THEORIES OF COMPENSATION

RESOURCE BASED THEORY

Resource-based theory contends that the possession of strategic

resources provides an organization with a golden opportunity to develop
competitive advantages over its rivals.

A resource is valuable to the extent that it helps a firm create strategies

that capitalize on opportunities and ward off threats One key reason is a
legendary organizational culture that inspires employees to do their very
best. This culture is also rare Competitors have a hard time duplicating
resources that are difficult to imitate A resource is non substitutable when
competitors cannot find alternative ways to gain the benefits that a
resource provides.

EQUITY THEORY:

According to this theory, there should be equity or the uniformity in the

pay structure of an employee’s remuneration. If the employee feels he is
not being paid fairly for the amount of work he does in a day will result in
lower productivity, increased turnover and high absenteeism. The
remuneration system should comply with three types of equity:

Internal Equity: The employee perceives the fairness in different pay for
different jobs based on the nature of work involved, i.e. he must feel that
pay differentials among the jobs are fair.

External Equity: The employee should feel the fairness in what they are
being paid is in line with what other players in the same industry are
paying to their employees for the same kind of job.

Individual Equity: The employee perceives the pay differentials among the
individuals who are performing the same kind of a job and within the
same organization. Usually, an individual with more experience gets high
remuneration as compared to the fresher irrespective of the nature of a
job.

AGENCY THEORY:

This theory states that both the employer and the employee are the
stakeholders of the company, and the remuneration paid to the employee
is the agency cost. The employee will try to get an increased agency cost
whereas the employer will try to minimize it. Hence, the remuneration
should be decided in such a way that the interest of both the parties can
be aligned.
Thus, these theories posit that the compensation in the form of salary or
wages can be decided on the basis of the outcome or the behavior of an
employee.

CONTINGENCY THEORY
Contingency theory refers to an organization theory that asserts that
there is no single best way for making decisions, leading a company and
organizing a corporation. The theory says that an effectiveness of
management is contingent and is dependent upon internal and external
environment. It is also termed as situational theory of management.
 EXPATRIATE MANAGEMENT

EXPATRIATE

An expatriate is an employee who is working and temporarily residing in a

foreign country. Many firms prefer to call such employees ‘international
assignees’

EXPATRIATE FAILURE

The term expatriate failure has been defined as the premature return of an
expatriate. i.e. a return home before the period of assignment is completed)

FACTORS CONSIDERED IN EXPATRIATE SELECTION

a) Technical ability - an employee’s ability to perform the required tasks of a

particular job is an important selection factor. Technical and managerial skills are
therefore an essential criterion.

b) Cross-cultural suitability - the cultural environment in which expatriates

operate is an important factor for determining successful performance. Here,
intercultural competence and related concepts as well as the ability to adjust to
a foreign culture play important roles

c) Family requirements - The family is a very important influence factor on the

success of an international assignment, particularly the spouse. Despite the
importance of the accompanying spouse/partner, the focus has been on the
expatriate. From the multinational’s perspective, expatriate performance in the
host location is the important factor. However, the interaction between
expatriate, spouse/partner and family members’ various adjustment experiences
is now well documented.

d) Country/Cultural requirements – Non availability of HCN, Work permit,

requirements as per legislation, social charter, adjusting to culture.

e) MNE may consider the proportion of expatriates to local staff when making
selection decisions, mainly as an outcome of its staffing philosophy. However,
operations in particular countries may require the use of more PCNs and TCNs
than would normally be the case, as multinationals operating in parts of Eastern
Europe and China are discovering. Furthermore, the mode of operation involved
needs to be considered. Selecting staff to work in an international joint venture
may involve major input from the local partner, and could be heavily constrained
by the negotiated agreement on selection processes

COMPONENTS OF PRE DEPARTURE TRAINING FOR EXPATRIATS

Cultural awareness programs
It is generally accepted that, to be effective, the expatriate employee must adapt
to and not feel isolated from the host country. A well-designed, cultural
awareness training program can be extremely beneficial, as it seeks to foster an
appreciation of the host country’s culture so that expatriates can behave
accordingly, or at least develop appropriate coping patterns. Without an
understanding (or at least an acceptance) of the host-country culture in such a
situation, the expatriate is likely to face some difficulty during the international
assignment. Therefore, cultural awareness training remains the most common
form of pre-departure training. The components of cultural awareness programs
vary according to country of assignment, duration, purpose of the transfer, and
the provider of such programs.

