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Chinese multinationals adopt dual approaches for compensating different groups.
Keywords: IHRM; international reward and compensation; Chinese MNEs; international reward and compensation model
An effective international reward and compensation program is important because it may considerably influence staff performance and motivation. Also, there are reciprocal relationships between international reward and compensation and other international human resource management (IHRM) policies and practices.1 Moreover, wage cost control will contribute positively to the output of the organization as whole.2 However, IHRM is a relatively underdeveloped area.3 International reward and compensation is one of the areas that needs to be further explored. There is a lack of empirical research into how multinational enterprises (MNEs) reward and compensate employees in overseas operations, especially MNEs from transitional economies, and why MNEs adopt particular approaches.
The following two issues are particularly important in addressing international reward and compensation policies and practices:
Issue 1: How different or similar are international reward and compensation policies and practices in different national MNEs and different managerial posts within an MNE?
The wage structure and wages paid for comparable positions in different countries are significantly different.4 Different economic systems, development levels, political and institutional contexts, traditions and cultures make it difficult to find a uniform method for comparison. The question is, Are these differences becoming bigger in the context of international reward and compensation?
According to Dowling et al., key components of international reward and compensation include5:
* Base salary: the primary component of a package of allowances serving as a benchmark for other compensation elements.
* Foreign service Inducement or hardship premium: a salary premium as an inducement for an expatriate to accept a foreign assignment or as compensation for any hardship caused by the transfer.
* Allowances: compensations for expatriates to remain "relative" to home standards.
* Benefits: including pension plans, medical coverage, social security, vacations and special leave.
However, these components can be dealt with differently in different MNEs. The two major approaches to international reward and compensation in the extant literature are home-based and host-based policies.
* Home-based policy6: This approach links the base salary for international employees to the salary structure of the relevant home country. The home-based policy is also called the balance sheet or home-net system.7 With a home-based approach,...