International Human Resource Management and Organization

International Human Resource Management and Organization PowerPoint PPT Presentation


  • 771 Views
  • Uploaded on
  • Presentation posted in: General

Download Presentation

International Human Resource Management and Organization

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


1. International Human Resource Management and Organization

2. Chapter 1 1. The Strategic Role of Human Resource Management in a global world This chapter gives an overview of what HR is, its changing environment, the role of HR in strategic planning, and an Introduction to International HR-Policies. This chapter gives an overview of what HR is, its changing environment, the role of HR in strategic planning, and an Introduction to International HR-Policies.

3. Outline of Chapter 1 The Management Process Strategic Planning and Strategic Trends HR’s Strategic Role International HRM

4. After Studying This Chapter You Should Be Able To: understand the fundamentals of the Management Process and the role of HR understand that HR is context-driven define strategic HR and give an example describe HR-challenges in international management know the main topics of international HR and the differences to domestic HR

5. 1.1. The Management Process Line and Staff Aspects of HRM – Although most firms have a human resource department with its own manager, all other managers tend to get involved in activities like recruiting, interviewing, selecting, and training. HR managers are generally staff managers. Most line managers are responsible for line functions, coordinative functions, and some staff functions. Line and Staff Aspects of HRM – Although most firms have a human resource department with its own manager, all other managers tend to get involved in activities like recruiting, interviewing, selecting, and training. HR managers are generally staff managers. Most line managers are responsible for line functions, coordinative functions, and some staff functions.

6. The Management Process Organizing Giving Tasks Establishing Departments Delegating Authority Establishing channels of Authority and communication Coordinating

7. HR means performance Can HR have a measurable impact on a company’s bottom line? Better HRM translates into improved employee attitudes and motivation Well run HR programs drive employee commitment Improvements in key HR practices correlate with an increase in a companies market value. 1. It is one thing to argue that HR can help create competitive advantage; the real question is: “Can HR have a measurable impact on a company’s bottom line?” There is evidence that the answer is yes. There are many studies which found that significant improvements in key HR management practices correlated with significant increases in market value. 2. Employee behavior (and therefore HR) is especially important in service firms like banks and retail stores. 3. Commitment: An employee’s identification with and agreement to pursue the company’s or the unit’s mission. Improvements in key HR practices correlate with an increase in a companies market value. 1. It is one thing to argue that HR can help create competitive advantage; the real question is: “Can HR have a measurable impact on a company’s bottom line?” There is evidence that the answer is yes. There are many studies which found that significant improvements in key HR management practices correlated with significant increases in market value. 2. Employee behavior (and therefore HR) is especially important in service firms like banks and retail stores. 3. Commitment: An employee’s identification with and agreement to pursue the company’s or the unit’s mission.

8. Is There a “One Best HR Way”? HRM is contingent on the companies special situation (strategy, life cycle, products etc.) But: All companies can benefit from Employee motivation and commitment Results oriented appraisals and compensation Well trained staff Foster good relationships and communication Professional global executives “Is There a “One Best HR Way?” – While studies suggest that some HR approaches are applicable to all or most companies, there does not appear to be “one best HR way”, except to organize a firm’s HR practices to fit its strategy and to “support the firm’s operating and strategic initiatives.” In other words, dropping an HR practice into your firm just because it worked well in another is risky. “Is There a “One Best HR Way?” – While studies suggest that some HR approaches are applicable to all or most companies, there does not appear to be “one best HR way”, except to organize a firm’s HR practices to fit its strategy and to “support the firm’s operating and strategic initiatives.” In other words, dropping an HR practice into your firm just because it worked well in another is risky.

9. HRM is Important to all Managers. Don’t Let These Happen to You! Hire the wrong person High turnover Poor results Useless interviews and conferences Court actions Salaries appear unfair Poor training Unfair labor practices

10. 1.2. Strategy and HRM Strategy-Examples: Cost-leadership-Strategies (ALDI, Wal-Mart) Differentiation-Strategies (i.e. through Innovation or Quality) Global Strategies shoot for the core of the market: World wide corporate philosophies. HRM-Strategy: The aim is to link the HRM with strategic goals and objectives. Basic goal: to build a committed workforce Examples: * to develop organizational cultures that improve business performance and foster innovation and flexibility or * to achieve superior levels of customer service and high profitability through committed employees Values: Strong enduring beliefs and behaviors in a companyStrategy-Examples: Cost-leadership-Strategies (ALDI, Wal-Mart) Differentiation-Strategies (i.e. through Innovation or Quality)Global Strategies shoot for the core of the market: World wide corporate philosophies. HRM-Strategy: The aim is to link the HRM with strategic goals and objectives. Basic goal: to build a committed workforceExamples: * to develop organizational cultures that improve business performance and foster innovation and flexibility or * to achieve superior levels of customer service and high profitability through committed employees Values: Strong enduring beliefs and behaviors in a company

