traditionally developed for headquarters staff and international staff transfers,
including expatriation.
A broader perspective is required in order to achieve global consistency in
compensating employees throughout the MNC while allowing for variations in
accordance with workforce characteristics and local preferences and require-
ments. In the case of international staff transfers, international compensation
has included elements not usually explicit in compensation, such as allowances
for housing and children’s education, resulting in greater involvement of the
human resource management (HRM) function in the personal lives of
employees.
The level of risk associated with international compensation is greater in
two related ways. First, risk is increased by the complexities of operating within
multiple diverse economic, employment and taxation regimes. Second, the
imperative for global consistency in international compensation can increase
risk through direct and indirect cost inefficiencies associated with international
staff transfers, and also with the implementation of an international compen-
sation strategy. For example, recent research has identified a proliferation of
employee ownership, or equity based schemes such as stock options in inter-
national compensation. It concluded that unless MNCs pay due diligence to
adapting to local conditions, such schemes can result in employee dissatis-
faction, failure of international compensation to meet its objectives and cost
inefficiencies through inappropriately over-rewarding some employees (Cahill,
2002; Dwyer, 1999).
Variables influencing international
compensation strategyInternal and external factors influencing international compensation strategy
are shown in Figure 12.1.
Within the internal environment, the goal orientation is reflected in the
mission and goals of the MNC. Goals may be viewed as MNCs’ images of their
future states, which may or may not be realized (Etzioni, 1961). Manufacturing
and service MNCs producing and supplying commodities to outsiders for profit
have economic goals. Cultural rather than economic goals are reflected by organi-
zations such as international non-government organizations seeking to make a
difference to the human condition by institutionalizing and preserving desired
values. Compare the late 1990s goal orientations of World Vision Australia,
‘Fighting poverty by empowering people to transform their worlds’ and Broken
Hill Petroleum, ‘To enter the 21st century as a billion dollar a year international
oil and gas company’ (O’Connor, 1996: 1; World Vision Australia, 1998: 1).
The mission and goals will frame the way the role of international
compensation is defined. For instance, in the UK-based foam manufacturer
Zotefoam, where equality is a key aspect of HRM in the company’s mission, the
310 International Human Resource Management