International Organizational Behavior 2e Chapter 8 Page 1
CHAPTER 8
EVALUATING AND COMPENSATING
INTERNATIONAL EMPLOYEES
Multinational companies whose employees move from country to country face
predictable but widespread and daunting compensation challenges.
—Mercer Worldwide Consulting.
As shown in Chapter 7, selection and staffing of international employees is complicated. As a
gauge of the success of these approaches, and to ensure organizational performance, leaders must
EMPLOYEE PERFORMANCE APPRAISAL: THE GLOBAL CHALLENGE
for those with single-country operations. It is important to keep in mind the core questions facing
multinationals when it comes to managing and appraising employee performance:
• Should the firm rely on a standardized set of policies, procedures and practices for
appraising employee performance worldwide?
A key is to keep the global workforce focused on company goals and executing the firm’s
strategy and performance appraisal systems are an important mechanism for doing that.
Receiving a performance appraisal is not likely to be high on employees’ list of favorite things to
do and conducting performance appraisals is one of the things many managers dislike most about
their jobs. Performance appraisal is inherently difficult and few managers enjoy giving
employees direct performance feedback, especially if that input is negative.
I. Multinationals and Performance Evaluation for Expatriates
Research shows that, regardless of their roots, when multinationals tailor performance
appraisal and other IHRM practices to the local context, their foreign subsidiaries
Many multinationals take a blended approach, insisting on some common practices
everywhere while also allowing for considerable tailoring in local units. The goals of
gaining additional skills and a more global perspective are among the key reasons
why multinationals send expatriates. At least one study showed that expatriation
There are three important questions about performance appraisal for expatriates: 1)
Who should evaluate their performance? 2) When or how often should they be
evaluated? 3) What aspects of performance should be evaluated?
II. Who Should Evaluate Expatriate Performance?
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Multinationals have a variety of options for evaluating expatriates. Expatriate
evaluations can be conducted in the host country, the home country, or both. Research
shows that in practice a mix of home and host country personnel is commonly used to
A. Evaluations by host country professionals
Having host country professionals involved in expatriate evaluation is a popular
option (about 71% of firms report doing so). This is more common among bigger
Relying on host country managers to evaluate expatriate performance is not
without drawbacks. While local professionals are knowledgeable about their
environment, they also bring their own cultural frames of reference to the table
Differences in criteria may be subtle and not directly related to performance per
se—instead reflecting differences in interaction norms. As a result, even if a
multinational uses the same performance appraisal system everywhere, the results
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to use home office personnel for performance evaluations of expatriates for
greater control and continuity.
B. Evaluations by home country professionals
There are clear advantages to having home country professionals evaluate
expatriates. These managers are usually more familiar with expatriates’
Using home country professionals to evaluate expatriates can also have its
shortcomings. Distance can be an impediment. Consequently, a major challenge
Table 8.1 summarizes the pros and cons associated with home vs. host country
professionals who conduct performance evaluations of expatriates. Multinationals
must weigh their goals, the number of expatriates involved, where they are
posted, and the nature of their work to find a solution for expatriate evaluations.
III. When Should Expatriate Performance Be Evaluated?
American firms have historically evaluated employees—domestic or international –
once or twice a year. Experts have argued that this is too infrequent and forces
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IV. Context Variables that Impact Evaluations of Expatriates
One of the thorniest questions about evaluating expatriates has to do with what areas
A. Environmental variables
The extent to which the environment in which employees work presents special
distance.
B. Task variables
It might be important to consider the nature of the work itself in a performance
appraisal. Expatriates whose roles—and performance—relies on effective
C. Personal characteristics
There are simply inherent differences among individuals in their abilities to
handle a foreign assignment—whether because of experience, temperament, or
Even if a firm has considered these three important constraints on performance overseas,
measuring an expatriate’s performance can still be challenging. Many conditions, such as the
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regulatory environment, business laws and tax rules are clearly beyond the control of any
expatriate, yet could influence financial performance and in turn a manager’s evaluation.
