Related Questions
Q18:
MNEs using the Balance Sheet approach to international compensation are constantly updating compensation packages for cost of living changes.
Q19:
It is a common practice for MNEs to use a home-country balance sheet approach for TCNs except in the USA.
Q20:
The Going Rate Approach is based on local market rates.
Q21:
The provision of a housing allowance: A) Is not often assessed on a case-by-case basis B) Does not ever include a fixed housing allowance C) Implies higher living standards D) May include company-provided housing
Q22:
The Balance Sheet Approach: A) Is the most widely used approach to international compensation B) Relies on survey comparisons C) Creates potential re-entry problems D) Creates variation between expatriates of the same nationality in different countries
Q24:
The four categories of outlay incurred by expatriates that are incorporated in the Balance Sheet Approach are: A) Goods and services,housing,income tax and reserve B) Housing,base pay,goods and services and taxation C) Taxation,housing,exchange rate and goods and services D) Reserve,housing,taxation and evaluation cost
Q25:
The most common taxation policy used by multinationals is: A) Tax protection B) Parent country national taxation C) Tax equalization D) No taxation
Q26:
A firm-external theory of job worth is influenced by: A) Behavioral theory B) Level of internationalization C) Cultural and institutional perspectives D) Local market conditions
Q27:
Many multinationals respond to complexity of tax issues across countries by: A) Ignoring all tax issues except for the Parent company B) Retaining the services of international accounting firms C) Having an in-house tax division to prepare all tax related forms and addresses all country tax issues D) Leaving all tax issues up to the employee
Q28:
MNEs generally pay allowances in order to: A) Change the living standards of employees B) Encourage employees to take international assignments C) Avoid certain taxes D) Discourage employees from taking international assignments
Approaches to International Compensation- There are two basic approaches to determine the international compensation package:
1. Going Rate ApproachThis is based on local market rates. It relies on comparisons of surveys of the local nationals, expatriates of same nationality and expatriates of all nationalities’ pay packages. In this approach, the compensation is based on the selected survey comparison. The base pay and benefits may be supplemented by additional payments for low pay countries.
The advantages of the Going Rate Approach are,
- Equality with local nationals
- Simplicity
- Identification with the host country
- Equity amongst different nationalities
The disadvantages of Going Rate Approach are,
- Variation between assignments for the same employees
- The rivalry between expatriates of the same nationality in getting assignments to some countries
- Potential re-entry problems in the home country
The Balance Sheet Approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country and to provide incentives to offset qualitative differences between assignment locations. The balance sheet approach is widely used by international organizations to determine the compensation package of the expatriates. The basic objective is the maintenance of living standards of the home country plus financial inducement.
- Goods and Services: Outlays incurred in the home country for food, personal care, clothing, household furnishing, recreation, transportation, and medical care.
- Housing: All major costs associated with housing in the host country.
- Income Taxes: Parent country and host country income tax expenditures.
- Reserve: Contribution to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc.
The advantages of the Balance Sheet Approach are:
- Equality between assignments and between expatriates of the same nationality.
- Facilitates expatriate re-entry
- Easy to communicate to the employees
The disadvantages of the Balance Sheet Approach are:
- It can result in considerable disparities between the expatriates of different nationalities and between expatriates and local nationals.
- It can be quite complex to administer due to changing economic conditions, taxation etc.
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