Topic: Making sense of company executives’ compensations and employee benefits through the lens of cultural effects Task Details: Download the latest annual report (i.e., 2013-2014 financial year) of a listed company from your home country and the latest report of a listed company in Australia. Analyse the compensation schemes that the two company’s executives are entitled to. Note the accounting standards of executive compensation schemes used in Australia are AASB 2 and AASB 119 (http://www.aasb.gov.au/Pronouncements/Current-standards.aspx).
My home country in Bangladesh
Running head: Accounting
Background Information about the Research paper:
Generic International is a U.S. global company those operates its business in more than 50 countries including Bangladesh. The company is looking for openings in Bangladesh and Australia.The main purpose of this paper is prepared a total compensation package in one of the two countries. Compensation plan prepares through considered difference in pay and cost of living in both country, cultural difference from these counties in the US. This paper prepares compensation package for both countries and then recommended best option of it for these two countries.
What is a Compensation Package?
A total compensation package is about more than salaries that also consider a lot of tangible and intangible benefits such as: health care benefits, retirement options, flexible schedules, paid time off, work environment and so much more. In the same manner, a compensation package plan emphasizes families and career employment, investing in the growth and retention of good employees (Singh, 2012).Moreover, compensation package is a combination of salary, benefits, and other employee programs such as:Salary,Salary (base pay and other pay types), Salary Schedules, Employee Benefits, Benefits (insurance, retirement, and related benefits), Vacation, Leave, and Holidays, Special Programs (additional benefits)(Milkovich, Mewman&Ratnam, 2009).
Compensation Package in Bangladesh and Australia
Host country (US) employees compensation plan based on the productivity, time spend on the job and contribution in growth of firm factors. In addition, countries also used different techniques to pay compensation of employees such as industrialized countries pays generally by the hours and developing countries pay by the day. In addition, some countries paid higher other benefits of employees. For example, Australian paid benefits around 70% of wages, Italy approx 92% and US about 40%.
In addition, in the US most of benefits are allocated to employees by employers while in other developing countries most benefits are ordered or legislated by law or governments. In Bangladesh , Italy and some others countries, companies add semiannual or annual lump-sum payment in annual wages of employees equal to one month pay (Singh, 2012). This additional payment is the internal part of the basic pay or compensation package and is not considered sharing of profit. Furthermore, in some countries such as India, Pakistan, Peru, Egypt and Mexico sharing of profit is the legal requirement for companies.
Compensation of Country manager
Compensation plan for country manager must be fair, motivating, cost-effective, competitive, and easy to understand and related to international financial management. Compensation plan must be considered these following aspects:
- Provide intensive or benefits to leave the US
- Focus on maintaining living standard of America
- Facilitate reentry into the US in future
- Provide incentive to the education of children
- Provide allowances to the house, travelling and medical for whole family
- Allow for maintain relationship with family members, business associates, colleagues and friends (Milkovich, Mewman&Ratnam, 2009).
Generic International, US based global company creates country manager compensation plan used by the balance-sheet approach. The balance sheet approach is a system that equalize the purchasing power of manager at comparable position levels living other countries (Bangladesh &Austrila) in the home country (America)through provide incentives of manager to offset qualitative differences between host and home locations (Pascha, 2004). The following are the four elements contains in the balance-sheet approach:
Basic pay: This is essentially equal to pay of domestic counterparts in parallel assigned jobs.
Incentives: Generally 15-25% of base salary that compensate the person for separation from domestic country, friends and family.
Differentials: Company is given to compensation the higher costs of overseas housing, services, goods and taxes.
Assistance programs: This section covers additional costs such as education expenses, house rents, traveling and medical expenses, moving and storing, automobile and other expenses.
The differentials elements is proposed to correct for the higher costs of overseas goods and services. So that purchasing power of employees is not losing. The US departments of state for apply in establishing allowances to compensate civil employees for costs and hardships associated to assignments abroad. In recent times, the cost of employing country managers is higher than past time.
Moreover, allowances, benefits and overseas pay incentives also enhanced compensation of country managers. As enhances number of corporations running its business in other countries increased the demand of country managers (Pascha, 2004). Many foreign graduate students enrolled in US universities for business programs are a potential country managers with their own native background.
