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Case #5
Local and International?
MANAGING COMPLEX EMPLOYMENT
EXPECTATIONS
HRM 6645 International Human Resources Management – Case
Analysis
September 21, 2016
Dr. Hoover
Troy University
Group 1: MICHAEL AKRIDGE, DENISHA CARTER, MAGGIE ROBERTS
I.
Problem Statement
Expatriates are a very involved and very expensive sector of an organization doing
business internationally that can lead to the organization making changes to its
expatriate policies and packages in order to maintain adequate profitability and success.
One problem that occurs when an organization makes changes to its expatriate policies
is that people do not accept change very willingly, especially when it is less favorable
than what they are used to.
II.
Analysis
During the course of her career, Akiko experienced significant growth and opportunity
within her company and her career. As the company expanded its operations
internationally, setting up national organizations in each country it operates in, it moved
to a polycentric operation even though it had the vision of operating as one company.
This international growth opened up great opportunities for talented individuals to gain
international experience and career growth within the organization. Akiko is one of these
individuals who were part of the talent pool that were great assets to the organization’s
talent management system. Akiko is accustomed to rapid, significant growth in her
career because of the large steps she has taken with her organization. She is also used
to more special treatment than that of some of the other employees. It is only natural for
her to come to expect the same results when inquiring about a change of assignment to
move to Singapore for her family. It is of course, very disconcerting when her desire for
an assignment change is not met with welcoming arms.
Expatriates are significantly more expensive to an organization and require greater
involvement from the organization than local employees. On top of salaries and benefits
given to local employees, expatriates require additional compensations to cover
housing, medical care, child care, etc. while in a foreign country. On top of the additional
compensation expense, expatriates require the company to handle arrangements for
moving, settling in, and other miscellaneous moving efforts. Although expatriates are
valuable to a company by facilitating the transfer of knowledge across borders, it is
understandable for an organization to eventually place some limits on expatriate
packages.
Viewing the situation from the employee’s side also gives a sense of understanding on
the conflict of interests. In previous situations, Akiko has been able to make moves
within the organization within her favor without having to sacrifice any of her
compensation or benefits. This makes it very hard for her to grasp why the company
must place some limits on expatriate assignments. Even though it is easy to understand
Akiko’s discontent, one must also keep in mind that an assignment move to Singapore
is a voluntary move on Akiko’s part.
It is logical for the organization to place limits on expatriate offerings and packages, as
well as to push localization above expatriate assignments to reduce expenses. This is
one of the difficulties international Human Resources must tackle; the ability to diversify
its offerings to meet the needs of its employees, and the ability to realize that there will
always be situations which fall outside of the standards of procedure.
SWOT Analysis
Strengths
•
•
•
•
•
•
Increases pay equity in host
counties
Medical Check ups
Travel cost for trip home the first
year
Visa and Permits
Settling in Allowance
Most effective for the company
Weaknesses
•
•
•
•
•
Opportunities
•
•
•
•
Aims to localize employees
Money that is saved is used for
business expansion
Make some cost optional
Create more equity with local
employees
III.
Lack of benefits for employees
No pre-assignment trip prior to start
Employee may have to do most of
the settling in
Host country based salary
Any financial supports ended after
two years
Threats
•
•
•
•
Reduced employee mobility
Employee turnover and loss of
talent
Economic crisis caused the need
for managing costs
Employees find it unfair
Options
One of the options that Akiko has is to stay in the current contract in New Delhi without
her family for one more year until her expatriate package expires and relocate back to
her home based country in Tokyo. She also has the option of deciding to take the
package anyway and move with her husband and family, but she will be unsatisfied
lacking the compensation and other benefits from the previous contract.
IV.
Recommendations
Akiko wants to relocate to Singapore with her husband and wants the company to give
her the same benefits as in her current contract. Akiko wants to keep same benefits she
is receiving in her traditional expatriate package for India. Her current package includes
the current home based package, as well as arrangements and allowances for normal
cost of living over in India.
We believe that the local international contract that Puja has put together is sufficient
enough for Akiko to go Singapore, but we recommend the company consider the
following points:
• The company should communicate with the expatriates that may be thinking
about staying abroad longer than their term.
• The company should create one standard expatriate package for all employees
and maintain consistency in application of reformed policies.
• The pros and cons of the local international policy should be explained in detail to
the most complete understanding of expatriate candidates.
• The company should look to get expatriates to localize to the host country after
working there over time because it reduces organizational costs, and this goal
should be communicated with candidates.
• The company must come to a compromise to satisfy the employer and employee
to decrease employee turnover.
• The company can slightly alter the contract to suit Akiko depending on their
circumstances. The company still provides some kind of support, and Akiko and
Puja could talk about determining her salary based on merit.
• The company can use procedural justice to determine a change in Akiko’s
contract. They should take into consideration the length of employment abroad,
whether she is a talent employee, and whether she is on a career or job
assignment.
