated, because of the high costs associated with international staffing, MNEs are always looking for a positive return on investment. MNEs are constantly—or should be—working on getting this positive return on investment by finding ways to keep staff in place to reduce turnover. The previous unit’s focus on staff development and retention ties into this current unit’s topic of international compensation. Although meaningful work, empowerment, and treating all employees with respect and trust are vital to retention and satisfaction, fair and equitable compensation are also important to employee satisfaction and motivation. Initially, employee compensation might seem a straightforward concept. An organization hires staff to do a job or provide a service, and they are paid in some way for that job or service. This concept is no different for the MNE. At first glance, it might not seem like a whole unit could be devoted to just international compensation. However, the complexities and challenges associated with the international compensation context make paying international employees difficult because of the three different types of international employee: parent company national (PCN), third company national (TCN), and host country national (HCN). The challenges stem from moving a firm from the domestic level to the international level and developing a compensation plan for different types of employees (Dowling et al., 2017). This unit also details the various components found in an international compensation program. It also outlines the three main approaches to international compensation: going rate, balance sheet, and local plus. This unit also discusses typical allowances in international compensation and wraps up with the challenges associated with taxation in international compensation. Objectives of International Compensation As in domestic human resource (HR), compensation is usually the main reward system, and it is a factor that drives performance and motivation. The main points of focus in international compensation contributing to the difficulty, when compared to domestic HR, are managing complex local host country details, local politics, and the host country culture (Dowling et al., 2017). Another factor is the influence of labor unions, which we address in more detail in a later unit. When the MNE operates in a less-developed country where the poverty rate is high, compensation of international staff, especially senior manager and executive level, presents another challenge. Executive salary in one of these less-developed countries could be viewed as unfair and can cause poor morale and discontent throughout the organization in that country. For these reasons, careful consideration to local conditions when developing the compensation package is important. An article by Suutari and Tornikoski (2001) in the International Journal of Human Resource Management illustrates the challenges of expatriate pay and developing an equitable compensation plan. The focus is on what many expatriates feel is unfair in compensation, but it also sheds light on how consideration of host country wages is rarely discussed, leading to frustrated host country employees when the pay is considered unfair based on host country conditions (Suutari & Tornikoski, 2001). Your textbook breaks down four main objectives in building an international compensation package. The first focuses on needs of the organization to include the overall business strategy and structure of the company. The second focuses on attracting and retaining staff. The third focuses on relocating international employees using the most cost-effective methods. The fourth objective comes down to equity and the ease of carrying it out.

Needs of the organization

Attracting and

retaining staff

Relocating international employees

Equity and ease of

carrying it out

Main Objectives in Building an International Compensation Package

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Components of International Compensation and Allowances In addition to the above objectives, employees working globally expect some form of financial protection that comes in the form of benefits (to include social security and cost of living adjustments). It is important to note the differences in the term base salary in terms of domestic and international compensation. In domestic compensation, it comes down to cash compensation including bonuses and benefits provided. In international compensation, it is a package of allowances. These allowances would be payments that are in addition to the salary and base pay. For example, if the employee’s annual salary is $100,000 and he received a housing allowance of $24,000 per year, he would be paid $124,000 each year. The main types of allowances that can increase an expatriate’s salary are cost of living, housing, home leave, education, relocation, and spousal assistance.

 Cost-of-living allowance is generally determined by the family size of the employee and factors in costs that differ from home country for normal living such as transportation, furniture, appliances, automobile maintenance, and domestic help. It comes down to allowing an American to live like an American in the host country (Dowling et al., 2017).

 Housing allowance is also determined by family size and has a similar basis as the cost of living adjustment, but it focuses on the cost of maintaining a home in the host country.

 Home leave allowance is basically for morale of the family members by allowing one or more trips back home each year at the company’s expense.

 Education allowance covers expenses of educating the children of expatriates. As noted in in a previous unit, the military has Department of Defense schools located at overseas bases to cover education of the children with American teachers sent over on two-year contracts.

 Relocation allowance covers expenses incurred by the expatriate above what the employer provides.

 Spousal assistance comes down to offsetting income lost by an expatriate’s spouse because of moving abroad (Dowling et al., 2017).

