Strategic Compensation, 8e, Global Edition (Martocchio)

Chapter 14 Compensation Expatriates

41) What are three challenges employers face when using foreign service premiums?
Answer: Employers that use foreign service premiums should consider the possible drawbacks.
First, employees may misconstrue this premium as a regular permanent increase to base pay, and
resentment toward the employer may develop following the last installment. Second, foreign
service premiums may not have incentive value when employers make several small installments
rather than fewer large installments. Third, employees may feel as if their standard of living has
declined when they return to the United States because they no longer receive this extra money.
Difficulty: Moderate
AACSB: Analytic Thinking
Learning Obj.: Summarize the three types of incentive payments that are commonly used in
international compensation programs. (5)

42) Explain headquarters-based method to calculate expatriates based pay. Which

incentive might work better for this method?
Answer: Special compensation considerations should not end with the completion of
international assignments. Effective expatriate compensation programs promote employees'
integration into their companies' domestic workforces. Returnees may initially view their
domestic assignments as punishment because their total compensation decreases. Upon return,
former expatriates forfeit special pay incentives and extended leave allowances. Although most
former expatriates understand the purpose of these incentives and allowances, it often takes time
for them to adjust to "normal" compensation practices. Many expatriates may not adjust very
well to compensation-as-usual because they feel their international experiences have made them
substantially more valuable to their employers. Their heightened sense of value may intensify
when former expatriates compare themselves with colleagues who have never taken international
assignments. Two consequences are likely. First, former expatriates may find it difficult to work
collaboratively with colleagues, which can undermine differentiation objectives. Second, strong
resentments may lead former expatriates to find employment with competitors. Adding insult to
injury, competitors stand to benefit from former expatriates' international experiences.

Companies can actively prevent many of these problems by the following two measures. First,
companies should invest in former expatriates' career development. Career development
programs signal that companies value returnees. In addition, former expatriates may view their
employers' investments in career development as a form of compensation, reducing the equity
problems described earlier. Second, companies should capitalize on expatriates' experiences to
gain a better understanding of foreign business environments. In addition, former expatriates can
contribute to the quality of international assignments by conveying what did and did not work
well during their assignments.
Difficulty: Difficult
AACSB: Analytic Thinking
Learning Obj.: Describe the issue of repatriation. (7)

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43) What is the balance sheet approach? When is its use most appropriate?
Answer: The balance sheet approach provides expatriates with a standard of living similar to
that in the United States. Its purpose is to protect expatriates' standard of living as well as control
company costs. Employees receive an allowance whenever the costs in the foreign country
exceed the costs in the United States.

The use of the balance sheet approach is most appropriate when: 1) the home country is a
desirable reference point for economic comparisons, 2) expatriates are likely to maintain
psychological and cultural ties with the home or base country, 3) expatriates prefer not to
assimilate into the local foreign culture, 4) the assignment is of limited duration, 5) the
assignment following the international assignment will be in the home country, and 6) the
company promises employees that they will not lose financially while on foreign assignment.
Difficulty: Easy
AACSB: Analytic Thinking
Learning Obj.: Explain the three approaches available to companies for setting expatriate
employees' base pay. (4)

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