Research on effectiveness of expatriate remuneration

Expatriate Defined:

An Expatriate1 can be defined as a person who is temporarily or permanently residing in a country and culture other than that of the person's upbringing or legal residence. Latin, from where the word is actually derived explains it as a person who is actually living out of his fatherland.

In its broadest sense, an expatriate is any person living in a different country from where he or she is a citizen. In common usage, the term is often used in the context of professionals sent abroad by their companies, as opposed to locally hired staff. The differentiation found in common usage usually comes down to socio-economic factors, so these skilled professionals working in a country different from their own are described as expatriates. However a distinction must be drawn here between an Immigrant and Expatriate. Immigrant can be described as a manual labourer who has moved to another country in search of better living and therefore the basic motive is to earn more. It must be noted that there is no set definition and usage does vary depending on context and individual preferences and prejudices.

The following report would analyse the impact and effectiveness of Expatriate remuneration in a multinational company, its aims and objects, research methodology and finally ethical issues and limitations in research methods;

AIMS AND OBJECTIVES:

Career development

? Impact on expatriate

? Difference in circumstances of different expatriates

? Impact of expatriate assignment

? Domestic implications

Expatriate remuneration

? Assignment remuneration (Net Pay)

? Cost of living Adjustment Factors (COLAF)

? Incentives

? Current remuneration practices

Expansion of Aims and objectives:

There are a variety of complicated issues that revolve around the acceptance of expatriate assignment hence otherwise its rejection. From research it can be seen that much depends on the circumstances of the expatriate, the company and the immediate family of the expatriate as for example the number and the age of dependents etc.

The following research would not attempt to analyse the minute differences existing between different expatriates rather the main focus will remain on Analysing the two main broad Aims and Objectives of any expatriate assignment and remuneration practices.

Career development

Expatriate remuneration

Career development: (2)

If a person has decided to move he must first ensure that the overseas experience has a direct relevance with the work in the home country or is within the confines of the practices of the company he worked for and that the international company is the one which actively promotes or manages the expatriate assignments.

One should not proceed overseas on the promise that an expatriate assignment will automatically assist career prospects. In fact, there is much experience to the contrary and it is often the case that the absence from the domestic workplace and environment will have a negative impact on career progression. Research shows that in a wider domestic industry there seems to be little current appreciation for skills and experiences acquired overseas and returning expatriates will inevitably be met with various inquiries. Despite a widening engagement with the world at large, most employers and recruiters remain determinedly parochial and unadventurous.

This position is expressed in the bleakest of terms because there is a need to make a rational assessment of the value of proceeding on an expatriate assignment and plan, if possible, to mitigate the impact of these negative attitudes. In terms of the latter, it means making a strong effort to maintain the domestic networks (internal and external) and making an assessment of how well the employer manages assignments and probably, more importantly, re-integration at a later stage. It is important in this context that one should judge systems rather than the intent of your current line manager almost certainly they wont be in the same position at the time the assignment comes to an end. If possible, one should try to talk to expatriates who have just returned both about whether the systems worked and also the attitude to returnees did they return to a promotion, demotion or sideways shuffle etc.

Expatriation can be immensely rewarding, both from a personal and family perspective and this can often overrule concerns about long term career development.

Expatriate remuneration: (3)

Remuneration practices for expatriates range from simple systems based on base country net salaries plus various allowances to ones of eye-watering complexity operated by large multinationals for hundreds of nationalities with thousands of permutations.

It would take vast amounts of knowledge and quite many pages to address all the different issues and practices. The focus of this paper is simply to outline the major remuneration issues that potential expatriates should consider when reviewing an offer to work overseas in a multinational company or otherwise.

? Net Pay comparisons:

The starting or initial point for any analysis is to look at any offer in terms of how the net (after tax) take home salary, including any government and social security allowances, compares to the net salary of the host country. Different comparisons can be made for different parts of the worlds such as in parts of Europe and elsewhere a worker in addition to pay is also entitled to social security payments but it should not be assumed so in the absence of direct advice from the foreign employer. The second comparison must be done in AUD terms, analysing whether some or any of the pay is guaranteed or protected against the exchange rate changes and that how often the package being offered is adjusted for exchange rate changes and that what sort of hedging techniques, if any are being used or not.

