 Hi students, we are going to talk about international compensation in this topic and in the subsequent few topics that are coming after this. In this topic, we are going to discuss about introduction to international compensation. You know that whenever a concept of HRM goes on to the international level, the challenges of it becomes higher. You know that the process of that particular aspect becomes more complex. So similarly, international compensation also becomes a more complex process in the international scenario. So let's take a look at what is international compensation and what are the major challenges and issues regarding that. When compensation is about domestic compensation, it is something which is usually seen as a cash payment that is made to people who are employed in an organization and the bonus and benefits associated with that. But when it becomes an international issue, then there are a number of additional aspects which are attached with the process of compensation. It's not just a cash value that you pay to your employees, it is something that needs to be looked at from various different aspects, from aspects of equity, from aspects of culture, from aspects of national boundaries, from aspects of what kind of rules and taxes are applied in host countries and how does it compare with the parent country and how to equate all these different aspects of compensation. So when you are compensating people in an international context, that becomes a bigger challenge for the human resource department. And therefore, it also becomes a mechanism for achieving certain organizational objectives beyond the objectives of only compensating the people. So international compensation, it has increasingly been seen as, number one, a mechanism to develop and reinforce a global corporate culture. So through your compensation strategy, the rewards and compensation that you pay to your employees that you give to your employees, it creates a corporate culture which is a global corporate culture. It also becomes a mechanism and primary source of corporate control. You are able to control the behaviors and actions of your employees through the compensation and you are able to control their behavior internationally. And then it has become a mechanism of explicitly linking performance outcomes with associated costs. So it is a complex process to actually link performance with associated costs of internationalization. So it has become an increasingly higher mechanism to explicitly link performance outcomes with associated costs. And finally, one of the most important considerations that come under compensation is that it is increasingly seen as a nexus of increasingly strident, sophisticated and public discourses of central issues of corporate governance in the international context. So compensation because it involves a number of ethical and corporate governance issues and when it goes to the international context, then it is a matter of debate, a matter of discussion how people from various different cultures, from various different nationalities, they should be compensated and therefore a lot of debate has started to arise out of this discussion that how people are compensated and different nationalities and culture and whether it is fair and just and or there needs to be some adjustments. For example, there is a lot of criticism on the disproportionate payments, the disproportionate salaries of higher level, top level management, particularly in the American U.S. multinationals that the higher level, top level management, they are paid in a disproportionate amount of figures and it is criticized that what is something special that they do that they are paid in such great numbers and people who are at the lower levels of the organization, they are not paid in the same proportion. So it and because it is something which is then taken to the international context so people make comparisons and then they discuss it and they talk about the philosophy of how people should be compensated in this international context. So it has become a nexus of sophisticated debate regarding corporate governance in the international context. As we just discussed in the start of the topic that international compensation is a much more complex issue than the domestic compensation and how is it more complex? Because there are a number of things which are which need to be taken into account. There are a number of things which are added into the compensation packages. There are a number of things which the employee must be compensated for when they are sent into an international context. Sometimes it is because you want to induce them to take the assignment. It's sometimes because the cost of living of the international assignment is so high or sometimes it's because the environment of the host country is so challenging that you need to include a lot of different aspects of compensation in the international context. So the type of compensation package, the elements of that compensation package would include pay and then this pay would include taxes as well as cost of living. Then you also need to take care of the housing of employees that are going on international assignments. Then you need to also make sure about the safety. Usually in the domestic environment you don't have to take the measures for safety of your employees, safety in the environment in which they are working. But in the international context in certain hardship locations you also have to make sure that safety is ensured where they are working. Then transportation, similarly education of children usually when you are paying people in the domestic environment, you don't have to take care of the education of children. You don't have to look for their schools. You don't have to look for appropriate facilities or how much is it going to cost something that is given to the employees and they are supposed to manage it themselves. But in the international context, usually the international organizations, the multinationals, they take care of this aspect of the education of children. And then length of stay has to be then equated with what type of compensation package has to be provided to an international expatriate. The international compensation is becoming more and more complex because of a number of issues. Number one is that there is a growing need or growing use of outsourced activities because a number of human resource activities, they are outsourced from different organizations, from different places, from different companies. For example, many organizations, they outsource many American organizations, European organizations, they outsource their call centers in India or some of them they also in Pakistan. So compensation has to be then equated according to the culture in which the people are working as well as the corporate culture of the organization which is hiring them. So people in the call centers usually get a very good pay as compared to the developing country environment. For example, in India or Pakistan, which usually people get payments, in the call center, although it is not a complex work, it does not need a higher level of skill, but it is something because you are hiring multinationals, so you get a good pay in the call centers. So it is something which needs to be equated, which needs to be balanced and the companies who are hiring in the host countries also need to see it and the government and social structures in the host countries also need to see how to balance and equate it. So it is a complex phenomenon. Then another important complexity which involves in international compensation is balancing centralization and decentralization of incentives. So when you have a subsidiary working in a host country, so you need to make sure that whether the incentives and bonuses which are paid to the host country nationals and the parent country nationals which are working in that subsidiary, it needs to be centralized. The headquarters need to give incentives or the incentives need to be decided by subsidiary management. So how much centralization needs to be done on these matters. Then balancing need for more accurate performance metrics on international assignees. So it is something which is a very complex issue that how can you measure the performance of international assignees because the performance of international assignees of expatriates, it's something which includes a number of factors which we have discussed many times in previous topics particularly adjustment to the new culture and getting things done in a new culture is something which needs to be equated in the performance metrics, in the performance management system. So one of the complexity of international compensation is that you need to actually measure the performance in a way so that it accurately reflects how successful a person has been in carrying out that international assignment and therefore compensate them accordingly. Another aspect of complexity is the universal applicability of disproportionate executive compensation packages. So it is something which I have just discussed that there is a lot of debate on this fact that disproportionate pays are paid to the executive level and this is something which needs to be taken care of, it needs to be discussed, it needs to be debated upon and an equitable treatment and compensation of people has to be employed but it is something which is not done at the moment, the executive level people they are getting disproportionate payments and that is something which is a complex matter to deal with and then there is a greater need for transparency due to increasingly available information through internet and social media. So when you go to host countries, different nationalities, so usually when this internet and social media was not available, you would not get the information that how much money people are getting and what payments are they getting but now that the world is so well connected, so because of that, comparisons are made that Pakistan is getting so much information, Singapore is getting so much, Australia is getting so much and then they equate it and compare it, so you need to keep your systems more transparent so that you can give your employees an answer to how you are compensating your employees. So there is a greater need for transparency and that creates a challenge for designing the compensation packages and therefore increases the complexity of international compensation. So in this topic we have discussed about the various different aspects of complexity regarding international compensation in an international scenario.