Differences b/t Going Rate & Balance Sheet Approaches

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The world is increasingly flat, no longer bound by the parameters of nationality and country. Internationalization is increasingly important and more companies are deploying staff around the globe. Globalization has increased the need to establish a fair, sustainable compensation program for organizations. It is estimated that "compensation and employee benefits contribute to 40 -50 percent of the total organization costs" (Aswathappa, Dash, 2007). An organization's compensation plan must be in line with the organization's overall strategy, as well as the structure and business needs of the multinational. It also must treat employees consistently and work towards attracting and retaining staff for the organization. An organization must be able to attract individuals who are competent and interested in international assignments, while at the same time making it easy for individuals to move from one subsidiary to another, from the home country to subsidiaries, and from the subsidiaries back to the home country (Aswathappa, Dash, 2007). It also must provide a consistent and rational relationship in pay levels of employees at the headquarters and foreign subsidiaries, while at the same time be cost effective, allowing the company to succeed and thrive. The program must be competitive and able to take into account tax issues, reimbursement for reasonable costs, and allow the transfer of employees to different locations. It also must provide fair compensation for the employees' efforts. Multinational corporations may consider both the going rate and balance sheet approaches to international compensation.

The going rate approach is based on local market rates, with the additional benefit in which if salary structures in host countries are lower than home countries, additional salary payments are made to expatriates. Basically, with the going rate approach, a multinational corporation will ...