International compensation

Hello there. I'm Helene Tenzer, a Professor of International Management at LMU Munich School of Management. As part of our course on International Human Resource Management, in this segment, we will focus on international compensation.

Multinational companies face a key dilemma in international compensation. How should they compensate expatriates who are working alongside host country nationals in foreign subsidiaries? Expatriates typically need an attractive compensation package to accept foreign assignments. But, if local employees are paid much less than expatriates, this can affect their motivation, their willingness to share knowledge with expatriates, and their overall performance. Let's consider a scenario. An international IT company employs both highly paid US expatriates and foreign employees from Southeast Asia. The firm has a local field engineer in the Philippines who's earning the equivalent of $35,000 in Manila. It has another local field engineer in Thailand who is earning the equivalent of $40,000 in Bangkok. Working side by side with them are American expatriates, also field engineers who earn $80,000 for the same job. On top of this, they get various expatriate allowances. You can imagine that their local colleagues will resent this. The dilemma between compensating employees from different countries fairly and equitably while still making expatriate assignments attractive has created two different approaches to expatriate compensation. There is the going rate approach. This approach links