Globalization has spread rapidly and wage inequality is even more important today. Companies that used to be purely “local” with few “expatriates” now operate internationally with multinational workforces. Managers are increasingly responsible for multinational employees across multiple locations, which places increasingly demanding demands on pay consistency across the team and the organization.
Just as determining a company’s “nationality” has become increasingly difficult, determining an employee’s “nationality” has become even more complex. Yesterday’s third culture children are today’s global employees. The question “Where are you from?” is becoming a difficult question for more employees than ever. We have moved from answering this question in terms of ‘nationality’ (i.e. country of birth or citizenship) to referring to where we are ‘local’. Let’s take Ramesh as an example.
Ramesh prefers to say ‘I’m from Dubai and Mumbai’ as he feels ‘native’ to both places rather than having to explain ‘My parents are from India. I was born and raised in Dubai, we regularly visit family in Mumbai on vacation, but I attended university in Canada and worked in Houston for 8 years before returning to Dubai. My wife is Canadian and my children are American as they were born there. We moved to Mumbai 5 years ago”. Is Ramesh global or local? What is his nationality”.
The skills required for payroll management in the context of globalization are evolving, moving from local expertise (local market and local practices) to building international solutions for a global landscape (global market and global practices). The challenge within a multinational company today is to find an appropriate balance between global consistency and local country and/or employee needs/requirements while maintaining costs.
• Compensation: Global or Local?
• Benefits: Global or local?
• Job Structures: Global or Local?
• Incentives: global or local?
• Justice: global or local?
We now have sophisticated technology to manage multinational teams across borders, but how do we manage the differences between global and local pay?
Imagine working in a multinational company and discovering that your colleague at the desk next to you (same job, same level, same experience and qualifications, similar level of performance) is making double your salary and receiving benefits they are not eligible for. You are entitled to 35 days annual leave; You get 20 days. They receive accommodation, health insurance and the school fees for their children are paid in full at the international school; you get none of it.
Why do they earn so much more than you? What if you found out that it’s simply because you’re “local”?
With a “local” versus “expatriate” pay approach, this is the reality.
Local pay has traditionally been determined by the supply and demand for skills in a localized free market. These local markets have developed over many decades and are dominated by local people, most of whom do not move or want to move elsewhere. Depending on prevailing job supply and demand trends, each local market differs in terms of what is paid for different skills in different industries.
Expatriate salaries, on the other hand, are traditionally determined by the cost of living and hardship differences between home and host countries, with the home country salary serving as a basis and added according to calculated home-host differences and a global benefit policy. While the gap varies from one country to another, in general, local employees in a low-income country (typically a third world/developing country) receive far less salary and benefits than their expatriate counterparts (typically from a developed one). first world country). country), even if they perform similar jobs and have similar qualifications.
Local workers in developed First World countries with structurally high costs of living (high-income countries) earn far more than their compatriots in less developed Third World countries with structurally lower costs of living (low-income countries). This means that an expatriate from a high-income country will already be paid much better before applying an expatriate bounty/incentive to take up assignment in a low-income country. Compounding the problem, in order to ‘encourage’ someone to accept a foreign assignment in a less attractive location, albeit with a lower cost of living, a substantial premium is often charged, with the result that the pay gap between an im Expatriate high-income country and its native counterpart from a low-income country is even greater.
These large wage differentials can lead to significant internal equity problems. Local employees can feel less valued than their overseas counterparts and can be angry and dissatisfied. This is exacerbated when the expatriate has a visibly higher socioeconomic status, such as B. Children attending the most exclusive private school, living in a more exclusive upscale home, or driving a luxury car.
Ramesh has and could continue to work anywhere in the world. Should he be paid as an expatriate or as a local in Mumbai?
The obvious solution is to minimize the deployment of expatriates from high-income countries to low-income countries. For example, instead of sending an engineer to Dubai from Germany (high-income country), it would be far more cost-effective to send an engineer to Dubai from India (low-income country). As the talent pool in low-income countries expands, more multinationals are sourcing talent from them, causing ‘brain drains’ and perpetuating the crippling skills shortages in these countries. This is a double-edged sword for low-income developing countries. On the one hand, they need to retain their skilled talent to help further build their economies and build local skills, but at the same time, their overseas remittances are a vital contributor to the economies of many low-income countries.
The reality is that expatriates from high- and low-income countries around the world will continue to work side-by-side in multinational companies, alongside local employees in each physical location.
Many multinational companies are grappling with these issues and developing new approaches for fair and sustainable global pay. While there is no simple answer, any solution requires the development of frameworks that adapt global wage models to local wage markets so that the principle of equal pay for work of equal value is realized. That doesn’t mean everyone gets paid the same. These new approaches require years of integration of global and local payment practices. Where differences exist, they must be transparent and justifiable on the basis of fairness.