11. Strategy and Strategic HR HR management can also play a role in environmental scanning by assisting in identifying and analyzing external opportunities and threats that may be crucial to the company’s success. . Some firms even build their strategies around an HR-based competitive advantage. For example, in the process of automating its factories, farm equipment manufacturer John Deere developed a workforce that was exceptionally talented and expert in factory automation. This in turn prompted the firm to establish a New-Technology division to offer automation services to other companies. AOL’s decision to buy Netscape was probably prompted in part by AOL’s assessment that its own human resources were inadequate for the task of creating a browser that could compete with Internet Explorer, or at least doing so quickly enough. Functional strategies identify actions that each of the departments will pursue in order to help the business attain its competitive goals. These functional strategies have to make sense in terms of the business’s competitive strategy: HR management can also play a role in environmental scanning by assisting in identifying and analyzing external opportunities and threats that may be crucial to the company’s success. . Some firms even build their strategies around an HR-based competitive advantage. For example, in the process of automating its factories, farm equipment manufacturer John Deere developed a workforce that was exceptionally talented and expert in factory automation. This in turn prompted the firm to establish a New-Technology division to offer automation services to other companies. AOL’s decision to buy Netscape was probably prompted in part by AOL’s assessment that its own human resources were inadequate for the task of creating a browser that could compete with Internet Explorer, or at least doing so quickly enough. Functional strategies identify actions that each of the departments will pursue in order to help the business attain its competitive goals. These functional strategies have to make sense in terms of the business’s competitive strategy:

12. Dave Ulrich’s Role Model. Ulrich, D. (1997). Human resource champions—The next agenda for adding value and delivering results. Boston: Harvard University Press (from: Michael Svoboda and Silke Schröder, Transforming Human Resources in the new economy: Developing the next generation of global HR-Managers at Deutsche Bank AG, in: Human Resource Management, Fall 2001, Vol. 40, No. 3, Pp. 261–273 Today, HR’s role is shifting its focus from administrator, protector and screener to strategic partner and change agent. The metamorphosis of “personnel” into “human resource management” reflects that. In today’s flattened, downsized, and high-performing organizations, trained and committed employees—not machines—are the firm’s competitive key Ulrich, D. (1997). Human resource champions—The next agenda for adding value and delivering results. Boston: Harvard University Press (from: Michael Svoboda and Silke Schröder, Transforming Human Resources in the new economy: Developing the next generation of global HR-Managers at Deutsche Bank AG, in: Human Resource Management, Fall 2001, Vol. 40, No. 3, Pp. 261–273 Today, HR’s role is shifting its focus from administrator, protector and screener to strategic partner and change agent. The metamorphosis of “personnel” into “human resource management” reflects that. In today’s flattened, downsized, and high-performing organizations, trained and committed employees—not machines—are the firm’s competitive key

13. Strategic HR – Siemens Basic HR Strategy A living company is a learning company Global teamwork is the key to realizing potential and using human resources Redefine management to meet globalization challenges Stakeholder value: achieving a balance of interests A climate of mutual respect When Siemens celebrated its 150th anniversary recently, it was, according to its president v. Pierer, “a perfect occasion to analyze the enduring qualities that helped us survive so long—and identify what we must have to succeed in the future.” As part of this review, one of the central questions was: Which human resource strategies will ensure that Siemens’s people—and the company—can succeed in tomorrow’s challenging global environment? 1. A living company is a learning company: The technological and competitive markets in which Siemens does business are evolving, and the firm’s HR processes therefore have to enable employees to learn on a continuing basis. Siemens therefore uses its system of combined classroom and hands-on apprenticeship training around the world. 2. Global teamwork ... At Siemens, teamwork “means breaking down all the traditional barriers within the corporate world”—employees must be able to work across divisions, across disciplines, and across regions. This means employees have to understand the whole process, not just bits and pieces. 3. Redefine... Siemens instituted regular strategic performance assessments that encourage each employee to develop his or her potential. 4. Stakeholder value: Long-term growth and profitability depend on achieving a balance of interests. Building shareholder value is important, but “we can be profitable only with creative, satisfied, and highly motivated people.” 5. Mutual respect is the basis of all relationships—within the company and with society. When Siemens celebrated its 150th anniversary recently, it was, according to its president v. Pierer, “a perfect occasion to analyze the enduring qualities that helped us survive so long—and identify what we must have to succeed in the future.” As part of this review, one of the central questions was: Which human resource strategies will ensure that Siemens’s people—and the company—can succeed in tomorrow’s challenging global environment? 1. A living company is a learning company: The technological and competitive markets in which Siemens does business are evolving, and the firm’s HR processes therefore have to enable employees to learn on a continuing basis. Siemens therefore uses its system of combined classroom and hands-on apprenticeship training around the world. 2. Global teamwork ... At Siemens, teamwork “means breaking down all the traditional barriers within the corporate world”—employees must be able to work across divisions, across disciplines, and across regions. This means employees have to understand the whole process, not just bits and pieces. 3. Redefine... Siemens instituted regular strategic performance assessments that encourage each employee to develop his or her potential. 4. Stakeholder value: Long-term growth and profitability depend on achieving a balance of interests. Building shareholder value is important, but “we can be profitable only with creative, satisfied, and highly motivated people.” 5. Mutual respect is the basis of all relationships—within the company and with society.

14. 1.3. International HRM Outline What drives Globalization? What favors localization? New Challenges for HR? Perlmutters*-IHRM (=International Human Resource Management)-Approaches Goals for IHRM? 1. Support of company targets - Embedded in company strategy 2. Attention to social, ethical goals in foreign countries (adaptation to the foreign Situation) 3. Support of identity of company corporate culture Some Definitions: International Company This is an organization that is predominately domestic and has some international business activity. The company‘s business strategy is generally centralized at the headquarters, while its international businesses are often managed independently of the domestic organization, using separate resources and technology. Multinational Company This is an organization that has business activities in multiple countries. Each country‘s operations are managed as separate entities by local employees, with a corporate headquarters coordinating the strategy, resources and technology among these entities. Global Company This is an organization that has operations around the world, and has strategies, resources, and technology that are shared and leveraged around the world, regardless of geographic boundaries.Goals for IHRM? 1. Support of company targets - Embedded in company strategy 2. Attention to social, ethical goals in foreign countries (adaptation to the foreign Situation) 3. Support of identity of company corporate culture Some Definitions: International Company This is an organization that is predominately domestic and has some international business activity. The company‘s business strategy is generally centralized at the headquarters, while its international businesses are often managed independently of the domestic organization, using separate resources and technology. Multinational Company This is an organization that has business activities in multiple countries. Each country‘s operations are managed as separate entities by local employees, with a corporate headquarters coordinating the strategy, resources and technology among these entities. Global Company This is an organization that has operations around the world, and has strategies, resources, and technology that are shared and leveraged around the world, regardless of geographic boundaries.

