•
International Journal of Business and Economy (IJBEC) eISSN: 2682-8359 [Vol. 2 No. 1 March 2020]
Journal website: http://myjms.mohe.gov.my/index.php/ijbec
ANALYSIS OF EXPATRIATE COMPENSATION POLICY IN MULTINATIONAL COMPANIES
Yeni Absah1*, Beby Karina Fawzeea Sembiring2* and Yosua Francisco3*
1 2 3 University of Sumatera Utara, Medan, INDONESIA
*Corresponding author: [email protected], [email protected], [email protected]
Article Information:
Article history:
Received date : 13 December 2019 Revised date : 19 January 2020 Accepted date : 9 February 2020 Published date : 1 March 2020
To cite this document:
Absah, Y., Sembiring, B., & Francisco, Y. (2020). ANALYSIS OF
EXPATRIATE COMPENSATION POLICY IN MULTINATIONAL COMPANIES. International Journal Of Business And Economy, 2(1), 25-30.
Abstract: Determination of compensation policies still presents a negative issue, namely the treatment that tends to be unsportsmanlike by the company. Compensation policies greatly affect performance and can be a form of work motivation for workers. Providing satisfactory compensation is a way to improve work performance, motivation and job satisfaction of workers. The existence of expatriates started from the enactment of industrialization and continues to increase to the present. Cross-country recruitment policy to bring in expatriates occurs following the development and needs of the globalization era. It also demands the creation of policies that provide freedom in labor competition. Of course, with the quality and quantity of expatriates the main attraction of a company to employ them. The difference in knowledge also strengthens the competence that expatriates are becoming more utilized in Indonesia. Capability in the use of technology also requires companies to employ foreign workers in their companies.
Keywords: policy, compensation, expatriates.
1. Introduction
In handling and managing human resources as the biggest assets, companies often experience various problems. One problem that often occurs in human resources is about compensation. The problem that arises is the compensation policy given by the company to human resources as the driving force of the company.
Some multinational companies in North Sumatra have several foreign workers. Those who work are not many but their position is very desirable by the company given the target to be achieved by the company. The desire of companies to recruit expatriate workers is timeliness, quality, and effectiveness at work. Of course, with the quality and quantity of expatriates the main attraction of a company to employ them.
Capability in the use of technology also requires companies to employ foreign workers in their companies. Not only that, the effectiveness and timeliness of completion of work is also a benchmark because it is very influential on the targets to be achieved by the company so that the value of the work contract they get is higher than domestic workers
2. Literature Review
Compensation (Bussin, 2015) is all cash and cash-related payment methods and cash-related payment methods such as basic salary, annual incentives, and long-term incentive plans.
Expatriates (Bussin, 2015) are also often defined as people who do not work in their home countries.
However, this definition is not 100% pure. Sometimes companies have foreign workers who work with local requirements and the company sometimes even finds employees of the country of origin working with foreign requirements. Expatriate compensation is usually considered as part of compensation (Bussin, 2015).
As for some things that need to be considered in determining the compensation of expatriates are:
a. The balance sheet approach, the most common approach for making expatriate payment formulations by equalizing the cross purchasing power of the State
b. Performance-based incentives are not used too much abroad. Foreign service premiums, are financial payments for and above the principal payment. Difficulties provide compensation to expatriates in conditions of life and work that are difficult to locate in certain countries. Mobility premium is a large one-time payment to reward employees for moving from one job to another.
c. Performance appraisal of international managers
d. There are some complicated things in evaluating an expatriate, one of them is who is evaluating an expatriate? Of course, local management must get input but cultural differences here can lead to judgments. So superiors in the local country might evaluate an expatriate manager rather negatively if they feel that the participatory decision making made by the manager is culturally inappropriate. On the one hand, managers at the head office may feel that it is out of reach so that they cannot provide valid judgment, because they are not fully aware of the situation faced by managers locally.
e. International worker relations
f. Companies that make branches abroad will find striking differences in the practice of labor relations between countries and between regions
g. Global terrorism and security and human resources
h. The increasing threat of terrorism affects domestic and foreign human resource activities.