Preliminary visits
One technique that can be very useful in orienting international employees is to
send them on a preliminary visit to the host country. A well-planned visit for the
candidate and spouse provides a preview that allows them to assess their
suitability for and interest in the assignment. Such a visit also serves to
introduce expatriate candidates to the business context in the host location and
helps encourage more informed pre-departure preparation. It is essential to note
that such a visit must be relevant to the intended position that the international
employee will be taking up and not simply a ‘tourist’ experience. When used as
part of a pre-departure training program, visits to the host location can assist in
the initial adjustment process.

MNEs use the preliminary visit to allow the assignee (and spouse) to make a
more
informed decision about accepting the overseas assignment, it should be used
solely for that purpose. Combined with cultural awareness training, the
preliminary visit is a useful component of a pre-departure program. Exposure to
the expatriate community (if one exists in the proposed host location) can also
be a positive outcome. Brewster and Pickard23 found that an expatriate
community has an influence on expatriate adjustment

Language training

Language training is a seemingly obvious, desirable component of a pre-

departure program. However, it is consistently ranked below that of the
desirability for cultural awareness training. In trying to understand why language
skills are given a lower priority we should consider the following aspects related
to language ability that needs to be recognized. The role of English as the
language of world business. It is generally accepted that English is the language
of world business, though the form of English is more ‘international English’ than
that spoken by native speakers of English
Host-Country language skills and adjustment. Clearly, the ability to speak a
foreign language can improve the expatriate’s effectiveness and negotiating
ability, as well as improve the adjustment of family members

Practical assistance
Another component of a pre-departure training program is that of providing
information that assists in relocation. Practical assistance makes an important
contribution toward the adaptation of the expatriate and his or her family to their
new environment.
Practical assistance includes all manner of support both before and during an
assignment.

It is generally accepted that, to be effective, the expatriate employee must adapt

to and not feel isolated from the host country. A well-designed, cultural
awareness training program can be extremely beneficial, as it seeks to foster an
appreciation of the host country’s culture so that expatriates can behave
accordingly, or at least develop appropriate coping patterns. Without an
understanding (or at least an acceptance) of the host-country culture in such a
situation, the expatriate is likely to face some difficulty during the international
assignment. Therefore, cultural awareness training remains the most common
form of pre-departure training. The components of cultural awareness programs
vary according to country of assignment, duration, purpose of the transfer, and
the provider of such programs.

EXPATRIATE MANGERS TRAINING

One challenge is the difficulty of organizing training for expatriate managers.
Because of the changes in the international arena and because trainers from the
home-country are not well-informed about the changes that are happening in the
host-country, training for expatriate managers are often inadequate. Another
challenge is the commitment of the multinational company to train expatriates.
Many MNCs do not view expatriate training as effective. The third challenges is
the commitment of the expatriate. Many expatriates are not interested in
learning the language, culture and society of the host-country subsidiary. Lastly,
the lack of time and resources is also seen as a challenge. Many companies fail
to provide training for expatriates because they say that training requires time
and resources that they cannot afford.