• The balance between the business and employee interest leans more towards
Akiko, which is not good in the company’s eyes. The company has not forced
Akiko to move or do business in Singapore, so they do not have to give her the
full package for her to go there since she was supposed to go back to Tokyo
after her three-year term.
• The best solution for Akiko in this situation is to stay in New Delhi for the last year
of her term and move back to Tokyo when her term is finished. Her husband
could then find a better job, and she would not experience a drop in salary and
benefits.
HRM 6645
#5 Case Analysis
Team 9
Regina Lane
Jamie Mize
Stacie Carter
Diane Hagler
Traditional Expatriate Package
Expatriate compensation packages are comparable to the structure of a domestic package.
The main component is the base pay and additional employee benefits. Core compensation
includes the base pay plus incentives, foreign service premium and hardship allowances. The
employee benefits can include standard benefits, protected programs and paid time off. Enhanced
benefits include relocation assistance, educational assistance, home leave and travel
reimbursement, rest and relaxation leave allowance (Martocchio, 2015).
Expatriates are entitled to all mandated benefits except state workers’ compensation law.
To this exception, a company may provide additional insurance coverage to protect the employee
and provide equal protection (Martocchio, 2015). The mandated benefits in the expatriate
package included social security programs, unemployment, Medicare, old age survivor and
disability insurance (OASDI). The discretionary benefits of a company must be applied to an
expatriate as if they were working in the home country. Discretionary benefits are protection
programs such as short-term or long-term disability insurance, life insurance and retirement
programs. Paid time off should remain the same as home country employment with the extension
of additional time off that is required by foreign laws. Additionally, companies would add
personal/emergency time off to handle situations back in the home country with paid travel
expenses to and from the foreign post and home country.
Enhanced benefits are added to make the transition to the host country as smooth as
possible, keeping the disruption to a minimum for the expatriate and their family. Financial
assistance is offered in the relocation program to cover temporary living quarters, transportation,
moving or storing household goods. For expatriate families with children, educational
reimbursement is offered in countries where schools fall below US standards, or if the children
do not speak the native language of the host country. Home leave benefits, including travel
allowances, can be offered to assist in the adjustment of foreign cultures and retain the
relationship with family and friends in the home country. Rest and relaxation leave is granted to
hardship foreign locations. The additional paid time off is controlled by the employer. The
employer chooses the location and pays the majority of all expenses to give the expatriate and
their families the opportunity to rest and recover from the hard times at the workplace.
The limitations for companies with emerging needs in the traditional expatriate contracts
come from external factors that are uncontrollable by the expatriate themselves. The local
government may increase the demands of host country nationals for employment with the
company (Dowling, Festing, & Engle, 2013). The purchasing power of the parent country
national could decrease causing inflation of specific industries. The reduction in government
agreements and purchasing power can make the expatriate compensation package a challenge for
companies to maintain.
SWOT Analysis of the Local International Policy
Strengths
• Saves the company money by slowly decreasing financial output allotted to expat
packages
• Attracts foreign talent
• Capitalizes on the trend of partial-employee initiated relocations (since employee will be
more willing to absorb some costs)
• Allows more employees the ability to utilize skills elsewhere
Weaknesses
• May not attract foreigners who come from higher income countries
• May keep company from sending employees to countries with higher incomes which may
keep company from being able to do business with or expand into said countries
• Does not guard against employees bouncing from one local assignment to another within
2 years in order to continuously restart the time before company support dwindles to 0%
• Does not offer any special concessions for former expats whose family livelihood
depends on the expat perks
• Alienates those whose decision to accept expat assignments were based on perks of expat
packages
• Decrease ability to easily and sufficiently shift talent because employees are permanently
relocated
• Goes against policy of blocking the career of others by staying too long in one country
• No way to prevent multiple employees from requesting the same country; runs the risk of
having too many/much talent in one location
• Offers no compromise for current expats who have no desire to permanently relocate
• No safeguards against HR staff’s ability to alter local international policies
Opportunities
• Attracting employees who want to move abroad
• Provides better host country relations by encouraging localization
• Moves employees into less desirable areas (like China) by offering “extra support” to
those willing to locate to these areas
Threats
• Risk of experienced employees or employees that the company has already invested a lot
of money into leaving the company due to dislike of local policy
•
•
•
•
Employees may become overwhelmed after company’s financial support decreased to 0%
and may not be able to efficiently perform job duties
Employees may begin to “go native” which may have the opposite effect of true
localization
Due to the number of permanently relocated employees, the company may be slower or
less able to react to future changes requiring relocation of employees
Vulnerability to domestic company changes
Needs Comparison
The organization realizes that the needs of their workforce and needs of the company are
changing. The desire to stay abroad has resonated with many employees. While the organization
embraces their employees taking on those new experiences, the company costs have increased
dramatically and the need to reduce the number of expatriates is at the forefront. According to
their research, some employees have resided in the same location eight plus years, while others
have spent ten plus years globetrotting from assignment to assignment. Maintaining the large
number of employees on expatriate pay and benefits is no longer sustainable for the company.