The last components of a successful international compensation program are traditional benefits. These include medical coverage, pensions, social security, insurances, stock options, and vacation time. As with base rate and salary, benefits are essentially the same on the domestic level as on the international level. For example, pension plans and savings and investment plans are difficult to manage between countries due to variations in national rules and regulations. Additionally, required benefits (which come from employment legislation) such as workers compensation, have no applicability in foreign environments (Harzing & Pinnington, 2015). Approaches to International Compensation Traditionally, there have been two approaches for the MNE to use in handling international compensation, which includes the Going Rate and the Balance Sheet Approach. There is also a third approach starting to emerge known as the Local Plus Approach (Dowling et al., 2017). The Going Rate Approach is based on typical market values found in the host country. There are some advantages and disadvantages with this approach, and Table 8.2 in your textbook breaks them down. When speaking in terms of typical market values, it comes down to establishing the expatriate employee’s base salary by gathering data from local sources to determine the best methods and rates. Typically, the MNE will supplement the expatriate employee’s pay if the foreign location is considered a low-paying country (Harzing & Pinnington, 2015). The advantage in using the Going Rate Approach is that there is equality with the local nationals and it is also simple and easy for employees to understand. The disadvantages are the variations between assignments for the same employee. Also, this sometimes causes a problem when the expatriate returns to his or her original country, and the salary falls below that of the host country due to the incentives they have been receiving (Dowling et al., 2017). The Balance Sheet Approach is followed by most MNEs in the United States when their international business expands to the point where the firm has a larger number of international assignees (Briscoe et al., 2009). This approach links the base salary for expatriates to the salary of their home country. For example, a U.S. executive would have his or her international compensation package built on the U.S. base salary level rather than the host country. The advantage of this approach provides equity between all foreign assignments and expatriates of the same nationality; plus, it is easy to communicate to the employee. The disadvantages include considerable disparities between PCNs and HCNs. Despite this being a simple concept to

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understand, it often can become complex to administer (Dowling et al., 2017). Table 8.5 in your textbook breaks down the advantages and disadvantages of the Balance Sheet Approach in further detail. Finally, the Local Plus Approach has started to emerge as a third option for international compensation and has become popular in the Asia-Pacific region. This approach is one in which the expatriate is paid according to the salary levels of the host country, but he or she is provided with expatriate-type benefits. The Local Plus Approach tries to reduce international assignment costs. Essentially, Local Plus is a combination of both the balance sheet and Going Rate Approaches. The benefits for this approach allow the MNE to enjoy the advantages of both approaches at the same time. A disadvantage to this approach is the shift of power balance of the employment relationship in the expatriate’s favor that might not be beneficial for the MNE (Dowling et al., 2017). Taxation Taxation, when dealing with international compensation, is often the most challenging aspect. This is because taxation, in and of itself, is already challenging, and adding international rules only makes it more so. Employees who move from one country to another are confronted with widely disparate tax systems, philosophies, and rates. They may be required to pay taxes in both home and host countries (Briscoe et al., 2009). Additionally, tax systems tend to change constantly, making things even worse on the MNE and the individual. MNEs generally employ two methods for dealing with international taxation. In tax equalization, the firms withhold an amount equal to the home country tax obligation of the expatriate. In tax protection, the employee pays up to the amount of taxes he/she would pay on compensation in the home country. In this situation, the employee will be entitled to any windfall gained if their total taxes end up being less in the foreign country than in the home country. Despite this possible windfall, MNEs generally employ the tax equalization method when dealing with international taxation (Dowling et al., 2017). Conclusion International compensation, and how the MNE handles it, is extremely important to employee satisfaction, retention, and recruitment. The various challenges when dealing with international compensation are paramount to any successful MNE. This unit focused on the ways in which the MNE can handle these challenges and the pros and cons for each. This unit addresses terms like the Going Rate Approach, Balance Sheet Approach, and Local Plus Approach while also discussing the different components of each program and the most common allowances and premiums. This unit also discusses how taxation is handled on the international level and the different challenges the MNE will face when dealing with taxation. Unit VII will get into international industrial relations, the global institutional context, and the impact of unions.

References Briscoe, D., Schuler, R., & Tarique, I. (2012). International human resources management: Policies and

practices for multinational enterprises (4th ed.). New York, NY: Rutledge. Dowling, P. J., Festing, M., & Engle, A. D., Sr. (2017). International human resource management (7th ed.).

