HI6025 Accounting Theory and Current Issue

Identification and discussion of the theory and concepts relevant to the selected article Analysis and demonstrated level of understanding of key issues and theory presented in the article.Identification and analysis of strengths and weaknesses of the article leading to conclusive identification of the article’s contribution development and quality of the presentation of the critique.

It’s a company operating globally, giving expatriating contracts to people getting out of their home country. The company mainly offers this package to the employees having talent with the objective of shifting that talent across borders. Until now this package is the best to manage people on the move. These days, because of economic crisis and other issues, a lot more individuals search for careers abroad. In that case, the company is also reconsidering the expatriate policy and the policies regarding international mobility. The principal issue to discuss is the local international policy concept. Here the main discussion is about the new Local International Policy and its concept. It is imperative to evaluate the pattern and shed light on the issue. A policy that compensates or techniques are assuming a very important place in ensuring a better environment for the organisation. The organization operates under a set of condition and hence, it is important to have a strong grasp on that. The SWOT analysis of the local international policy is conducted to establish the organizational attempts regarding compensation philosophy.

The principal argumentation of this article is related to the traditional package of expatriation is helping itself along its recent new needs. Currently, when a company is going through the economic crisis, the main aim is to cut down the costs. This is one of the basic steps that the company follows. On this direction, packages are being creative by this company suitable for many different international work labors. One of such packages is Local international Policy. The pros and cons of the policy have been discussed to throw light on the issue that how much it is helpful to maintain the balance between the employer and employee needs in relation to international compensation. So, the biggest stress, it’s been given to the local international policies, so it owns a better standard which can be established.

Here research has been conducted to gather information on the parallel package for international hire designed by the multinational company in comparison to the traditional expatriate package and its benefits. The objectives of both employer and employee behind going for such alternative package are also thoroughly analyzed. The strengths and weaknesses of the local international contract have also been discussed to identify the scope of its global acceptance for the new international population.

Theoretical Framework

The packages for international hire are of distinctive types. There is a local contract with new recruits and local salary. We find a local international contract with local salary, including benefits to its talented employees of 2 years of the contract. There’s also a contract with consolidated with high payment from home and international talented employees with 3 years of the contract (Dowling et. al, 2013). The employers mainly look for the following aspects such as creation of standard for expatriate, packages that are cost effective in nature, retention of employees, performance-based increment, skilled workforce and mobility of workforce at an increased rate

These require an employer to offer a cost-effective package with transparent communication, flexible duration, and attractive incentive policy to meet the expectations of the employees. This will be helpful on making all packages globally applicable to recent international hiring. In similar lines, every employee will receive the next aspects that are a greater transition policy to international level and allowance of wealth for a comfortable living abroad (Adams & Freedman, 1976). Every employee looks for a supportive balance and expat package with its financial incentive. Any company follows at least two approaches just in case of remuneration structure’s expatriate.

1. The Balance-sheet or Home net system and 2. The local Going rate system or localization Expatriation is used by the company mainly for two reasons. First of all, every opportunity it’s been given as career assignment to talented employees obtaining international experience. Secondly, employees with scarce knowledge are given job assignments for transferring the knowledge across the borders. The company covers almost everything included in this package (Alter, 2013). The expatriates are paid at the same level as they used to be paid in their home countries. The benefits the expatriates receive in addition to salary plus benefits offered in the home country are as salary base comprehendshousing allowance, cost of living allowance, the premium for Foreign Service, pension etc. Basic salaries might be paid in local country’s dollar, pound , currency etc. Secondly, all international service hardship premiums happen due to hardship because of transfer.

All these components are large due to the policy company which is offering the package. Depending on employment nature and various other factors such as local to expats, long-term expat packages, short-term expat packages etc the decision are taken into consideration (Srivastava, 2014).

This need is mainly emerging in Asia, economic crisis,globalization impacts, and tendency for international individuals to stay across borders on contract, for long, compelling companies that are global to think over the expatriate contract and policy one more time. The main aim of the company behind offering the local international package to expats is to reduce the number of expats and thus reduce the high costs of expatriates (Dowling et. al, 2013). At the same time, companies also want to create equal opportunity for the local employees. Thus, it requires two people doing the same job should be given same salary and benefits. The salary should be based on the efforts and the policy of the company.

There are some justified conditions set by the company, behind all the offering for local international packages to hire international people. Various factors needs to be taken into consideration such as relocation internal employee, relocation on a permanent basis, relocation for a  career assignment or job assignment, employee is not a talent or potential capability and employees decide or chooses to relocate with the company. A local international package is an option given on an alternate basis. It is taken as the permanent relocation of an employee. As the name goes it is basically a package that is locally based. Salary is at par with the local system. In that case, some temporary additional or optional benefits are offered to attract an international hire to a local international package. Hence, it can be termed as a method to retain the employee and provide some benefits.

In the local international policy the company covers the costs such as salary is provided as per host country and incentive is provided as per schemes applicable locally. Moreover, the allowance to settle down to meet the various expenses arising from movement is even considered. For example temporary staying arrangements and  meal when reaching the home country, uniforms and books for children to go to school, health check- up allowance, visa and any other permits if locally applicable, travelling expenses to home country the first time, spending for accommodations, schools, etc by the discretion of the company.