EXPATRIATE FAILURE – CHALLENGE FOR MNCs

Expatriate failure is an area of concern for multinationals because of its direct

and indirect costs. Direct costs include airfare, relocation expenses, training,
compensation package. Indirect costs include loss of market share, change
impact on local staff, drop of morale, drop of productivity, impact on expatriates.
Failure also has a lingering impact on the expatriate who may lose self-esteem,
self-confidence and prestige among peers. Future performance is also affected
as failed expatriates often exhibit decreased motivation and lack of promotional
opportunities. Finally, the expatriate’s family relationships may be threatened.
FACTORS ATTRIBUTING TO REASON FOR FAILURE OF EXPATRIATS

Culture Shock
Culture shock is often one of the most typical reasons for expatriate failure. It
occurs where a candidate is not fully prepared for the new culture their
assignment requires them to be a part of, whether there are language barriers,
strict laws or customs or even just a totally unfamiliar climate and daily routine.
While an element of this can be down to a lack of preparation or insufficient
information, often the candidate is simply just not right for the role based on his
or her own personality and needs. Culture shock is most common on
assignments based in the Middle East, where, especially for women, laws and
customs can be debilitating. Yet, for those candidates who are culturally flexible,
these assignments can be greatly rewarding.

Family Stress
International assignments are already difficult for the individual, and for a family
they can often be even harder. Relocating the entire family is difficult: there
needs to be spousal support, decisions made about schools, daycare, the
partner’s career and even basic things like family healthcare. Language barriers
and housing needs can become more complicated and rather than just one
person’s ability to adapt to a new culture defining the success of the assignment,
it’s an entire family. There are still opportunities and fantastic experiences to be
had by sharing in an international assignment, but they are not without their
risks.

The Global Mobility Team

A suitable and well-organized Global Mobility team are essential to the success of
an international assignment. They are responsible for arranging all support for a
candidate: information about the local culture, transport, housing, school
searches, spousal support and many other vital aspects of daily life. If the team
fail to supply adequate information or offer the right support, candidates can
often sign up an assignment very different from what they were expecting,
costing companies thousands in relocation fees.

Responsibility Overload
As well as dealing with the responsibilities of a new job, candidates have to
adjust to a new culture and new work environment and the challenges that
brings. Trying to manage local staff can often be difficult due to cultural
differences, and often staff teams can be larger than a candidate may have
before been used to. Overload of responsibility can lead to increased stress,
physical exhaustion and emotion impacts such as anxiety, frustration and anger.

Poor Candidate Selection

More often than not, the assignment fails because the corporation has made a
poor choice in candidate. If a selection is based on headquarters criteria, rather
than the assignment needs, or even the candidates needs, the assignment is
almost doomed to fail. While someone may appear to be perfect for the role on
paper, their own personal needs can often make them the worst candidate
overall.

RE-ENTRY SHOCK
Reverse culture shock, or re-entry shock, is a common reaction to returning
home from abroad assignment. It is an emotional and psychological stage of re-
adjustment, similar to your initial adjustment to living abroad. Typically the more
successful you were in immersing yourself in the country and culture where you
have just been, the more difficult a time you will have re-adjusting to your own
culture, and getting back into the routine of your old life

REPATRIATION

Repatriation can be defined as the process in which a person comes back or

returns to its home country from the host country after working there for a
specific number of years

Repatriation is considered important because the person has to re-adapt himself

to the home country and the pattern of work and at the same time begin
interaction with their friends and fellow workers. Normally all the managers and
expatriates assume that adjusting in their home country and culture will be really
smooth but it has been seen that for most of them it’s the other way round that
is adapting themselves to the host country, that is living abroad is easier.

EFFECTIVE WAYS OF MANAGING REPATRIATION

• Acknowledge the value of the returning employee both from a cost

perspective as well as gained insight and experience while abroad that is harder
to measure quantitatively
• Recognise that the employee and their family may need assistance in
readjusting to their home culture
• Provide repatriation cultural training to raise awareness and provide tools for
the adaptation process
• Provide assistance for not only the returning employee but also to any partners
and children so their re-entry process is smoother
• Ensure that the employee feels they can continue to make a valuable
contribution to the organisation. Avoid a situation where the employee feels
undervalued or marginalised as an outsider.
• Provide coaching or other professional services so the employee can better
integrate into their 'new-old' environment.