Hampshire, United Kingdom: Cengage Learning. Harzing, A.-W., & Pinnington, A. H., (2015). International human resource management (4th ed.). London,

England: Sage. Suutari, V, & Tornikoski, C. (2001). The challenge of expatriate compensation: The sources of satisfaction

and dissatisfaction among expatriates. International Journal of Human Resource Management, 12(3), 389–404. Retrieved from https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bth&AN=4793479&site=ehost-live&scope=site

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Suggested Reading In order to access the following resources, click the links below. This article addresses the challenges of compensating an expatriate employee on an international assignment focusing on pay disparities, taxation issues, and equity. Haile, S., & Williams, D. (2011, September). Factors that influence expatriate compensation problems.

Academy of Business Journal, 1, 25–32. Retrieved from https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bth&AN=66172650&site=ehost-live&scope=site

This article breaks down global compensation issues and focuses on the challenges of taxes on different income sources of the expatriate employee. Deich, G. M., & Klein, R. B. (1990). Personnel and tax challenges for companies going international. Journal

of Corporate Accounting & Finance, 1(4), 333–354. Retrieved from https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bth&AN=16961020&site=ehost-live&scope=site

Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. To check your understanding of some of the terms presented in Chapter 8 of your textbook, click here for a matching activity. To check your understanding of the Going Rate Approach, click here for a drag and drop activity. To check your understanding of the Balance Sheet Approach, click here for a drag and drop activity.

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Prepare a compensation program for the organization describing what components and allowances it will have.

Unit VI Scholarly Activity

Instructions

For this assignment, you will again be writing about your fictitious company. In a two-page paper, using peer-reviewed research articles from the CSU Online Library and the textbook as supporting documentation, address the following requirements.

1. Create a compensation program for the organization describing what components and allowances it will have. Of the six most common type of allowances, explain why you selected the one(s) that you did.
2. Specifically address which of the three main compensation approaches the organization will use and why you chose that approach over the others.
3. Identify the mechanism(s) the organization will use to ensure the compensation structure remains current and competitive.
4. Identify any legal and taxation issues to consider.

The paper should be APA-formatted using at least two peer-reviewed articles and the textbook as supporting documentation.

Textbook:

Dowling, P. J., Festing, M., & Engle, A. D., Sr. (2017). International human resource management (7th ed.). Hampshire, United Kingdom, : Cengage Learning.

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Assess some risks associated with these operations, separately, and as they integrate in the NAS.

Overview

A drone flying in the city at night.

In the Air Traffic Management (ATM) field, people are the greatest asset but they may also be the greatest source of risk. Understanding the human component in Air Traffic Control (ATC) is essential as the ATM system becomes more complex. Many applications in human factors need to be considered as the Nextgen system and use of the National Airspace System (NAS) continue to grow. Unmanned Aerial Vehicles (UAVs) are a part of the integrations of the NAS as well. These two intermingle, and it is imperative to understand the human factors concepts involved to mitigate risks.

Instructions

Refer to the module readings and outside sources, and start a presentation on ATM and UAV operations.

Examine and explain each operation individually.

Assess some risks associated with these operations, separately, and as they integrate in the NAS.

Finally, provide some recommendations to mitigate risks in each operation and the unique trials of useful airspace with all aircraft.

Your presentation should consist of approximately 7-10 slides (not including the title slide and the reference slide), with a suggested length of 3-5 minutes of audio, overall. The information should be properly cited and referenced using the current APA edition.

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Global Communications Worksheet

  Your supervisor wants to send a brief e-mail message, welcoming employees recently transferred to your department from different regions across the company, which are Brazil, Russia, India, and China. Create a clear and concise welcome message that would be appropriate for these groups of employees. Research the communication style of each of the following countries: ·         Brazil·         Russia·         India·         China Transcribe the following welcome message for the employees from each country: I wanted to welcome you ASAP to our little family here in the States. It’s high time we shook hands in person and not just across the sea. I’m pleased as punch about getting to know you all, and I for one will do my level best to sell you on America. Complete the table below with your transcribed welcome messages. Also indicate whether each of the countries are more individualistic or relationship focused, and whether they are direct or indirect in their communication.

 

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