Domestically, anecdotal evidence suggests that new federal anti-terrorist laws and procedures affect the ability of employers to import and export labor. Employers also face greater resistance from prospective expatriate workers. Many entrepreneurs do need services from a crisis team and they can ask for help from a critical management team, for example when they receive a warning that a criminal element has kidnapped or has taken one of their expatriates hostage, or threatened someone with something dangerous. Hiring crisis teams and paying ransoms can be very expensive for companies except large companies. So most entrepreneurs with many of their employees abroad buy insurance and ransom.
3. Problem Statement
Based on the background description of the problems that have been raised, the problem to be solved through this research is the compensation policy for expatriates. In connection with these problems, then some basic questions in the formulation of the problem are as follows:
1. What factors and indicators are relevant and necessary in determining expatriate compensation policies?
2. What strategic management does the company use to determine expatriate compensation?
4. Method
This research uses a qualitative method with a descriptive-qualitative approach. In this study, after researchers have collected data in the form of interviews, documentation, and observations, the data will be analyzed further to form a natural-scientific conclusion that can be accepted by various groups.
The population of this study is expatriate workers in multinational companies in North Sumatera.
Key informants in this study are 2 (two) expatriate workers at different multinational companies and 1 (one) domestic worker at multinational companies. The selection of key informants is based on the same level /position so as to get an equal comparison. Primary data collection is done by interview method. The key informants are as follows:
1. Informant I (Expatriates)
Name : Mr. M (pseudonym)
Country of origin : Turkey
Company : Modern Furniture
Position : Business Manager
Length of Work : ± 3 Years
Expertise : Management Business (can speak Indonesian)
2. Informant II (Expatriates)
Name : Mr. T (pseudonym)
Country of origin : Japan
Company : Engaged in the rubber industry
Position : Manager
Length of Work : ± 4 Years
Expertise : Technical (can speak Indonesian) 3. Informant III (Domestic)
Name : Mr. W (pseudonym)
Company : Engaged in the problem solver automatisation
Position : Business Manager
Length of Work : ± 1 Year
Expertise : Management + Industry
4.1 Data Collection
Data in this study will be collected through primary data and secondary data. Primary data is data obtained to be processed directly and used for analysis and decision making in research conducted.
The primary data to be taken for this study was obtained through research instruments, which are tools used in collecting data and used to measure natural and social phenomena observed (Sugiono, 2016).
In connection with business activities for data collection, data collection methods are used through:
1. Interview Method 2. Questionnaire
3. Literature research methods
There are 4 steps of a circular process to ensure that the conclusions to be obtained will be sufficiently convincing (Burhan, 2015) in conducting this research namely :
1. The data obtained is written in the form of a report or detailed data. Reports that are compiled based on the data obtained are reduced, summarized, selected the main things, focused on important things. The results data sorting and sorting based on units of concepts, themes, and certain categories will provide a sharper picture of the observations as well as making it easier for researchers to find back data in addition to previous data obtained if needed
2. Then the data received based on the informant's answer will be examined again to the key informant to see the consistency of key information and conformity to the facts
3. Check back conclusions that have been made to ensure whether the conclusions are credible.
4. Triangulation, both methods and sources to check the truth of the data by comparing it with data obtained by other sources, is carried out, to sharpen our view of the relationship of some data.
5. Results and Discussion
A number of different options for establishing a global compensation system have been used by different multinational companies. This includes basing global employee compensation on:
a. Head office scale.
A world scale is based on salary levels at the parent company with differences determined for each branch according to differences in living costs.
b. Citizenship.
A scale is based on the country of employee citizenship.
c. Global.
Establish a global basis for each position (possibly with branch differences). Then this becomes the same form of payment for the same work on a basis that covers the whole world. The global approach is usually followed only by employees above a specific position or salary classification.
