This essay will focus on the various factors required when creating equitable pay and benefits packages for a British expatriate managers and engineers, who will be setting up production facilities in Denmark and Spain.
Dowling and Welch (2004) defines an expatriate as ‘an employee who is working and temporarily residing in a foreign country’. This definition is also confirmed according to Harzing (2004) and Hollinshead (2010) they describe an expatriate as “a parent country national (PCN) working in foreign subsidiaries of the MNC for a predefined period, usually of 2-5 years”. (CEO Campbell Soup, quoted in Hollinshead 2010) “Too much emphasis on executives’ technical abilities - too little on cultural skills and family situation”. Baruch (2004) explains expatriates are prone to failure and it is a very risky approach; ‘The use of expatriate employees by organizations in their foreign subsidiaries represents a substantial investment with costs of expatriate failure reaching exorbitant levels ’. When focusing on the theory Trompennaar and Hall both indicate some culture issues that an expatriate may face. There are many reasons as to why an expatriate may not be successful and may return to their home country early this called repatriation, reasons for expats living early could be due to family concerns or the managers or engineers have accepted new position in the company, cultural adjustment challenges, security concerns and also career concerns. There are also number phases that expatriates go through once they are adjusting in there new country. Another fundamental issue could potentially be culture shock.
As this is a brand new facility, the MNC can have a more ethnocentric approach however if it was an existing organisation then they could be more polycentric.
Despite Britain, Denmark and Spain being in Europe they all differ from each other and they are divided in factors. Each country uses a different currency rate, Britain uses pounds, whereas Denmark uses kronas and Spain uses euro’s. BBC (2015) shows the current retail prices index in Britain has dropped from 1.6% to 1.1%.
The liberal political movement is followed by Great Britain. The next British election will take place on 7th May 2015 Eurostat (2009) identifies that the unemployment rate was at 7.6%. It is possible that home countries will respond in a default way and take default stance. The managers in Britain are in charge of when and how much pay their home employees will receive.
When moving out to a host country is is vital that expatriates take into consideration who will decide their pay and appraisals whether it is their home managers or host managers.
The Spanish government are corporatists; the next Spanish election will take place 20th December 2015. Exchange rate (2015) states that 1 British pound sterling is equivalent to 1.3693 euros. Global rates (2015) state the current rate of inflation which is -1.073%. Campbell (2001) explains that Spain’s recent economic depression had a negative impact especially for the current British expats, the British expats the had moved to Spain found it very hard to sells their properties due to the poor economy, as well as Spain being in a recession this also affected the housing market. Nardelli,Traynor,Haddou (2015) identifies that ‘2,973 British nationals were in receipt of unemployment benefits in Spain’.
The trade union density in Spain is 20%. When a British expatriate goes to Spain the trade unions will have a collective bargaining with the employer and negotiate in order to determine how much pay the employee will receive. Eurostat (2012) shows the current unemployment rates in Spain which is 25.5%, the recession have a huge impact on the unemployment rates.
Other countries (2014) explains that the housing costs are reasonable in Spain however it is still quite expensive, rent is more expensive and it is usually 2.5-3.5% of the cost of the property. Mortgage rates are similar to the UK so expats moving to Spain will not feel the culture shock as much. Utility costs are very high and could possibly be 20% more than it is in Britain. The cost of living in Spain varies; petrol is cheaper compared to the UK, the road tax is also very cheap and the car insurance is comparable to Britain however insuring a registered car is costly. Living costs is cheaper compared to the UK by 10-15% however this does not include rent and mortgage costs.
Eurostat (2015) shows that the wage rates in Spain are very low especially due to the economic crisis which had a severe affect. In Spain the minimum wage rate is 756.70 euros.
Similarly, the Danish government are also corporatists. The next Danish election will take place on 15th September 2015. Exchange-rate (2015) identifies that 1 British pound sterling is equivalent 10.2272 krona. Global rates (2015) state the current rate of inflation which is 0.230%. Eurostat (2012) shows that the unemployment rate is at 7.5%.
The trade union density is very high is Denmark, there are 2.5 million union members in the country. Denmark do not have an official minimum wage however the trade unions in will also negotiate how much pay the employee will receive. Although Denmark are currently not in a recession however during their previous economic crisis they did not suffer the way both Spain and Greece suffered.