On the basis of the average of salary, bonus, profit sharing, benefits and communications estimated the compensation plan of country manager for both Bangladesh andAustrilacountries. The below tables shown the compensation plan of country manager for both countries:
Compensation Plan for Bangladesh
|Bangladesh||Salary||Bonus||Profit Sharing||Benefits & Commission||Total|
(Source: PayScale, Inc, 2014)
Compensation Plan for Australia
|Austrila||Salary||Bonus||Profit Sharing||Benefits &Commission||Total|
(Source: PayScale, Inc, 2014)
These compensations for both countries indicate in the Australia general average salary are lower but the other benefits, bonus, commission and profit sharing is higher than pay. General salary or pay in Bangladesh is less than half (50%) of the total compensation. In addition, in the Bangladesh, average salary is contributed more into the compensation plan and other benefits are very lower compare to Bangladesh . It indicates the major differences in the average compensation plan of country manager in both countries. In the Bangladesh , contribution of benefits, bonuses, commissions and profit sharing is around 68% in the total compensation plan, while in the Bangladesh their contribution is about 26% in total compensation plan of country manager.
In addition, other aspects must be also considered before select one compensation packages included The Bangladesh ese and German Traditional National Systems and role of unions.
Traditional national system:
In compare to the US, both countries traditional national system of compensation of employees is totally different. The Bangladeshitraditional national system is paid basic salary low and other benefits higher because of the higher income tax in the country. In the Australia, individual income tax rate is around 50% that is much higher than some other developed or developing countries. Moreover, due to save money on tax for employees the other benefits are provided more of employees by the companies.
In addition, according to the Bangladesh traditional national system, alary is paid higher and other benefits low of employees. In the Austrila, individual income tax rate is 45% that is also higher than America rate approx 39.6% but lower than (Bangladesh KPMG International Cooperative, 2014). These traditional national systems of compensation and income tax rate considered by Generic International and Jill Smith before select one compensation plan in between the Bangladesh andAustrila.
The role of unions:
The union role is varied from country to country and depended on many factors such as per capital level, income of labor, mobility between labor and management and employment level. If in a country, unemployment is high, low pay level and no union funds for welfare and unions driven alliances with organizations indicates the low role of unions in employee compensation. In the US, union is selected by the majority of employees bargaining with the employers (Atwood, Drake, Myers & Myers, 2012). Labor relations in Bangladesh andAustrilaare different from the US in certain characteristics:
In Austrila, organizations generally negotiate the agreement with the union at the national level by the association of employer in their particular industry. In the Austrila, unions have more political power that in the US that result employers deal with the union directly and dealing with government indirectly (Singh, 2012).
In addition, in the Bangladesh , there is high tendency for salaried employees includes at the management level and unionized. That means in the Bangladesh , union roles is lower in comparison to the Austrila. In Bangladesh , companies required to follow the government rules and regulation related to employee compensation (Milkovich, Mewman&Ratnam, 2009).
Direct financial compensation:
Payments receive by employees in the forms of salaries/wages, bonus, incentives and commissions provided at regular or consistence interval (GLO-BUS Software, Inc, 2014).
Indirect finance compensation:
Indirect compensations are represented social contract between employer and labor such as retirement plan, education, benefits, medical care, leaves, vehicle facility, and employee services (Community Foundations of Canada, 2013).
It is related to non-financial terms such as training and development, opportunities for recognition, diver post or power, advancement opportunities and better working environment and conditions.
This compensation and labor strategy fit within the overall strategy of GLO-BUS to provide appropriate remuneration and working environment in the company, so they performed well and contributed into the success of the business. Moreover, GLO-BUS will take decision to provide better working environment and conditions of the employees, so they performed well and able to utilize all the direct finance, indirect finance and non-financial compensation and benefits (Chingos, 2004). In addition, the risks related to these compensation and labor strategies option are sometimes employees not motivated these strategies and the GLO-BUS would apply addition strategies to motivate employees for perform well.
In the current present scenario, different types of compensation plans are developed by the MNC’s in order to motivate and encourage employees in an effective and proper manner. For example, Straight salary plan, straight commission plan, salary plus compensation plans etc are the main types of compensation plan that are followed and used by the MNC’s (Hernandez, 2009).