15. Group Work (1) What favors Globalization? What are the driving forces for Globalization? What favors Localization? Which businesses need local adaptation? Which forces slow down or prevent Globalization? Implications of increasing globalization for HR?

16. New HR-Challenges Differences between domestic and international HRM More HR activities The need for broader perspective, higher complexity More involvement in employees personal lives Changes in emphasis as the workforce mix of expats and locals varies Risk exposure More external influences The different practices of employment in different countries International Taxation, relocation, administrative services for expats,, language translation services, training and development (preparation of expats, language courses), host-government relations Administering programs for several groups of employees (HCN, PCN, TCN), different practices of staffing, getting right skills regardless of geographic location, spreading state-of-the-art knowledge and practices throughout the organization regardless of where they originate, performance management, compensation package, helping international teams to work efficiently, culture differs (differences in language, food, dress, hygiene, gender roles, ethics) Housing arrangements, health care, banking, home rental etc. Shift to HCN’s when a foreign subsidiary matures For companies and employees higher risks (premature return, indirect costs such as loss of market share, terrorism) Different natural and business environment (climate, infrastructure, business-behavior, legal framework) Type of government, state of the economy, labor relations, employment conditions International Taxation, relocation, administrative services for expats,, language translation services, training and development (preparation of expats, language courses), host-government relations Administering programs for several groups of employees (HCN, PCN, TCN), different practices of staffing, getting right skills regardless of geographic location, spreading state-of-the-art knowledge and practices throughout the organization regardless of where they originate, performance management, compensation package, helping international teams to work efficiently, culture differs (differences in language, food, dress, hygiene, gender roles, ethics) Housing arrangements, health care, banking, home rental etc. Shift to HCN’s when a foreign subsidiary matures For companies and employees higher risks (premature return, indirect costs such as loss of market share, terrorism) Different natural and business environment (climate, infrastructure, business-behavior, legal framework) Type of government, state of the economy, labor relations, employment conditions

17. Perlmutter‘s MNE-approaches Ethnocentric Strategy:Strategic decisions are made at headquarters. Key positions are held by headquarters management. Polycentric Strategy:Each subsidiary is a distinct national entity with substantial decision-making autonomy. Geocentric Strategy: Each part of the MNE makes a unique contribution regardless if headquarters or subsidiary. Nationality is ignored in favor of ability. Ethnocentric: International Division, HO, Expats, PCN, foreign subsidiaries have no autonomy Polycentric: Foreign subsidiaries are distinct national entities with considerable decision-making autonomy, HCNs Geocentric: global approach, integrated, nationality does not matter MNE may have a number of different kinds of centers apart from the traditional center, each center may have special tasks and a global coordinator of discrete activities, for instance F&E. Subsidiaries may no longer be regarded as at the periphery, such MNE are loosely coupled political systems (criss-crossing of relationships). Ethnocentric: International Division, HO, Expats, PCN, foreign subsidiaries have no autonomy Polycentric: Foreign subsidiaries are distinct national entities with considerable decision-making autonomy, HCNs Geocentric: global approach, integrated, nationality does not matter MNE may have a number of different kinds of centers apart from the traditional center, each center may have special tasks and a global coordinator of discrete activities, for instance F&E. Subsidiaries may no longer be regarded as at the periphery, such MNE are loosely coupled political systems (criss-crossing of relationships).

18. HR-Strategy: Centralized or decentralized? Global HR-Concepts Regional HR-Concepts Local HR-Concepts Centralised or decentralised structure? Where and how can central services add value? Strategy, quality, systems (for instance compensation) Consistency, business ethics Selection / retention of key people, central overview of talent Capital allocation (budgetary proposals) Monitoring / measuring performance against objectives Centralised or decentralised structure? Where and how can central services add value? Strategy, quality, systems (for instance compensation) Consistency, business ethics Selection / retention of key people, central overview of talent Capital allocation (budgetary proposals) Monitoring / measuring performance against objectives

19. 1.4. Summary Management Process and the Context to HR HRM-Strategy: The linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility Globalization and its consequences New Challenges for HR Perlmutter-Approach

20. 2. The Organizational Context We’ve got the kit, we’ve got the cash – it’s people that will make the difference! But you have to know how to organize, lead and empower your people. See especially Chapter 2, Dowling/Welch/Schuler (1999), S. 29-62 See especially Chapter 2, Dowling/Welch/Schuler (1999), S. 29-62

21. After Studying This Chapter You Should Be Able To: understand how strategy influences organization understand the relationship between HRM and organizational aspects to see the main advantages and disadvantages or problems of different organization forms explain the stages a firm typically goes through as it grows internationally and how each stage affects the HR function? understand how the HRM function can assist in the firm’s international growth strategy?

