Measuring the effectiveness of expatriate remuneration in multinational organizations

¶ … Expatriates' Remuneration

The situation

Globalization has allowed virtually all categories of resources, be them technological, human, capital, commodities or other, to freely circulate from one region to the other. On the one hand, the phenomenon brought about several benefits, such as incremental living standards and the global reduction of poverty. On the other hand however, it generated a series of limitations, such as the extrapolation of domestic problems to a global level, the most relevant example in this sense being the emergence, and then internationalization, of the financial crisis.

An academic impact of globalization is given by the incremental complexities of the researches to be conducted. From a statistical and research standpoint, academicians are now presented with more variables, as well as more scenarios. Additionally, as these variables increase, so do the difficulties in coming to a conclusive result. Nevertheless, the research questions have not become impossible to answer.

Take for instance the case of a multinational organization conducting business in both domestic as well as international arena. Working with expatriates subjects companies to various costs, but also generates several benefits. In a context in which it is necessary to see if the investment is worthwhile, it would be valuable for the entity to actually assess the effectiveness of its expatriate payments.

2. Research aims and objectives

Given the circumstances presented throughout the previous section, the report aims to identify the means in which the effectiveness of the expatriate remuneration can be measured. As a parenthesis, by this effectiveness, one understands the financial and otherwise benefits generated by the usage of expatriate. In other words, how much return on invest do the money spent on their remuneration generate and how could one go about in finding this answer?

3. The research methodology

The research methodology to be used in the identification of the expatriate remuneration effectiveness is rather complex, and due to its large amounts of required data, the work could be considered tedious. It is nevertheless expected that the proposed methodology covers various organizational and extra-organizational aspects, and stands as such an increased ability of retrieving a conclusive answer. In this order of ideas, the following elements are the components of the research methodology:

1. The expatriate remuneration system -- there are several means in which the remuneration of the expatriates can be determined. And the means selected by the company help assess the effectiveness by identifying the elements emphasized by the organization.

2. The costs of expatriation -- the second component of the research methodology would be that of assessing the total costs of working with expatriates; the actual wage of the employees is not the single component.

3. The benefits of expatriation -- the identification of the overall costs might prove tremendous for both researcher and organizational manager. Yet, it is important to move on to identifying the benefits of working with expatriates.

4. The cost benefit analysis -- the final conclusion will be drawn based on the comparison of the costs implied by expatriates' remuneration against the real and measurable benefits retrieved from working with expatriates. In a situation in which the benefits are significantly higher than the costs, it would be safely concluded that the effectiveness of the expatriates' remuneration is increased; the effectiveness will be considered low and unsatisfactory if the costs are higher than the gains.

5. Methods of data analysis

Each of the four steps identified throughout the Research methodology section will be individually researched, in the meaning that the data adherent will be gathered and processed. In this order of ideas, the first step will be that of collecting information on the salaries of the expatriated employees. The numbers will then be compared against the wages of the employees occupying similar positions (handling similar tasks and sharing similar responsibilities) in the domestic country, as well as foreign employees occupying analogous positions in the foreign company. The data will be included in a parallel table which will allow the researcher to identify any differences in wages. Following this stage, the researcher should become engaged in conversations with representatives of the managerial team and strive to identify the reasons which led to the nomination of the respective staff members to be delegated, as well as the rationale behind the salary which was offered to them.

The second set of required information refers to the actual costs of working with expatriates. The primary thing to be done at this stage of the research process is that of identifying any potential costs which would be incurred in the expatriation of a staff member, and the costs incurred throughout his stay there, as well as the expenditures registered with bringing back the employee. The palette of costs is rather diverse, including elements such as transport, the relocation of the family, support in helping the spouse find a job and the children a school, or the costs of renting a place to live.

Once the researcher has an idea of what these costs could be, he should proceed to analyzing the financial documents of the organization. He would look for costs incurred with expatriates, such as deductions with transport or rent. He would sum all the costs in a table and make the total.

Immediately afterwards, the researcher would engage in a similar activity -- that of collecting financial information with the scope of identifying the actual gains of the investments made with the expatriates. Similar top the costs, the benefits can be multiple. The researcher should begin by revealing the type of benefits that could be acknowledged, such as increased productivity and profitability rates for the foreign plant or the amounts of foreign gains in the total organizational results, after the work with expatriates was commenced.

It is important to also identify these numbers before domestic employees were delegated to foreign locations. It would be advisable to include the measured benefits within annual tables, and compare their evolution from the period before expatriates were used up to the present time, when they are used. If this is possible, it would be useful and relevant to correlate the financial results of each year with the inflation levels. Generally, if the evolution is a positive one and the results of the foreign company increased, then it can be formed an intermediary conclusion that the expatriates are effective in generating financial results.

Yet, in order to make the final decision and assess the very effectiveness of the remuneration of the expatriates, it is necessary to confront the costs with the expatriates with the benefits they generated for the company (not for the foreign plant, but for the multinational parent organization). Having already created the tables with the costs and the benefits, it is now easy to compare the final results.