This is an optional allowance reduced to 50% after a year, then it becomes nil after the second year.  The retention of bonus happens as per the discretion of the company, allowance is provided on adhering to the local requirements per company’s discretion. Nowadays, multinational companies look to create equity among all local nationals and different nationalities. Considering this equality is totally applicable by relation to international compensations. As per equity theory, a fair balance should be maintained between the contribution of an expatriate in the MNC and the compensation received by him in the company (Cullen & Parboteeah, 2013).The fundamental part of equity theory is that people want fair treatment. Here equity means that one believes that he is treated fairly than others and inequity mean just the opposite. There are mainly two aspects namely self-inputs and self-outcomes. Inputs are education, skills, intelligence, experience, training etc. Whereas outcomes are pay, perquisites, incentives, benefits, status, working condition etc. First, the employee evaluates how the company treats him by computing a ratio of self-input to self outcomes. Then the employee evaluates how the company is treating others on the basis of other’s inputs to the other’s outcomes. Thereafter, the employee compares the treatment of others to his own treatment in the company. To finish, every employee comes to decisions if it is equity in his job.

In this case, equitability or in-equitability is dependent on the perception of the employee about the input and outcome relationship. The employee is said to have reached the perceived equity state when he or she perceives that there is a balance between his or her inputs and outputs and also there is a balance between others inputs and outputs (Pritchard, 1969).As a result, an employee who perceives equity, try to maintain equity and if perceives inequity, try to reduce the inequity. This has a major implication in the case of international hire. The perception of equity is connected with high level of job satisfaction, commitment to organization and trust in a senior position. But the perception of inequity is connected to absenteeism, distress, negative attitude and poor performance. This equity or inequity may vary with sex, intelligence, values etc. of individuals (Expatsguide, 2014).

Significance and Limitations of local international contract 

In the expat package, the company ensures that the purchasing power of the expats in the host country remains same as the home country. But, this is not maintained in the local international contract. This means that salary gets reduced if an international hire chooses to move to a low-income country from a high-income country. In an expatriate contract, the company takes care of almost everything (Walster et. al, 1993). But, in the local contract, it is the responsibility of an employee to arrange mostly everything for living in the host country. An international hire under this package has to arrange for accommodation, school on their own and that is also not financially supported by the company at the end of two years of the contract (Thakur et. al, 1997). Local international policy faces major challenges in China. Rate incomes, as a security system, is quite low, in that case, extra benefits need to provide like accommodation support and education, etc.  In this case, there is also higher chance of losing employee due to the major threat to the social security. To counter that, the company even offers a pension.

There are also disadvantages in local international policy such as assignments between same levels of employees vary and variation of compensation is also found between the expats of the same nationality working in different places (Bowling et. al, 2010).  The standard policy formulation for managing compensation requires proper knowledge and clear concept to make people understand the final effect of compensation packages in comparison to others. The concept should be very clear regarding vision and mission of the company (Block, 2011). The exact knowledge of strategy of business units regarding managing human resources with respect to cost is very important. It helps in driving the business and enabling the business to attain success. The corporate strategy regarding employee growth and stability should be transparent. Aside these, an adequate knowledge is required for employment rules, and regulations of various, The costs of living index, practices for hiring, abroad exchange rate and fluctuation. It’s important to communicate to the employees about compensation packages, to make it easier with a proper understanding of the whole picture (Expatsguide, 2014). It leads to a stable environment and hence, is beneficial for the employer and the employee.

Conclusion

The expat contract can be said to be a part that any international hiring company will vouch for. In the present scenario, the expatriate package is not for the purpose of pleasure. However, the choice is self critical and contains variation depending from one person to another. The policy should proceed as per the need of the business and sufficient research should be conducted on the transfer packages. The main stress of the organization should be on hiring talents and retaining them for a long term perspective.

References

Adams, J. S. & Freedman, S 1976, ‘Equity theory revisited: Toward a general theory of social interaction’, Advances in Experimental Social Psychology, vol. 9, pp. 421- 436.

Alter, S 2013, Work System Theory: Overview of Core Concepts, Extensions, and Challenges for the Future, Journal of the Association for Information Systems, vol. 14, no. 1, pp. 72-121.

Block, P 2011,  A consultant by any other name. Flawless consulting: A guide to getting your expertise used, San Francisco, CA: Pfeiffer.

Bowling, K, Eschleman, J, & Wang, Q 2010, ‘A meta-analytic examination of the relationship between job satisfaction and subjective well-being’,  Journal of Occupational and Organizational Psychology, vol. 83, no. 4, pp.  915–934.

Cullen, J.B & Parboteeah, K.P 2013, Multinational management, Cengage Learning.

Dowling, P, Festing, M, & Engle, A 2013, International human resource management, Andover:CengageLearning.

Expatsguide 2014, Expat’s benefits in Germany, Viewed 21 April 2017, <http://expatsguide.eu/expats-resources/expats-finances/>.

Levine, S. S  & Prietula, M. J 2013, Open Collaboration for Innovation: Principles and Performance, Organization Science, Harvard Press

Pinder, C 2008,  Work motivation in organizational behavior, New York: Psychology Press

Pritchard, R. D 1969, ‘Equity theory: A review and critique’, Organizational Behavior and Human Performance, vol. 4, pp. 176-211.

Srivastava, S 2014, Expatriate compensation, viewed 13 April 2017, <https://www.slideshare.net/srivastava4/expatriate-compensation>.

Thakur, M, Burton, G, E & Srivastava, B, N 1997, International management: Concepts and cases.

Walster, E, B, Berscheid, E, & Walster, G, W 1973, New directions in equity research. Journal of Personality and Social Psychology, vol. 25, pp. 151-176.