22. 2.1. Wrap-Up: Fundamental Organizational Designs (1) Functional Organization (based on functions) Potential Advantages Efficient for small, single-product firms Encourage development of specialized expertise Easy for internal and external to access specialized knowledge Provides clear paths for employee development and advancement 2. Potential Problems Coordination becomes difficult as firm grows Turf battles may erupt as departments compete for resources Focuses on concerns of department instead of organization-wide goals Employees may not understand how their work fits within larger context Product or divisional Organization (may also be based on customers or areas) 1. Potential Advantages Facilitates fast changes within each division, unique line of command (and strategy) and unique instruments Product specialization, product competencies are bundled in headquarters, products are developed for the whole company Employees develop ability to think and work across functional areas Better external visibility to key constituents, organization easy to understand Support functions may develop (e.g. HRM), specialized expertise and thus provide better service to line managers 2. Potential Problems May be more difficult to make organization-wide changes, competition between different divisions (product lines) Experts within functional areas may not coordinate and learn from each other due to turf battles between divisions Duplication of support functions across divisions is costly Management is separated according the different product-lines: Weakening of the foreign units, loss of autonomy No local adaptation of goods and services, not enough focus on smaller markets, availability of experts in small markets Functional Organization (based on functions) Potential Advantages Efficient for small, single-product firms Encourage development of specialized expertise Easy for internal and external to access specialized knowledge Provides clear paths for employee development and advancement 2. Potential Problems Coordination becomes difficult as firm grows Turf battles may erupt as departments compete for resources Focuses on concerns of department instead of organization-wide goals Employees may not understand how their work fits within larger context Product or divisional Organization (may also be based on customers or areas) 1. Potential Advantages Facilitates fast changes within each division, unique line of command (and strategy) and unique instruments Product specialization, product competencies are bundled in headquarters, products are developed for the whole company Employees develop ability to think and work across functional areas Better external visibility to key constituents, organization easy to understand Support functions may develop (e.g. HRM), specialized expertise and thus provide better service to line managers 2. Potential Problems May be more difficult to make organization-wide changes, competition between different divisions (product lines) Experts within functional areas may not coordinate and learn from each other due to turf battles between divisions Duplication of support functions across divisions is costly Management is separated according the different product-lines: Weakening of the foreign units, loss of autonomy No local adaptation of goods and services, not enough focus on smaller markets, availability of experts in small markets

23. Wrap-Up: Fundamental Organizational Designs (2) Potential Advantages Reduces duplication of costs for support functions Facilitates sharing of employees across organizational units Facilitates knowledge sharing and transfer so organizational learning can occur, combination of line and “think tank” (accumulation of know how) Structural form fits a complex situation Conflicts of interest and different views are brought out into the open Good Communication-culture (better decisions?) 2. Potential Disadvantages Requires managers with excellent communication and collaboration skills Employees may have less job security (but, potentially, more organizational security) Lines of authority may be ambiguous for employees, ambiguity about priorities, dual or multi-reporting which leads to conflict and confusion (who is responsible for a decision?) Proliferation of communication channels (time consuming), overlapping responsibilities Barriers of distance, language, time and culture (staff not capable to master branch and headquarters demands) Potential Advantages Reduces duplication of costs for support functions Facilitates sharing of employees across organizational units Facilitates knowledge sharing and transfer so organizational learning can occur, combination of line and “think tank” (accumulation of know how) Structural form fits a complex situation Conflicts of interest and different views are brought out into the open Good Communication-culture (better decisions?) 2. Potential Disadvantages Requires managers with excellent communication and collaboration skills Employees may have less job security (but, potentially, more organizational security) Lines of authority may be ambiguous for employees, ambiguity about priorities, dual or multi-reporting which leads to conflict and confusion (who is responsible for a decision?) Proliferation of communication channels (time consuming), overlapping responsibilities Barriers of distance, language, time and culture (staff not capable to master branch and headquarters demands)

24. Wrap-Up: Fundamental Organizational Designs (3) Process-Based Horizontal Structure Project Organization Network (virtual) Structure Team-Based Structures Autonomous Internal Units Process-Based Horizontal Structure: Firms manage along the relevant value creation processes. Structures are relatively flat, many tasks are clustered together within an organizational unit. The structure reflects the flow of work. Mostly work is performed by teams. Project Organization: An organization in which employees work in temporary work teams, each with a specific project responsibility and duration for the life of a project Network Structure: Groups of firms in which the relationships are based on complementary strength and trust between the organization. Mostly firms with a network structure subcontract portions of the work to other firms (NIKE). Global firms are developing „linkages“ to draw upon resources (technology, laboratories, personnel, materials, parts, innovations). Forms: Joint ventures, equity participation, subcontractors, licensing, franchising, management contracts Team-Based Structures: Organization is made up of work groups or teams that perform the organizations work (employee empowerment, team responsibility, high flexibility) Autonomous Internal Units: Separate decentralized business units, each with its own products, clients, competitors, and profit goals. Key difference to the divisional structure is that these business units are autonomous. Example: ABB (about 950 companies) Process-Based Horizontal Structure: Firms manage along the relevant value creation processes. Structures are relatively flat, many tasks are clustered together within an organizational unit. The structure reflects the flow of work. Mostly work is performed by teams. Project Organization: An organization in which employees work in temporary work teams, each with a specific project responsibility and duration for the life of a project Network Structure: Groups of firms in which the relationships are based on complementary strength and trust between the organization. Mostly firms with a network structure subcontract portions of the work to other firms (NIKE). Global firms are developing „linkages“ to draw upon resources (technology, laboratories, personnel, materials, parts, innovations). Forms: Joint ventures, equity participation, subcontractors, licensing, franchising, management contracts Team-Based Structures: Organization is made up of work groups or teams that perform the organizations work (employee empowerment, team responsibility, high flexibility) Autonomous Internal Units: Separate decentralized business units, each with its own products, clients, competitors, and profit goals. Key difference to the divisional structure is that these business units are autonomous. Example: ABB (about 950 companies)

25. Organizational Structures in the 21st century

26. Group work (2) 2. A. How would you describe an organization? What are typical organizational Parameters (and/or control mechanisms)? 2. B. International expansion: Which organizational structures (or organizational strategies) may help a company entering foreign markets or growing its international business? Possible HR-Implications?

