Chapter 6: Why Expatriate Compensation Will Change How We Think about Global Talent Management

I build on a strong foundation of prior studies about expatriate compensation in general to provide an overview of changes in expatriate compensation, from home- to host-based approaches, during the past 10 years.

Underpinned by findings from academic and practitioner literature, I review and integrate studies of expatriate compensation and global talent management to outline the challenges and opportunities home- and host-based compensation approaches present to MNEs.

Home-based compensation is becoming an outdated and overly expensive model that is often ineffective in moving MNEs’ global competitive advantage to where it needs to be, leaving host-based approaches as the only alternative. But the use of host-based “cheaper” compensation approaches can also lead to unintended outcomes for MNEs in terms of unforeseen opportunity costs (such as the loss of critical talent) arising from shortsighted compensation decisions.

I argue that expatriate compensation works best when it is not based on an employees’ home-country status but instead on the role that he or she performs locally. I suggest a host-based compensation approach — global compensation — that is based on the worth of the position rather than where the individual has come from. Such an approach is more equitable because it is performance-based thereby eliminating overpaying and perceived unfairness. It is much simpler to administer than home-based compensation because it represents an extension of most MNEs already existing domestic (home country) pay-for-performance model.

Despite more than 10 years of new compensation practices being implemented and reported by global mobility practitioners, very little has been studied or written by scholars about some of the recent changes in expatriate compensation over the past decade. The chapter addresses this gap in academic literature.