examined. The chapter concludes by highlighting the changing nature of
international work and, using ‘virtual assignments’ as an example of this change,
the implications for international compensation and performance management.
2 INTERNATIONAL COMPENSATION
An organization’s compensation system is the usual means by which employee
rewards are planned and administered. Increasingly, the importance of inter-
national compensation strategy in the implementation of organizational strat-
egy is being acknowledged (Bonache and Fernández, 1997; O’Donnell, 1999).
International compensation can be defined as the provision of monetary and
non-monetary rewards, including base salary, benefits, perquisites, long- and
short-term incentives, valued by employees in accordance with their relative
contributions to MNC performance. Its broad HRM purpose is to attract, retain
and motivate those personnel required throughout the MNC currently and in
the future. Job evaluation is the means by which internal relativities and com-
pensable factors, those elements such as skills, physical and mental demands
and responsibilities that comprise an individual’s work role in the MNC and
contribute to its performance, are determined (Cascio, 1991). From the per-
spective of employees, in particular, compensation is one of the most visible
aspects of strategic international human resource management. Indeed, Kessler
and Purcell have demonstrated ‘the centrality of pay to the structure and oper-
ation of the employment relationship’ (1995: 17).
There has been relatively little theory applied to explanations of inter-
national compensation. However, contingency, resource-based and agency
theories offer some insight. An influential management theory, the contingency
approach, suggests there are variables that impact on compensation policies
and practices to make them more or less appropriate and effective (for a review
in relation to compensation, see Balkin and Gomez-Mejia, 1987). Its contri-
bution to international compensation strategy is implicit in the rationale for
enduring expatriate compensation practices such as the Balance Sheet
approach, and in more recent, global models of international compensation
such as that proposed by Milkovich and Bloom (1998) discussed later in this
chapter. Both developments incorporate the need to consider particular con-
tingencies or situations, such as host country preferences, when devising and
implementing international compensation.
Recently, two additional theories, Resource-based theory and Agency
theory, have been applied to explain and predict particular aspects of international
compensation. Resource-based theory analyses conditions in which organi-
zations can gain positions of competitive advantage through having human
resources which are valuable, rare, and difficult to imitate or replace (Barney, 1991)
308 International Human Resource Management