27. 2.2. Structures crossing Country Borders Internationalization: Exploitation of existing domestic capacities for foreign markets Exporting: Representation and selling of products / services abroad Sales Subsidiaries Selective transfer of knowledge and sourcing (Licensing, Subcontracting) Multinational: Several entities in different countries with own strategies Network of subsidiaries Global: The world is one market, activities are controlled from headquarters Transnational: global integration as far as necessary, decentralised flexibility as far as possible, borderless management, significant level of global competition Internationalization: Exploitation of existing domestic capacities for foreign marketsExporting: Representation and selling of products / services abroadSales SubsidiariesSelective transfer of knowledge and sourcing (Licensing, Subcontracting) Multinational: Several entities in different countries with own strategiesNetwork of subsidiaries Global: The world is one market, activities are controlled from headquarters Transnational: global integration as far as necessary, decentralised flexibility as far as possible, borderless management, significant level of global competition

28. Export Department Often exporting is handled by an export agent (HCN). At this stage few people (if any) from the parent company are involved with foreign sales. Export department: Exporting is controlled from the domestic-based-home. Often exporting is handled by an export agent (HCN). At this stage few people (if any) from the parent company are involved with foreign sales. Export department: Exporting is controlled from the domestic-based-home.

29. Sales Subsidiary Agents and distributors are often replaced by direct sales (ESCADA). At least initially, this office is probably staffed by personnel from the home office. Why entering in this stage: problems with foreign agents, more confidence in the international sales activity, desire to have greater control, greater support to the exporting activityAgents and distributors are often replaced by direct sales (ESCADA). At least initially, this office is probably staffed by personnel from the home office. Why entering in this stage: problems with foreign agents, more confidence in the international sales activity, desire to have greater control, greater support to the exporting activity

30. International Division When foreign sales reach over 10-20 per cent of total revenues, firms may choose to form an international division. At this stage one may consider local assembly and then complete manufacturing. This division may initially be located within the marketing division. Later it may become an independent division, equivalent to the Domestic Division (as in the depiction). When foreign sales reach over 10-20 per cent of total revenues, firms may choose to form an international division. At this stage one may consider local assembly and then complete manufacturing. This division may initially be located within the marketing division. Later it may become an independent division, equivalent to the Domestic Division (as in the depiction).

31. Global Product Division Typically, tensions will emerge between the parent company and its subsidiaries ( global integration versus demand for national responsiveness). The questions is how a company can manage the increasingly complex international environment (global competitors, global customers, universals products, tech.. change), being confronted with the ”think global – act local” paradox (local responsiveness). Major organisational options: Centralisation vs.. Decentralisation of power (type of control by the parent) Structural responses: Global Product Division or Area-based structure Typically, tensions will emerge between the parent company and its subsidiaries ( global integration versus demand for national responsiveness). The questions is how a company can manage the increasingly complex international environment (global competitors, global customers, universals products, tech.. change), being confronted with the ”think global – act local” paradox (local responsiveness). Major organisational options: Centralisation vs.. Decentralisation of power (type of control by the parent) Structural responses: Global Product Division or Area-based structure

32. Global Area Division Structure Criteria: Product line, geographical region, traditional functional responsibility, processes peculiar of the firm’s industry, customer or combinations of these criteriasStructure Criteria: Product line, geographical region, traditional functional responsibility, processes peculiar of the firm’s industry, customer or combinations of these criterias

33. The shift to a global company No national borders and mental boundaries in delivering, sourcing products, services, resources: The world is one market HR: Recruitment across national borders, worldwide strategy and policies, integrated management development, increased sophistication in locating certain HRM-practices Results: Relatively fewer expatriation, increased use of TCN, cross-cultural composition of corporate boards and top management, international corporate culture

34. 2.3. Organizational Dimensions Organizational Philosophy or Culture Organizational Policies Organizational Structure Organizational Systems Example for the above mentioned organizational dimensions (applied for a team-based organization): In team-based organizations, the team is the basic work unit. Team members are empowered to do planning, decision making, and implementing. They are also ultimately responsible for the product or service which they produce. In order for a team to flourish, management has to provide supporting mechanisms: Organizational philosophy: Work teams flourish where high employee trust and involvement are cultivated by top management. Policies: Policies of equal treatment and employment stability contribute to successful teamwork. Organizational structure: Flat structures, few supervisors, and delegation of decision making are conducive to teamwork. Systems: The company’s system of rewards should reinforce teamwork instead of individual effort. Example for the above mentioned organizational dimensions (applied for a team-based organization): In team-based organizations, the team is the basic work unit. Team members are empowered to do planning, decision making, and implementing. They are also ultimately responsible for the product or service which they produce. In order for a team to flourish, management has to provide supporting mechanisms: Organizational philosophy: Work teams flourish where high employee trust and involvement are cultivated by top management. Policies: Policies of equal treatment and employment stability contribute to successful teamwork. Organizational structure: Flat structures, few supervisors, and delegation of decision making are conducive to teamwork. Systems: The company’s system of rewards should reinforce teamwork instead of individual effort.