The traditional expatriate remuneration systems would normally try to protect a part of the package called discretionary expenditure and savings from exchange rate changes and to adjust it for changes in tax rates in the base country. There has, however, been a landmark shift to expatriates being employed on host country plus arrangements and, in these circumstances, for better or worse, expatriates are totally exposed to exchange rate changes.

? Comparison of local cost ( COLAF):

Certainly the net pay comparisons are not the whole story of expatriate remuneration.

One should factor in cost differentials of the host country. A number of consultancies currently carry out cost living surveys in even the most remote corners of the world, and the research shows that, for instance, London is 30% more expensive than Melbourne. Notionally this means that the part of expatriate package that would be earned will normally be spend on every day living, not that which you would save, should be increased by 30% just to keep you whole. Of course, the reverse situation is also possible, thus for example one may be sent to a lower cost environment and in theory expatriate package could be less and still one could live as much comfortably as in the case described earlier, with a higher expatriate package.

The concept is however quite open to debate and expatriates often find it difficult to understand and thus forms a basis of many conflicts with foreign multinationals.

The basic point to remember is that COLAFs are usually quoted at specific exchange rates and assuming that there have been significant movements in the cross rates during the intervening period then the COLAFs should be adjusted accordingly.

? Incentives and Assignment conditions:

Apart from simply keeping an Expatriate whole from a base or host country perspective, most expatriate remuneration systems will also provide an allowance or additional salary to compensate for the inevitable difficulties posed by an expatriate lifestyle and to assist employee mobility. Such incentives might only exist to motivate expatriates or pose as a luring factoring attracting potential expatriates towards prescribed assignments such payments may also be payable based on geographic location and an assessment of relative hardship in these locations. As an example for a recreational trip to a concert, an expatriate might will probably be offered return air tickets to place of concert and back to base of operation on an agreed basis and these may, or may not, be used for travel elsewhere.

? Current remuneration practices: (4)

Creative and jumbo size remuneration packages have become a way of life with the competitive demand for brain power over the last several years. In general, organisations are moving toward salary and remuneration systems that emphasise flexibility, goal achievement, and variable pay based on performance, and less emphasis on increases to base pay. Hewitt Salary Studies reveal base pay increases remain stable for 2007 with more companies relying on variable pay (Hewitt Associates 2006). These companies are using bonuses based on profit and accomplishment to add to employee remuneration. For example, in the U.K., between 30 per cent and 50 per cent of organisations are using bonuses, compared with only around 20 per cent five years ago

In all the companies, the determination of starting pay is dependent on similar factors. These features are likely to be exhibited as such as minimum academic qualification, relevant working experience, and entry job grade and market rate. In some companies, the last drawn pay is taken into consideration. Potential candidates can negotiate for the starting pay, but it is normally within the salary range in the job grade that he or she enters. Thus, candidates applying for jobs that are in demand are able to negotiate for a better remuneration package. Employees seem to regard the importance of qualifications in the determination of their pay and having spent time and money obtaining an extra qualification, employees feels justified that they should be given a higher remuneration. Many have gone for self development, and companies that do not recognise this condition are likely to lose more qualified employees to competitors. In addition, those with more relevant job experience and higher responsibilities expect better.

In general, the remuneration package is inclusive of a basic salary, various allowances, overtime pay, bonus and contributions to the Employee Provident Fund or pension scheme. Besides these financial elements all the companies have a range of benefits for all employees and rewards outstanding staff. The remuneration package is normally revised yearly after the performance appraisal. Depending on the performance of the employee, employees may enjoy a pay raise or no change in the remuneration package at all. No pay cut is practised in all the companies, and non performers do not receive increments.

In addition all employees receive bonus yearly, especially in companies where a contractual bonus is paid irrespective of performance. It is rare for the companies not to give the annual bonus, which is paid once or twice in a year. Though companies may not pay employees bonus during an economic downturn, the findings of the study show that none of the companies has resorted to this. A bonus received by each employee is based on the ratings received during the performance appraisal, and companies conduct biannual or quarterly reviews to enhance objectivity in appraisals and to ensure fairness in ratings.