V. General Guidelines for Expatriate Evaluation
A. Rate the assignment difficulty
A firm might consider buying or conducting a thorough assessment in advance,
regarding how difficult specific foreign assignments will be for their expatriates.
B. Additional suggestions for expatriate evaluation
While many experts recommend that multiple home and host country evaluators be
If host country personnel have primary responsibility for conducting expatriate
• communicate early on with expatriates about the performance criteria likely to
be used by host and home country managers – and what defines success
relative to those criteria,
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• fully explain how the appraisal process will work for expatriates—ideally
integrating it into expatriates’ assignment plans,
VI. Evaluating Foreign-Born Employees
Parent country expatriates are not the only type of employee that needs to be managed
successfully. There is a need to manage foreign nationals in the parent country and
host country nationals working for expatriates in foreign subsidiaries. Complicating
matters is that business environments everywhere are changing and evolving. As
REWARDS AND COMPENSATION IN THE MULTINATIONAL FIRM
Managing employee performance is challenging and compounded by having employees scattered
all around the world—many of whom embrace different cultural values and experience localized
practices for performance management that vary considerably. One of the main reasons that
multinationals spend time on performance evaluation is that it helps set and manage
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• Attract and retain the best people to staff positions worldwide
Meeting these goals confronts managers in most industries and is central to employee life in and
out of the workplace. This complex process has great need for communication and coordination.
VII. The Meaning of Compensation
Compensation within the United States is often seen as a swap—employees provide
effort and output while receiving wages and benefits in return. This “exchange”
VIII. Employee Pay Across Borders
Multinational firms are keenly aware of the differences in compensation amounts and
types across borders and may in part be responsible for an increase in the outsourcing
of professional service jobs and others. Between 2003 and 2013, an estimated 4.2
million ‘off–shored’ service jobs were created globally. Most were in low wage
countries such as India, Hungary and the Philippines.
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Average wage data are not very precise if companies are trying to understand
compensation patterns in specific industries. Even within countries, large differences
IX. Senior Executive Compensation Across Countries
Cross-national differences also emerge in the compensation of executives of U.S.
firms relative to their peers in foreign companies. The U.S. has earned a reputation
for paying its senior leaders more than other countries anywhere else. In American
A. Perks and other compensation
Although typically not large enough to make up for the compensation lead
enjoyed by executives at American companies, foreign companies often provide a
For example, consider the package received by Portuguese executives, which may
include a maid, a gardener, and a washerwoman. In addition, executives will
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B. Vacation time: less in the U.S., more in Europe
Workers in the U.S. and Canada have among the fewest paid days off of any
country in the world. Table 8.4 shows that many countries offer their experienced
Just because workers have vacation time does not mean they take that time off.
Americans and Japanese are known for either not taking allotted vacation time or
cashing it out instead. Likewise, South Koreans work more hours on average that
X. Explaining Compensation Differences Across Countries
A working understanding of a specific country’s laws and customs is needed to fully
In the U.S., compensation is commonly viewed as an exchange based on
deservingness—greater contributions should result in greater compensation. In
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Table 8.5 summarizes many of the compensation system differences referenced
throughout the chapter by presenting how cultural values in specific countries are
linked to their compensation practices. This does not capture all the differences that
still exist across countries with respect to compensation, nor does it reflect the
THE CHALLENGES OF EXPATRIATE COMPENSATION
A complicated and important issue for multinationals is how to construct compensation and
benefit packages for a key group of employees – expatriates.
I. Grappling with Expatriate Costs … and Employee Comparisons
Multinationals have to grapple with a host of cross-national differences such as laws,
taxes, and compensation practices and they also need to ensure that their employees
around the world believe that the various compensation and benefits packages they
have are fair. Firms know their expatriates will engage in comparisons of their
Multinationals should first focus on creating a consistent and comprehensive
compensation and benefits policy for expatriates that will help educate and inform all