35. Task: Optimal balance (fit) and use of all factors to achieve the company-goals S: Variables influencing the success of the organization H: Hard variables of leadership W: Weak (=Soft) Variables of leadership Task: Optimal balance (fit) and use of all factors to achieve the company-goals S: Variables influencing the success of the organization H: Hard variables of leadership W: Weak (=Soft) Variables of leadership

36. Example: Google’s organizational culture Few management structure, informal: “a fun place to work”, team-oriented culture Amazing perks: massage therapy, snacks, gourmet lunches, work-out gyms, pool-tables… 20% of work-time on self-directed projects, flexible work hours Open communication, open doors, lunch hour discussions Recruiting only from top-ranking universities (most important: intelligent and smart people) Qualities sought: broad knowledge, expertise in computer science and mathematics, excellent communication and organizational skills, passionate about their work and great colleagues Recruitment ads in movie theatres, employee referral program, contests with prize money Encouraging innovation and creativity (internal web page for tracking new ideas, open discussion of ideas, everybody spends a fraction of the working time on R&D)

37. Changing Organizational Culture Culture is resistant to change because it is made up of relatively stable and permanent characteristics Strong cultures are particularly resistant to change Understanding the Situational Factors - makes cultural change more likely dramatic crisis occurs leadership changes hands organization is young and small culture is weak How Can Cultural Change Be Accomplished? requires a comprehensive and coordinated strategy unfreeze the current culture implement new “ways of doing things” reinforce those new values change, if it comes, is likely to be slow protect against any return to old, familiar practices and traditions

38. 2.4. Melting organization and culture: Mergers & Acquisitions (M&A):

39. HR-Tasks HR-Due Diligence before acquiring! Integration strategy and plan Permanent communication Integration workshops, teambuilding, cooperation Asses qualification and personality, decide who will get the manager positions Adjustment of HR-instruments Manage undesirable employee fluctuation (20-50% of middle and top manager leave the company within one year)

40. M&A Dismissals When merging or acquiring another firm: Avoid the appearance of power and domination Avoid win–lose behavior Be businesslike & professional in all dealings Have positive a feeling about the acquired company The confidence, productivity, and commitment of those remaining affected by how dismissed are treated Adjusting to Downsizings in an M&A-Process Downsizing The process of reducing, usually dramatically, the number of people employed by the firm. Identify objectives and constraints. For example, decide how many positions to eliminate at which locations, and what criteria to use to pinpoint the employees to whom you’ll offer voluntary exit incentives. Form a downsizing team. This management team should prepare a communication strategy for explaining the downsizing, establish hiring and promotion levels, produce a downsizing schedule, and supervise the displaced employees’ benefit programs. Address legal issues. You’ll want to ensure that others won’t view the downsizing as a subterfuge (in German: List) to lay off protected classes of employees. Plan post-implementation actions. Activities such as surveys and explanatory meetings can help maintain morale. Similarly, some suggest a hiring freeze of at least 6 months after the layoffs have taken effect. Adjusting to Downsizings in an M&A-Process Downsizing The process of reducing, usually dramatically, the number of people employed by the firm. Identify objectives and constraints. For example, decide how many positions to eliminate at which locations, and what criteria to use to pinpoint the employees to whom you’ll offer voluntary exit incentives. Form a downsizing team. This management team should prepare a communication strategy for explaining the downsizing, establish hiring and promotion levels, produce a downsizing schedule, and supervise the displaced employees’ benefit programs. Address legal issues. You’ll want to ensure that others won’t view the downsizing as a subterfuge (in German: List) to lay off protected classes of employees. Plan post-implementation actions. Activities such as surveys and explanatory meetings can help maintain morale. Similarly, some suggest a hiring freeze of at least 6 months after the layoffs have taken effect.

42. Eon as an Example of a successful Post-Merger- Management by HRM Visioning event Critical processes Town hall meetings with all HR groups Resulted in changes to several processes Organizational design event Implementation Responding to a change in the parent firm’s strategy, the HR department change process at German Munich-Düsseldorf-based VEBA-VIAG (today Eon) Energy began with a visioning event. The purpose of this meeting was to develop the vision for HR and to determine the principles that should guide activities over the next five months. It was critical at the outset to make sure all key stakeholders agreed on the direction HR needed to take. After agreeing on the vision, participants chose “critical” processes (such as employee selection) to be changed to support the group’s new vision. Next, the core HR change team held meetings with all HR employees. Team members explained the new vision, mission, and principles, and received feedback they could incorporate into their second session. They held that second session, a process design/redesign event, some time later. The critical HR processes identified at the first session were revised and reinvented. Once these basic processes were redesigned, management had to rethink the distribution of HR’s jobs. During the following session, the organizational design event, Eon employees focused on deciding who would be responsible for those processes in the future. At the final implementation, the HR team reviewed the implementation plan, confirmed the steps required to make the change, and ensured the continued commitment of the firm’s managers to the change.Responding to a change in the parent firm’s strategy, the HR department change process at German Munich-Düsseldorf-based VEBA-VIAG (today Eon) Energy began with a visioning event. The purpose of this meeting was to develop the vision for HR and to determine the principles that should guide activities over the next five months. It was critical at the outset to make sure all key stakeholders agreed on the direction HR needed to take. After agreeing on the vision, participants chose “critical” processes (such as employee selection) to be changed to support the group’s new vision. Next, the core HR change team held meetings with all HR employees. Team members explained the new vision, mission, and principles, and received feedback they could incorporate into their second session. They held that second session, a process design/redesign event, some time later. The critical HR processes identified at the first session were revised and reinvented. Once these basic processes were redesigned, management had to rethink the distribution of HR’s jobs. During the following session, the organizational design event, Eon employees focused on deciding who would be responsible for those processes in the future. At the final implementation, the HR team reviewed the implementation plan, confirmed the steps required to make the change, and ensured the continued commitment of the firm’s managers to the change.