If the benefits are higher than the costs, it can be argued that the effectiveness of the expatriates' remunerations is increased, whereas if the costs are higher, the effectiveness would be considered negative. It would also be useful if a certain variance was to be set, to determine a significant difference between costs and benefits (or benefits and costs), and based on which the result would be more conclusive and entitled. Say for instance that if the benefits outweigh the costs by 1 per cent, the effectiveness of the expatriates' remunerations is negligible. It is however important if the benefits outweigh the costs by 10 per cent.

6. Ethical issues

The business legislation has yet to be completely developed and implemented. But fact remains that massive advancements are being made and that, due to the fines and imprisonment punishments instated, cases of corporate fraud are less common. Yet, there are however some actions and business decisions which do not fall in the category of state regulated actions, but which do cause damage and prejudice to certain categories of stakeholders. Working with expatriates is such a scenario.

In this context, the first ethical issue revolves around the very decision of turning a domestic employee into an expatriate, and the impact this decision has upon the respective individual. The delegated employee is generally expected to be expatriated to work and live in conditions similar to those in his home country. Nevertheless, this is not always true. Since the companies are generally the ones who ensure employee accommodations, they might decide in favor of something that is cost-effective, rather than pleasant for the employee.

Then, it is also unethical to ask the delegated employee to leave his/her family behind. There are indeed organizations which will relocate the entire family of the employee (the direct family members, generally the spouse and children), but only when the employee is expected to stay in the foreign location for more than one year. But asking an employee to leave his family behind for six months, without giving him adequate compensation for this personal sacrifice, might easily be perceived as unethical.

Another ethics related situation is pegged to the destination to where the delegate would be sent. This is most often a less developed country, which, of course, ensures cost efficiencies for the multinational company. But the living conditions for the expatriate would decrease here. They could however improve if the expatriate is sent of a geographically beautiful region, and the experience was to be a cultural one, with long-term personal benefits. In this case, the very decision of who should the company select to be delegated could be unethical, and sometimes perceived as a promotional opportunity, or as a punishment.

The conditions of the stay in the foreign country could constitute another unethical aspect, if they do not cover transportation costs from the native country to the destination state, when the employee needs to travel. And since the organization is focused on reducing costs, it is unlikely for it to allocate large budgets to this desire.

7. Limitations

Aside the actual complexities of a research problem, the retrieval of a conclusive result is also impeded by the limitations which arise throughout the research process. These limitations might have a technical nature, or they could pertain to more humane defects. Some examples of limitations which could obstruct the formation of a clear conclusion relative to the effectiveness of the expatriate remuneration might include the following:

Lack of transparency

In order for the study to lead to relevant and reliable conclusions, it is imperative for the researcher to have unrestricted access to various organizational documents. Yet, organizational leaders are reticent to opening up to the researchers, or letting them through the company's documents. To a certain degree, this limitation is explainable even more so when the researcher is an external party. The impediment could be overcome if the researcher signs an agreement of confidentiality, or if he works with rough estimates -- these will however reduce the reliability of the end result.

Lack of cooperation

Most company leaders want to possess reports and research results, but they seldom have the time or the energy to cooperate in the development of these reports. This is understandable as the managers have more pressing responsibilities. Yet, as they do not show an interest and participation willingness, neither will other staff members; the work of the researcher and his efforts will as such be placed on a secondary level, and he will have to struggle in order to get the information he needs.

Lack of personal economic background

The assessment of the expatriate payment effectiveness implies the analysis of several financial documents. This poses a technical limitation for the researcher, who would most likely possess limited knowledge of how the information would be registered in balances, income and expense statements, annual reports, fillings for the Securities and Exchange Commission or other internal and public documents. The limitation could be reduced if the researcher benefited from the support of an organizational staff member with economics expertise. Still, this would increase the researcher's dependability on the respective individual and could even lead to the formation of inconclusive results, through the inclusion of biased data.

8. Conclusions

Globalization generated tremendous impacts upon virtually all features of life. The academic field has not been spared, and an example of how the forces of globalization chanced the academic work refers to the incremental complexities of the research questions raised. Yet, these have not become too difficult, and answers can be found if the researcher breaks the challenge down into several stages and gradually attends to all variables.

In the case of the expatriates' remuneration and its organizational effectiveness, there are four main elements to be assessed -- the system at the basis of expatriate compensation algorithm; the costs of working with expatriates; the benefits of working with expatriates, and finally, the cost benefit analysis. In completing all these stages, the researcher needs the collaboration and support of the organizational staff members. The main requirements for the employees are those of allowing the researcher sufficient access to the organizational documents and helping him make sense of the accounting specification to which he is not accustomed.

References:

Armstrong, M., Murlis, H., 2007, Reward Management: A handbook of remuneration strategy and practice, 5th Edition, Kogan Page Publishers, ISBN 0749449861

Coleman, P., 2008, The philosophy of expatriate pay, Search Warp, http://searchwarp.com/swa327576.htm last accessed on January 19, 2010

Stroh, L.K., Black, J.S., Gregersen, H.B., 2005, International assignments: an integration of strategy, research and practice, Routledge, ISBN 080585049X