Compensation is the amount of reward one gets out of the services offered to a company. International compensation is the amount of remuneration one gets from offering labour services for a company which is not registered within the domestic jurisdiction. Most multinational companies have established their presence in many countries and therefore basis their compensation as per the international standards. The compensation is inclusive of basic salary, benefits, allowances and incentives.
2.0 International Compensation
According to James (2015) salaries should be benchmarked to the domestic standard and other applicable international standards as per labour laws. Most people employed by multinationals may be posted to different countries where they take several risks (James, 2015, p.15). Foreign assignments come with discomfort and inconveniences especially to a non-resident. A company may be compelled to award hardship allowances if the place of work is not conducive for the employee. Generally international compensation is costly to a company as compared to local compensation. To avoid this cost, only highly experienced staff members are sent on international duties. The returns must always exceed the cost to avoid corporation losses.
A good compensation is what is considered as fair by the expatriate. It should be able to cover daily expenses and other incidental costs. The package should enable the flexibility of the expatriate as well as his mobility, given that international duties entails a lot of travelling. The approached used in determining the global compensation are; the home based method, global market method and the host based approach (Williams, 2013). The global approach argues that international assignment awarded to an expatriate should be continuous and all the staff assigned should be given an equivalent salary regardless of the country they are assigned to. The host based approach argues that the assignee should be paid as per the job scale of the host country. The allowances can slightly vary so as to match the generally agreed international scale. The home based approach, also known as the balance sheet method uses a package that is equalized to the cost difference between the home country and where the international assignment is based.
SABIC is an international company based in Saudi Arabia that deals in chemicals. It produces fertilizers, metals and industrial polymers. The company has a stringent employee compensation policy that ensures fair treatment for both domestic employees and expatriates who comprises 30% for highly skilled labour. SABIC uses both the global and host based approach for international compensation. Employees are compensated based on their level of qualification and education attainment. In the production department an efficient worker takes home bonuses which are computed on the basis of target established by the department. Most expatriates are given a chance to choose on the required standard on remuneration. This is despite the fact that the government of Saudi has one of the best labour standards in the world equivalent to that of big economies (Milkovitch, 2014). There is usually a negligible difference between the host based compensation and the global based approach.
To maintain world leadership as top chemical corporation SABIC ensures employee satisfaction with a goal to attracting more qualified expatriates. The policies enacted by the company enables flexibility from one subsidiary to another which may be located in another jurisdiction but within GCC countries. It provides a consistent and reasonable pay level for workers who are located at SABIC headquarters and those in its affiliated companies. The compensation in foreign subsidiaries is periodically matched to the home company to prevent demotivation of employees arising from wage gap (Milkovitch,2014, p.50-53). SABIC has drafted a salary scheme that is easy to understand by all stakeholders and easily administered by the management. Given the highest turnover that SABIC is able to generate on annual basis the wage bill is cost effective and not overestimated, hence profitable.
The components of compensation utilized by SABIC comprises of the basic salary, allowances based on the international industrial scale, short term and long term benefits and hardship allowances. The hardship allowances are slightly more for expatriates than for host country employees. SABIC argues that most expatriates who are usually from Europe finds it extremely difficult to cope with Saudi Arabia climate which is usually hot and dry. The basic salary for expatriates in SABIC ranges from $250,000 for top level managers and highly skilled workers. Most expatriates are paid in United states dollar while host local employees are paid in the home currency. It is upon the basic pay that benefits and bonuses are computed from on a pre agreed percentage (Williams, 2013, p.60).
The benefits which entails indirect compensation are based on the type of contract an employee has signed with SABIC. For those who are in long term contract with the company enjoys more benefits than those in short term contract. what has retained most employees in SABIC is the guarantee for an attractive benefit. The benefits are entitled to an employee even the time he is off on duty for vacation. The company uses allowances which is an adjustment for the cost of living incurred by the employee. Those who are based in foreign branches may get high allowances depending on the standard of living. SABIC classifies its types of allowances into; relocation allowance, education allowance, leave, spouse, housing and travel allowances (James, 2015).
Incentives entails additional payment on top of the total remuneration. SABIC does this with an aim to motivates its employees more. Out of the attractive incentives SABIC has been able to retain most competent expatriates from European and American countries. The use of incentives has a lot of advantages in that most expatriates will be motivated to work overseas. The cost incurred by the company will be less since the payment is only done once. The benefit is not in the tax bracket of the company since it is a separate payment (Williams, 2013, p.70). Hardship allowance is paid as a salary premium. the premium is determined by the level of hardship an assignment hold. There are countries who are hostile to foreigners. In those countries an expatriate will earn more than in countries who are friendly to foreigners (Milkovitch, 2014, p.89).
SABIC should pay long term benefits depending on the share agreement and policies. both local employees should be given a chance to own stocks in the company. This is done through the employee stock option plan and the restricted stock unit. Through this strategies Employees will be motivated to work for a company where they own shares. The higher the profits the more the wealth maximized on their share. Given that SABIC is one of the most reputable company in Saudi Arabia where the government also owns 70% of its shares. Proper tax breaks should be given to expatriates workers. The double taxation treaty among many nations and Saudi will prevent many workers from being overtaxed. It is recommended that a tax equalization formula to be utilized through withholding an amount from the expatriates and sending them directly to their home country.
James, K.M International compensation forexpatriates. (2015). New York: UN.
Williams, C. A. (2013). An International Comparison of Workers’ Compensation. Dordrecht: Springer Netherlands.
Milkovich, G. T. (2014). Compensation. New York, NY ; London: McGraw-Hill Education – Europe.