43. 2.5. Summary Influence of organizational designs to Management and HR Organizational parameters International expansion and adequate structures Organizational culture (corporate culture) and interdependencies to the structural design Structures of a global company Cultural Change: Challenge for HRM We can Create a Culture of Involvement & Participation and committed teams HRM-implications of Mergers & Acquisitions

44. 3. Global Staffing: Recruitment, Placement and Retention Recruiting is defined as searching for and obtaining potential job candidates in sufficient numbers and quality so that the organization can select the most appropriate people to fill its job needs. Recruiting is defined as searching for and obtaining potential job candidates in sufficient numbers and quality so that the organization can select the most appropriate people to fill its job needs.

45. Outline of Chapter 3 Recruitment Process International staffing policies Culture Shock Selection and Assignment Failures and Problems Selecting Host- and Third-Country Nationals Repatriation and Retention

46. After Studying This Chapter You Should Be Able To: Understand the need of employment planning and the recruitment process Discuss the main inside and outside sources of candidates in an international context Explain international staffing and how to improve international assignments through selection Understand the culture shock phenomenon Know about the importance of a successful repatriation and employee-retention

47. 3.1. Introduction: The Recruitment process Goal: Locate and attract good quality applicants and to make valid, reliable, and cost-effective decisions about whom to select You can never turn a farm horse to racing horse! Which factors will good quality applicants influence to apply? Factors: The reputation of the company as a good employer (Past) How well the vacancy has been advertised (Marketing) 3. The attractiveness of the salary and conditions of service (Rewards) 4. Whether potential applicants think they can do the job (Individual abilities) 5. Whether the job looks interesting and satisfying (Job characteristics) Factors: The reputation of the company as a good employer (Past) How well the vacancy has been advertised (Marketing) 3. The attractiveness of the salary and conditions of service (Rewards) 4. Whether potential applicants think they can do the job (Individual abilities) 5. Whether the job looks interesting and satisfying (Job characteristics)

48. Steps in Recruitment and Selection Process

49. Job specifications as basis for recruiting Uses of Job Analysis Information 1. Recruitment and Selection – Job descriptions and job specifications are formed from the information gathered from a job analysis, which help management decide what sort of people to recruit and hire. 2. Compensation – The estimated value and the appropriate compensation for each job is determined from the information gathered from a job analysis. 3. Performance Appraisal – Managers use job analysis to determine a job’s specific activities and performance standards. 4. Training – Based on the job analysis, the job description should show the job’s required activities and skills. 5. Discovering Unassigned Duties – Job analysis can help reveal unassigned duties. Uses of Job Analysis Information

50. Finding Internal Candidates Succession planning: ensuring a suitable supply of successors for future senior jobs Succession Planning includes: Determine projected need Audit current talent Planning career paths Career counseling Accelerated promotions Performance related training Planned strategic recruitment Advantages and Disadvantages of Inside candidates? Succession planning typically includes activities like these: Determining the projected need for managers by company level, function, and skill Auditing executive talent to project the likely future supply from internal sources Planning individ. career paths based on future needs and assessments of potential Career counseling Training and development to prepare individuals for future roles as well as current responsibilities Planned strategic recruitment to fill short-term needs and to provide people to meet future needs It is often therefore safer to promote employees from within (likely to have a more accurate view of the person’s skills). Inside candidates may also be more committed to the company. Morale may rise, to the extent that employees see promotions as rewards for loyalty and competence. Inside candidates may also require less orientation and training than outsiders. Employees who apply for jobs and don’t get them may become discontented; telling unsuccessful applicants why they were rejected and what they might do to be more successful in the future is crucial.Succession planning typically includes activities like these: Determining the projected need for managers by company level, function, and skill Auditing executive talent to project the likely future supply from internal sources Planning individ. career paths based on future needs and assessments of potential Career counseling Training and development to prepare individuals for future roles as well as current responsibilities Planned strategic recruitment to fill short-term needs and to provide people to meet future needs It is often therefore safer to promote employees from within (likely to have a more accurate view of the person’s skills). Inside candidates may also be more committed to the company. Morale may rise, to the extent that employees see promotions as rewards for loyalty and competence. Inside candidates may also require less orientation and training than outsiders. Employees who apply for jobs and don’t get them may become discontented; telling unsuccessful applicants why they were rejected and what they might do to be more successful in the future is crucial.

