Home-based approach

Definition

The home-based approach is a compensation strategy where expatriate employees are paid based on their home country's salary structure, regardless of the host country's cost of living or market conditions. This method is designed to maintain consistency and equity in pay for employees who are assigned overseas, ensuring that their compensation reflects their experience and skills rather than the variations in local economies. It helps to simplify payroll management and can support retention by offering a familiar salary framework.

5 Must Know Facts For Your Next Test

1. The home-based approach can help minimize feelings of resentment among expatriates who might feel disadvantaged if paid according to the host country's lower salary levels.
2. This approach requires organizations to carefully analyze and benchmark salaries from the home country to ensure they remain competitive and fair.
3. Home-based compensation may not always consider the financial impact of living in different locations, which can lead to challenges with attracting talent for assignments in high-cost areas.
4. Organizations using the home-based approach may also implement additional allowances, such as housing or education benefits, to help balance the financial implications of living abroad.
5. Implementing a home-based approach can streamline payroll processes as it reduces the need for frequent adjustments based on fluctuating local economic conditions.

Review Questions

• How does the home-based approach benefit expatriate employees compared to other compensation strategies?
  • The home-based approach benefits expatriate employees by ensuring that they receive compensation that reflects their skills and experience without being adversely affected by lower local wage levels. It maintains consistency in pay based on their home country's salary structure, which can reduce anxiety related to financial instability in a new environment. Additionally, this approach fosters a sense of equity among expatriates, as they are compensated similarly regardless of the host country's market conditions.
• What challenges might an organization face when implementing a home-based approach for expatriate compensation?
  • An organization may face several challenges when implementing a home-based approach, including the risk of creating dissatisfaction if expatriates feel that their pay does not adequately reflect the cost of living in the host country. Additionally, accurately benchmarking salaries from the home country can be complex, particularly if there are significant differences in purchasing power. Organizations also need to consider additional allowances or benefits that may be necessary to ensure that employees can maintain a comparable standard of living while abroad.
• Evaluate the effectiveness of using a home-based approach in attracting talent for international assignments amid varying global economic conditions.
  • The effectiveness of using a home-based approach for attracting talent for international assignments can be mixed amid varying global economic conditions. While this strategy provides stability and familiarity in compensation, it may not always meet the needs of candidates considering assignments in high-cost locations, where local salary packages could be more attractive. To enhance its effectiveness, organizations should consider supplementing home-based salaries with targeted allowances or benefits that address specific costs associated with international living, ultimately making such opportunities more appealing to potential expatriates.

Related terms

Expatriate: An expatriate is an employee who is sent to live and work in a foreign country, often for an extended period, typically as part of a company’s international business operations.

Host Country: The host country refers to the nation where an expatriate employee is assigned to work, which may have different cultural and economic conditions compared to the expatriate's home country.

Cost of Living Adjustment (COLA): A cost of living adjustment (COLA) is an increase in an employee's pay based on the rise in living expenses in a specific location, often used in international assignments to address disparities in purchasing power.