Oxford research, expat study (2006) explains that ‘For expats, the financial aspects of living abroad play a large role’, it is vital that expats are aware of the cost of living abroad and they are also aware of the wages they will be receiving, it is almost important that they know how much taxation the government will be taking.
Oxford research, expat study (2006) states that the taxation in Denmark is relatively high compared to Britain. The way tax is deducted from employees is very different compared to Britian, the tax is deducted from the income you earn and it will be displayed on your payslip however you will never see the money in your account. For British expats moving to Denmark the cost of living is very high which could shock some expats. Cars, cafes, bars an restaurant are pricy. The VAT in Denmark make cars, alcohol, petrol and electricity is very high; the main reason as to why restaurants are very expensive is because of the high wages that unskilled workers receive. Prices and Earnings, UBS (2009) suggests that the labour market contribution and income taxes are deducted; salary levels remain in the upper end. However the cost of living in Britain has calmed down which means that the payments are likely to reduce highly. Due to wages in Denmark there is a big difference between Spain there is a balance between cost of living and salaries levels.
In some countries danger allowance would also be considered however both Denmark and Spain will not qualify for the danger allowances that could possibly be offered to British expats if anything was to go wrong whilst living abroad.
Expatriate compensation packages are away to motivate expats. There a number factors that should be considered. In order for expatriates to be motivated to leave their home countries organisations need to provide their employees with incentives for them leaving their countries, it is important that the expatriates have a decent way of living. It is vital that the expats career and family needs are taken into consideration.
There are a number of different approaches for expatriates pay for example balance sheets, regional rates, cafeteria, lump sum and global. However there two main approaches that organisations use: the balance sheet and the regional rate approach. The balance sheet is the most common within organisations; it is very popular despite it being diminishing. The balance approach is popular in the UK. Sims and Schraeder (2005) recognises that ‘one of the most pervasive approaches to compensating expatriates is the balance sheet approach’, despite balance sheets being very popular it is also one of the oldest methods. Reiche and Harzing (2009) identifies that the balance sheet approach and states that it has both its benefits and drawbacks. The advantage of using the balance sheet approach is the equity between assignments and the expatriates from the same country. This approach also makes it a lot easier to communicate with all the employees and it also facilitates re-entry to their home country. On the other hand the balance sheets also has its disadvantages such as it can lead to disparities between the expatriates in the both the host and local nations, this approach could also be very difficult to the administrators.
Sims and Schraeder (2005) explain that the regional rate approach aim is to treat the expats as citizens of either Denmark or Spain. The regional rates are generally based on local market rates. Another approach that is not used as much as the balance but however is also very popular is the regional rate approach. The advantages of the regional rate are that the approach is very simple and shows the identification with the host countries, the compensation package treats ell employees fairly. Fortunately there is equality with all the local nations and equity amongst the different nationalities. The drawbacks of the regional rate potential re-entries will face some complications. Reiche and Harzing (2009) states that further disadvantages a manager may face when using this approach for expats ‘Variation between both the assignment for the same employee and the variation between the assignees of the same nationality in different countries.

There are other forms of compensation packages that could be used however they are not as well known. ‘Lump sum’ is where the firm will take into consideration the total salary and the expatriate will receive will be as a lump sum.
Another approach is the ‘cafeteria’ there is a variety of benefits that are offered up to a fixed financial limit.
In addition, there is another method called ‘global’ which is when the global pay and benefit packages are for a specific job classification.
Brewster, Ch. (1995) explained that it is essential for the individual to inform about any changes that may occur with their pay this is because the expats move out of their home country into a host country, it is important for Britain to identify their net pay however this should not include the tax payments. If the tax is more in Britain then it is important that they offset with a cash payment. Pay is important this is due to the fact that you are evacuating from country to another, so pay is seen as an incentive in order to motivate British expats to live out in either Spain or Denmark. If the expatriates discuss pay rates and the individual finds that they are not receiving the same pay as their colleagues then this could be an issue. It is the MNC’s duty to provide an explanation as to why each employee is on different rates.
In conclusion although compensation packages could be slightly complicated I recommend that the managers and engineer’s balance sheet approach for the British expatriates as the payment system; this is because compared to the regional rate it is cheaper whereas the regional rate is cost-effective, Sims and Schraeder (2005) suggests that this approach is ‘one of the most pervasive approaches to compensating expatriates is the balance sheet approach’. It is clear that the balance sheet is the better method to follow especially as it is widespread. Especially as this approach is not contemporary it is very reliable as it has been used for many years.

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