1 http://en.wikipedia.org/wiki/Expatriate

2http://www.exfin.com/General%20Materials/Australian%20Expatriates%20-%20Career%20&%20Remuneration%20Issues.pdf

3http://www.exfin.com/General%20Materials/Australian%20Expatriates%20-%20Career%20&%20Remuneration%20Issues.pdf

4http://www.thefreelibrary.com/Current+remuneration+practices+in+the+multinational+companies+in...-a0189000547

Research Methods:

In order to complete this report, the following sources were used and procedures were adopted;

Relevant research was studied, both in books and on the Internet.

Quantitative and Qualitative research methods explored.

Tabular representation of Advantages and disadvantages of the two approaches.

Relevant examples were looked at conclusions drawn and recommendations made.

Findings were collated.

Introductory findings:

Qualitative and quantitative research methods complement each other despite their obvious differences. They can be considered as being on a continuum, ranging from purely qualitative to purely quantitative with a certain degree of merging in the centre. For management research both methods can be used in the same project, either simultaneously or in splendid isolation. In this way it is possible to obtain more information than if using only one method, and to substantiate qualitative research with quantitative data. It is important to decide which methods are most suited to the particular requirements of each individual study, and in doing so, to consider in detail the various comparisons between both methods.

Qualitative Research Methods:

Definitions of qualitative research methods are often at best imprecise, if not vague, and at worst elusive.2 Problems arise because the area of qualitative research is an extremely broad one, making definition enormously difficult, if not impossible. Firestone (1987)3 states that qualitative methods are built on a post positivistic, phenomenological world view, and assumes that reality is socially constructed through individual or collective definitions of the situation. Firestone purports that the purpose of such research is to understand the current situation from the participants perspective. He concludes that it is important for the researcher to become immersed in the phenomenon of interest.

In quantitative research, the emphasis is on collecting data that lead to dependable answers to important questions, reported in sufficient detail that it has meaning to the reader. The proto-typical qualitative study is the ethnography which helps the reader understand the definitions of the situation of those studies.

(Firestone W. A. 1987, page 17)

2 Source www.aorn.org/journal/2001/janrc.htm

3 Source www.anderson.edu/academics/sot/guide/ch1.html

Quantitative Research Methods:

Quantitative data are data which can be sorted, classified, measured in a strictly objective way they are capable of being accurately described by a set of rules or formulae or strict procedures which then make their definition (if not always their interpretation) unambiguous and independent of individual judgements.

(Prof. David R. Harvey 2002)6

Quantitative methods are much more objective than qualitative methods. They are essentially systematic and based on a positivism perspective. Essentially quantitative data is replicable, it should be possible for the same data to be re-collected by another researcher in another place but for it to still measure or identify the same thing, i.e. results can be directly comparable.

6 Source http://www.staff.ncl.ac.uk/david.harvey/AEF801/INTROQUANTR.html

Advantages of

Qualitative Research Disadvantages of

Qualitative Research

Provides in depth and detail may not get as much depth in a standardised questionnaire. Fewer people studied usually. Less easily generalised as a result.

Openness can generate new theories and recognise phenomena ignored by most or previous researchers and literature. Difficult to aggregate data and make systematic comparisons.

Helps people to see the world view of those studies their categories, rather than imposing categories, simulates their experience of the world. Dependent upon researchers personal attributes and skills (also true with quantitative, but not as easy to evaluate their skills in conducting research with qualitative).

Attempts to avoid pre-judgements Participation in setting can always change the social situation (although not participating can always change the social situation as well).

Source of the above data - http://don.ratcliff.net/qual/expq1.html

It allows the researcher to describe existing phenomena and current situations. It can be very subjective as the researcher often includes personal experience and insight as part of the relevant data thus making complete objectivity an impossibility.

It is useful in examining the totality of a unit a holistic approach. It has a very low reliability in that it is extremely difficult to replicate a piece of qualitative research due to the fact that it does not have a structured design or a standardised procedure.

It yields results that can be helpful in pioneering new ground.