Pay Models Used by the Global Organizations
In order to compensate expatriates, different valuable and effective pay models are used by the international market so that they can achieve the objectives associated with the compensation or pay policy. For example, Fee for Service, Pay for Coordination, Pay for Performance, Episode or Bundled Payments and Comprehensive Care/Total Cost of Care Payment are the effective and more comprehensive pay models that are adopted by today’s global business organizations. On the other hand, home-country balance sheet, local market, or hybrid model are other models that can also be used effectively(Kerzner, 2013).
Elements in the Compensation Plan
There are different types of elements that are involved by the global business firms under the different compensation plans. The major elements are listed as below:
ü Health Insurance
ü Paid Time Off(Knapp, Seidlhofer&Widdowson, 2009).
ü Base Pay
ü Extra commissions
ü Equity Awards
ü Stock Options
ü Housing or Car Allowances
Corporate Citizenship Strategy
Corporate citizenship strategy is positively contributing in the society because society is the core elements of the company’s business. Employees, suppliers, distributors, customers and communities’ influence by the companies operates, so it focuses on existence of society or planet. Company’s corporate citizenship strategy is sustainability strategy for doing well that makes sense for core business and helps society or stakeholders to sustain positive change (Kreitner, 2008). In addition, corporate citizenship strategy of the Company’s fit within the overall strategy through creates or expresses corporate vision and mission statement through consider corporate sustainability strategy and included sustainability strategy in vision of mission.
Moreover Companies implement corporate citizenship strategy through engage with internal and external stakeholders to identify society or social issues that matter to its business. At the same time Companies implement corporate citizenship strategy by innovate products and technology, saving cost, saving resources, recycle and reuse materials, use renewable sources and new process those protect the planet. Companies implement corporate citizen and sustainability strategy through take decision of business, organizational structures, resources, identifying targets and KPIs, while consider the sustainability of the planet(Mondy2008).
Compensation Plan for Bangladesh
On the basis of current situation of the organization, Bangladesh should adopt Pay for Performance plan as an employee compensation plan. It is because this plan will help the organizations in motivating the employees as well improve the current performance. In addition, it will also reduce various costs and identify the new opportunities. In addition to this, the organization will use different pay models such as home-country balance sheet, local market, or hybrid model in developing and creating this compensation plan. At the same time, it is also observed that, the company may also face different issues or risks that are directly or indirectly associated with these pay models. For example, if the company will use this model, it may have to face potential re-entry problems. On the other hand, hybrid model can increase the organizational cost directly(Noe, 2006).
Optimal Expatriate Compensation Approach
There are various specific causes that compensation plan to be the optimal expatriate compensation approach for Australia. For example, this would be more cost effective and will be helpful in maximizing the organizational outcomes by improving the performance effectively. Along with this, it would also help in achieving the mobility and staffing goals of the organization in an effective and more systematic manner. In addition to this, the company would also be able to bring innovation by motivating them and implementing a better compensation plan(Sims, 2002).
On the basis of discussion, it can be recommended thatthe Generic International must be considered the several factors before made the compensation plan for Jill Smith in Bangladesh andAustrila. The company must be considered the basic pay, differentials, incentives and assistance programs during the developed fair, motivating, cost-effective and competitive compensation plan for the country manager. The compensation plan must be easy to understand and associated with the international financial management (Murphy, 1999). The company should be provided the benefits and incentives of the country managers and focus on maintain the American living standard of them. The company should be considered the travelling, medical, house and education expenses of whole family member during the compensation plan.
Moreover, it can be recommended that Bangladesh country should select for country manager rather than Austrila. In the Austrila, labor role is higher in the compensation plan that should create issues of the company as well as other benefits, bonus, commission and profit sharing contribution in compensation plan is very low compare to Bangladesh , so it should not right option for country manager compensation plan (Atwood, Drake, Myers & Myers, 2012). In addition, the Bangladesh tradition national systems is better than Austrilasystem in terms of unions, taxes, culture and environment that would also support that selection of Bangladesh for country manager compensation plan would more appropriate(Ziesemer, 2012).
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