Home-Based Pay System for Employees

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Strengths and Weaknesses of Home-Country Based Pay, Headquarters-Based Pay, and Host-Country Based Pay

Home-country based remuneration is described as a condition where an employees payment is determined from the home country. This means that basic pay, allowances, and incentives are based on home country standards. One of the major advantages of home-based remuneration is the extension of home country benefits such as pension plans, insurance policies, and health care plans. It is important to keep the benefits of employees who would eventually return to their country.

This is achieved by home-based pay systems. Another benefit of a home-based pay system is the merit increments. For ex-pats, using a home-based pay system provides the advantage of increasing the employees remuneration. Finally, a home-based pay structure ensures that an employee complies with the home country tax remittances. On the other hand, this payment structure has some weaknesses.

For instance, an employee would incur losses when converting currency from home country currency to host country currency to enable him or her to buy goods and services. The cost of living in a foreign country could be higher than in the home country. This means he or she would spend more to acquire the same goods and services in a foreign country.

Host country-based pay means that the employees basic pay is determined based on the host country pay system. In this case, the payroll of expatriates is shifted to the host country. There are many advantages to this system. First, as opposed to home-country based pay, the employee will not incur losses in currency conversion. Eventually, when the ex-pat returns to the home country, he may benefit from the exchange rate if the currency of the host country is more valuable than the home country currency. Again, the employee may benefit from higher rates of remuneration offered in the host country.

However, the major weakness of this system is that employees may not benefit from many incentives and extra benefits provided in the home country. Employees remuneration may be affected by the host countrys economy. This means that employees benefits and payments may be subject to the host countrys financial obligations, such as heavy taxation.

Headquarters based pay is described as a payment system where all employees are on the same payroll regardless of their workplace. This means that their remuneration rates are the same. The key advantage of this method is that policy rates and practices are standard. It also creates a good relationship between the company and its employees. However, there are two major weaknesses of this system; the loss incurred during currency conversion and decrement in the package mobility (Martocchio, 2011).

Should Companies Avoid International Business Activities Due to Costly Allowances and Reimbursements?

Companies should not avoid international business activities because of costly allowances and reimbursements. Conducting business internationally requires corporations to strategize about every aspect of the business so that it doesnt incur losses.

Globalization can enable companies to get higher returns and should not be avoided simply because of costly allowances and reimbursements. Market participation decisions involve selecting the right markets to serve not only locally but also internationally. With proper market participation decisions, multinational corporations can make sufficient revenue to offset costly compensations and reimbursements.

To cut down the costs, international corporations should adopt a payment structure that motivates workers to accept external assignments and, at the same, time benefit the company. This can be achieved by providing hybrid remuneration models in which expatriates would receive higher basic compensations and benefits in accordance with the host country. Rather than using only one payment type, both the home-country based system and host country system can be used together. However, this should depend on the type of international assignment, and companies should define the value of a foreign assignment before selecting the type of payment. This would guide them in selecting an appropriate system of remuneration (Weber, 2011).

References

Martocchio, J. (2011). Strategic Compensation: A Human Resource Management Approach (6^thed.). Upper Saddle River, NJ: Prentice Hall.

Weber, T. (2011). What Are The Critical Success Factors In Expatriate Assignments?. Munich: GRIN Verlag GmbH.

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Home-Based Pay System for Employees

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