Therefore, the organization has to reevaluate the international employee programs.
The company has put into effect that no expatriate can reside longer than three years on
an overseas assignment. This modification will allow other employees the opportunity to take
advantage of the overseas opportunities and further their career development. Under the new
international plans, an employee who wishes to transfer to an overseas location not requested by
the company, may still be eligible for an assisted relocation package and continued employment
with the organization. If the employee possesses the required skill set and an opportunity is
available in their desired location; the company will transfer them but they will fall under the
new Local International Policy and will no longer be on expatriate status. The new policy
basically falls in-between an expatriate package and local contract.
According to the Local International Policy, pay will be based on the local scheme. The
employee will receive a settling-in allowance, medical checkup, visa and permits, travel cost
(outward journey) and one home trip during the first year (Dowling, Engle, and Festing, 2013).
This leads to some concerns for employees who are accustomed to the expatriate status. The
employee will no longer be afforded a funded pre-assignment visit. The individual will need to
arrange house hunting; as well as coordinate schooling if the employee has children. Children
will have a language barrier which could be scary for them and they would most likely need to
attend an international school. Beyond that, the extra financial support initially received to settle
in ends after two years.
In this scenario, the response by Akiko is more of fear. Fear of having to integrate her
family into the new country without assistance like she is used to receiving as an expatriate. The
pay difference is of some concern, but doesn’t seem to be the biggest issue since the pay she will
be receiving will still be one that allows her to live comfortably in her new country. Therefore, I
think it would be beneficial for the organization to alleviate some of those relocation and
integration concerns and fears where possible. I would provide Akiko with contact information
for local housing, some school information that she can start looking into, as well as provide
some cultural and language courses. This could be achieved by giving the employee and her
family access to an on-line educational sight. I would also provide her with a sponsor so that she
has a local resource that can assist with getting her and her family settled. By providing these
resources, the company would still be saving money, but would be providing Akiko and her
family the opportunity to put their best foot forward.
Equity Analysis
When comparing the three assignment packages implemented at the German organization
for fairness using the equity theory; there are several instances where an employee could view
the conditions of the assignment as unfair. When comparing these assignment packages, we must
determine if employees will view their inputs versus outputs as comparable to the inputs versus
outputs of others in similar positions. For recent expatriates of the organization, they will view
the new policy as unfair as they will not be able to receive the amount of experience and
exposure that international assignments have afforded to employees who have been in the
international program longer. The new timeline of 3 years reduces the length of opportunity for
those new to the program and the organization. This may cause feelings of inequality and could
result in employees feeling that they will never be able to advance past those with more
international experience. Since compensation is the top driver of feelings of inequality; the pay
scale variance for like positions and assignments is cause for concern. Basing compensation
packages on the pay scales of the host country can result in pay far below that of peers
performing the same job in other countries. Oftentimes, a decrease in pay will result for some
assignments, and the likelihood of finding a qualified employee to accept an international
assignment for lesser pay will prove challenging. Even with an increased housing allowance, an
employee will have feelings of inequality and this will contribute to demotivating factors and
possible expatriate failure. This is assuming that employees will have knowledge of
compensation packages that have been and are currently being afforded to other employees.
The referent person in each of the cases can vary, depending upon the employee
comparing input versus output and who they are comparing it to at the given time. In regards to
the expatriate contract, the referent person will likely be those who are already grandfathered
into the previous expatriate contracts and this comparison can cause feelings of inequality in
regards to compensation, length of contract and incentives. In the case of the local international
program for local international hires, the referent person will likely be other employees of the
German organization working in similar positions at the same location. In cases where a peer of
this level is an expatriate on a previous contract, inequality could be perceived as the rate of pay
and incentives are based on the home country and not the local area. This can result in two
people performing the same job for drastically different rates of pay. The referent person in the
case of the local contract for external international new recruits will likely be one of two groups
of people; those employees who have relocated to other subsidiaries and are performing similar
jobs or those in the local subsidiary who are performing similar jobs. With compensation rates
again being determined by local pay scales, large variances in pay will ensue.
Procedural justice is the perceived fairness of the process used to determine the
distribution of rewards. In this case, procedural justice would consist of the opportunity for
employees (Akiko) to voice their concern in regards to the changes in the international program,
and the response received for the concerns or the resolution to the complaint. Akiko was afforded
the opportunity to discuss her request to transfer to Singapore and she was provided with options
to explore to determine to best choice for her future with the organization and her family’s
future. The organization is not required to adhere to Akiko’s request and demands for relocation,
as she is under a contract with 12 months remaining. Akiko was able to ask questions and she
was given mostly vali …
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