Source of the above data - www.anderson.edu/academics/sot/guide/ch1.html Source of the above data Reason P. & Rowan J. (1981)

Advantages of

Quantitative Research Disadvantages of

Quantitative Research

It is objective and can be measured so that comparisons can be made. Findings can be biased by researchers perspective. Researchers must therefore try to keep a distance from their subjects

Methods, if explained in detail are generally very easy to replicate and so have a high reliability. Research often takes place in an unnatural setting

Results can be reduced to a few numerical statistics and interpreted in a few short statements. Provides narrow, unrealistic information using measures which capture only a tiny proportion of the concept originally under study.

The results of quantitative research may be statistically significant but are often humanly insignificant. Some things which are numerically precise are not true; and some things which are not numerical are true.

Source of the above data Reason, P & Rowan, J (1981)

It can provide information about program stakeholders who were overlooked initially. Uses a static and rigid approach and so employs an inflexible process.

The use of a survey instrument that collects data from all program stakeholders in the study may serve to correct the qualitative research problem of collecting data only from an elite group within the system being studies. Quantitative methods are simplifications of the qualitative methods and can only be meaningfully employed when qualitative methods have shown that a simplification of identified relations is possible. (Kleining, 1991)

Using quantitative assessment can correct for the "holistic fallacy" (the perception by the researcher that all aspects of a given situation are congruent, when in fact only those persons interviewed by the

researcher may have held that particular view).

Source of the above data

http://trochim.human.cornell.edu/ Source of the above data Sarantakos S. (2002) page 55

Conclusion & Recommendations on Research methods:

Quantitative methods have an objective approach, where data is controlled and measured, to address the accumulation of facts to determine the causes of behaviour. Qualitative methods view data from anothers perspective and in so doing attempt to find understanding and meaning, here concerns centre on the changing and dynamic nature of reality.

Quantitative researchers try to recognize and isolate specific variables contained within the study framework they seek correlation, relationships and causality. They try to control the environment in which the data is collected to avoid the risk of variables, other than the one being study, accounting for the relationships identified. In contrast, Qualitative researchers have a more holistic approach and will study documents and case histories and carry out observations and interviews.

In many areas of management research it may be prudent to verify quantitative results through qualitative methods, where qualitative data has been gained from interviews or observations. In the present scenario no primary data is collected and no such data was required thus there exists no quantitative data hence the research relies on qualitative research methodology.

Ethical Issues in Research: (1)

Honesty

Strive for honesty in all scientific communications. Honestly report data, results, methods and procedures, and publication status. Do not fabricate, falsify, or misrepresent data. Do not deceive colleagues, granting agencies, or the public.

Objectivity

Strive to avoid bias in experimental design, data analysis, data interpretation, peer review, personnel decisions, grant writing, expert testimony, and other aspects of research where objectivity is expected or required. Avoid or minimize bias or self-deception. Disclose personal or financial interests that may affect research.

Integrity

Carefulness

Avoid careless errors and negligence; carefully and critically examine your own work and the work of your peers.

Openness

Share data, results, ideas, tools, resources. Be open to criticism and new ideas.

Respect for Intellectual Property

Honour patents, copyrights, and other forms of intellectual property. Do not use unpublished data, methods, or results without permission.

Confidentiality

Protect confidential communications, such as papers or grants submitted for publication, personnel records, trade or military secrets, and patient records.

Responsible Publication

Publish in order to advance research and scholarship, not to advance just your own career. Avoid wasteful and duplicative publication.

Social Responsibility

Strive to promote social good and prevent or mitigate social harms through research, public education, and advocacy.

Non-Discrimination

Avoid discrimination against colleagues or students on the basis of sex, race, ethnicity, or other factors that are not related to their scientific competence and integrity.

Competence

Maintain and improve your own professional competence and expertise through lifelong education and learning; take steps to promote competence in science as a whole.

Legality

Know and obey relevant laws and institutional and governmental policies.

Human Subjects Protection

When conducting research on human subjects minimize harms and risks and maximize benefits; respect human dignity, privacy, and autonomy; take special precautions with vulnerable populations; and strive to distribute the benefits and burdens of research fairly.

( (1)Adapted from Shamoo A and Resnik D. 2003. Responsible Conduct of Research (New York: Oxford University Press).

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