Some of the most dominant approaches in determining expatriate compensation policies are the going rate / market rate, balance sheet, negotiation and localization approache.
Based on the results of the study, it can be found differences in the number of stipulations on compensation policies received by expatriate workers working in multinational companies in Indonesia. Some of the statements given by expatriates define and explain that they get compensation that was previously negotiated or negotiated with the company and back to the company wants to set policies as the company wishes.
Different answers from informants explained that compensation between expatriates was different from other expatriates, both in working at the same company and different companies where the expatriates worked. Approach that can be taken to determine expatriate compensation:
a. Balance Sheet Approach
The basic objective is to "safeguard all expatriates" (ie, maintain relativity to PCN colleagues, and compensate for the costs of international duties) through maintaining the standard of living of the host country, plus financial incentives to make attractive packages. This approach links the base salary for PCNs and TCNs with the salary structure of the relevant country of origin.
b. Going Rate Approach
With this approach, the basic salary for international transfers is related to the salary structure in the host country. Multinational companies usually obtain information from local compensation surveys and must decide whether local citizens (HCNs), expatriates of the same citizenship, or expatriates from various countries will be a point of reference in terms of standardization.
6. Conclusion
Based on the results of the Expatriate Policy Analysis research, the following conclusions can be drawn:
a. Provisions regarding foreign workers in Indonesia with the issuance of Law Number 13 of 2003 concerning manpower are no longer regulated in a separate statutory regulation as in Law Number 3 of 1958 concerning the placement of foreign workers, but are part of a compilation in The new UUK. Provisions regarding the use of foreign workers are contained in Chapter VIII Article 42 to Article 49.
b. Experts brought from abroad by government / private companies should really be skilled experts so that they can help the process of economic and technological development in Indonesia. For this reason, the process of transferring technology to migrant workers both in the managerial and professional lines must be subject to strict supervision by providing certification to these experts.
c. Aing Workers who work in Indonesia are recommendations from companies in their home countries in order to advance and increase company productivity and targets achieved by the company.
d. The amount of compensation received by expatriates is mostly the benefits / facilities they receive from the company because they consider their sense of leaving their home country and family to achieve the company's targets.
7. Acknowledgement
Thank you to all those who have supported this research, both the informants as expatriate and domestic workers as well as the mentors who always guide and direct this research well.
References
Bungin, B. (2015). Analysis of Qualitative Research Data; Philosophical and Methodological Understanding Towards Application Model Mastery . Jakarta: PT. Raja Grafindo Persada.
Bussin. (2015). Expatriate Compensation. Randburg: Knowres Publishing(Pty) :Ltd.
Furchan, A. (1992). Introduction to Qualitative Research Methods. Surabaya - Indonesia: National Business.
Hamid, P. (2010). Qualitative Research Methods. Malang: UMM Press.
Hasibuan, M. (2011). Revised Edition of Human Resource Management. Jakarta: Earth Literacy.
Milkovich, G.T., Newman, J.M. 2012. Compensation, 10th edition. Homewood, IL: Irwin Nasution, H. (2015). Human Capital Management. Medan: USU Press.
Nasution, H. (2014). HR Management Process Based on Competency. Medan: USU Press.
Putra, D. N. (2013). Qualitative Research Methods for Management. Depok City: PT RAJAGRAFINDO PERSADA.
Robbins, S. P. (2014). Organizational behavior. Tenth edition. Jakarta: PT. Gramedia Group Index.
Sinulingga, S. (2018). Business Environment Analysis 4th Edition. Medan: USU Press.
Sinulingga, S. (2018). Research methods. Medan: USU Press.
Sugiono. (2011). Research Methods. Bandung: CV Alfa Beta.
Sugiyono (2011). Quantitative, Qualitative, and R&D Research Methods. Bandung: CV Alfa Beta.
Wibowo. (20017). Work management. Jakarta: Raja Grafindo Persada.
