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9 months ago
Briefly explain how companies compensate managers in international markets.
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International Business: The Challenges of Globalization
Edition: 8th
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9 months ago
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 Compensation packages for managers differ from company to company and from country to country. Good packages are fairly complicated to design, for several reasons. If the effect of cost of living is considered, which includes factors such as the cost of groceries, dining out, clothing, housing, schooling, health care, transportation, and utilities, it can be assumed that it costs more to live in some countries than in others. Moreover, within a given country, the cost of living typically varies from large cities to rural towns and villages. Most companies add a certain amount to an expatriate manager's pay to cover greater cost-of-living expenses. On the other hand, managers who are relocating to lower cost-of-living countries are typically paid the same amount that they were receiving at the home officeotherwise, they would be financially penalized for accepting an international job assignment.
Companies must cover other costs incurred by expatriate managers even when the cost of living abroad is lower than at home. One important concern for relocating managers is the quality of local education. In many cases, children cannot immediately enter local classes because they do not speak the local language. In such instances, most companies pay for private-school education
Bonus and Tax incentives: Companies commonly offer managers inducements to accept international postings. The most common is a financial bonus. This bonus can be in the form of a one-time payment or an add-on to regular paygenerally 15 to 20 percent. Bonuses for managers who are asked to go into a particularly unstable country or one with a very low standard of living often receive hardship pay.
Managers can also be attracted by another income-related factor. For example, the U.S. government permits citizens working abroad to exclude $82,000 of "foreign-earned income" from their taxable income in the United Stateseven if it was earned in a country with no income tax. But earnings over that amount are subject to income tax, as are employee benefits such as free housing.
Cultural and Social Contributions to Cost-Culture also plays an important role in the compensation of expatriate managers. Some nations offer more paid holidays than others. Many offer free medical care to everyone living and working there. Granted, the quality of locally available medical care is not always good. Many companies, therefore, have plans to take seriously ill expatriates and family members home or to nearby countries where medical care is equal to that available in the home country.
Companies that hire managers in the local market might encounter additional costs engendered by social attitudes. For instance, in some countries employers are expected to provide free or subsidized housing. In others the government obliges employers to provide paid maternity leaves of up to one and a half years. Government-mandated maternity leaves vary significantly across European countries. Although not all such costs need to be absorbed by companies, they do tend to raise a country's cost of doing business.
Managers recruited from within the host country generally receive the same pay as managers who work for local companies. Yet they often receive perks not offered by local firms. And some managers are required to visit the home office at least several times per year. If time allows, many managers will make these into short vacations by taking along their families and adding a few extra days onto the length of the trip.
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