51. Outside Hiring College recruiting Internships Referrals Executive Recruiters (Headhunters) Online executive recruiting firm Internet recruiting Internships can be win-win situations for both students and employers. Students: achieve better business skills, check out potential employers, and learn more about their likes (and dislikes) when it comes to choosing careers. And employers, of course, can use the interns to make useful contributions while evaluating them as possible full-time employees. Referrals The firm posts announcements of openings and requests for referrals in its bulletin and on its wallboards and intranet; prizes or cash rewards are offered for referrals that culminate in hiring's. Recruiters They fill jobs in the $70,000-and-up category, although $100,000 is often the lower limit. For (international) executive positions, headhunters may be sometimes the only source of candidates. The employer always pays their fees. Online executive recruiting firm: Technology and specialization (aimed specifically at specialized functions or industries) are changing the executive search business. Most recruiting firms are therefore establishing Internet-linked computerized databases (“to create a long list by pushing a button”). Internet recruiting: A large and fast-growing proportion of employers use the Internet as a recruiting tool. They conduct searches for specific areas and talents by corporate and employment web pages, intern. recr. is cost effective and timely. The percentage of Fortune 500 companies recruiting via the Internet jumped from 10% in 1997 to 75% in 2000. Internships can be win-win situations for both students and employers. Students: achieve better business skills, check out potential employers, and learn more about their likes (and dislikes) when it comes to choosing careers. And employers, of course, can use the interns to make useful contributions while evaluating them as possible full-time employees. Referrals The firm posts announcements of openings and requests for referrals in its bulletin and on its wallboards and intranet; prizes or cash rewards are offered for referrals that culminate in hiring's. Recruiters They fill jobs in the $70,000-and-up category, although $100,000 is often the lower limit. For (international) executive positions, headhunters may be sometimes the only source of candidates. The employer always pays their fees. Online executive recruiting firm: Technology and specialization (aimed specifically at specialized functions or industries) are changing the executive search business. Most recruiting firms are therefore establishing Internet-linked computerized databases (“to create a long list by pushing a button”). Internet recruiting: A large and fast-growing proportion of employers use the Internet as a recruiting tool. They conduct searches for specific areas and talents by corporate and employment web pages, intern. recr. is cost effective and timely. The percentage of Fortune 500 companies recruiting via the Internet jumped from 10% in 1997 to 75% in 2000.

52. 3.2. Employee Testing and Selection Employee testing and selection is the use of various tools and techniques to select the best candidates for the job. These tools cover the selection process, basic testing techniques, background and reference checks, ethical and legal questions in testing, types of tests, and work samples and simulations. Why is selecting the right employees so important ? First, your “own” performance (as a supervisor) always depends in part on your subordinates. Employees with the right skills and attributes will do a better job for you and the company. Second, it is important because it’s costly to recruit and hire employees. Hiring and training even a clerk can cost $5,000 or more in fees and supervisory time.. Third, it’s important because of the legal implications of incompetent hiring. Decisions require nondiscriminatory selection procedures for protected groups and –when dismissals are necessary- there are rules not always linked with performance. Available tests include: Psychological test, Team-skills test, Sales ability test, Intellectual, Technical Aptitude, Interest and reliability invent .Why is selecting the right employees so important ? First, your “own” performance (as a supervisor) always depends in part on your subordinates. Employees with the right skills and attributes will do a better job for you and the company. Second, it is important because it’s costly to recruit and hire employees. Hiring and training even a clerk can cost $5,000 or more in fees and supervisory time.. Third, it’s important because of the legal implications of incompetent hiring. Decisions require nondiscriminatory selection procedures for protected groups and –when dismissals are necessary- there are rules not always linked with performance. Available tests include: Psychological test, Team-skills test, Sales ability test, Intellectual, Technical Aptitude, Interest and reliability invent .

53. General Selection Procedures Use of structured interviews varies widely by country 12.1% in Sweden, 29.2% in Spain, 37.5% in Hong Kong, 54.8% in Canada Because of the high profile given to expatriate ”failure”, along with the multifaceted nature of expatriate assignments, predicting success factors and developing appropriate selection criteria for international operators has become a critical IHRM issue. How to select expats? Track record, Success, Competencies, appraisals, interviews (AC’s), Spouse-”interviews”, language knowledge Selecting managers for these assignments sometimes means also testing them for traits that predict success in adapting to new environments. 12.1% in Sweden, 29.2% in Spain, 37.5% in Hong Kong, 54.8% in Canada Because of the high profile given to expatriate ”failure”, along with the multifaceted nature of expatriate assignments, predicting success factors and developing appropriate selection criteria for international operators has become a critical IHRM issue. How to select expats? Track record, Success, Competencies, appraisals, interviews (AC’s), Spouse-”interviews”, language knowledge Selecting managers for these assignments sometimes means also testing them for traits that predict success in adapting to new environments.

54. 3.3. International Staffing Source: Horsch, J., Auslandseinsatz von Stammhaus-Mitarbeitern: eine Analyse, Frankfurt am Main (1995), S. 48 und Bergemann, N. Sourisseaux, A., Interkulturelles Management, Berlin (2003), S. 194 An ethnocentric run corporation believes that home-country attitudes, management style, knowledge, evaluation criteria, and managers are superior to anything the host country has to offer. The polycentric run firm believes that only host-country managers can ever really understand the culture of the host country. A geocentric run firm believes that the best manager of a specified position may be from any country in which the firm operates. Recruiting internationally is important for several reasons. Sometimes the employer has virtually no choice. For example, many U.S. companies are looking in the United Kingdom, Germany, and Western Europe for high-tech employees to fill jobs. Nokia is looking for students at MBA-Schools all over Europe. Source: Horsch, J., Auslandseinsatz von Stammhaus-Mitarbeitern: eine Analyse, Frankfurt am Main (1995), S. 48 und Bergemann, N. Sourisseaux, A., Interkulturelles Management, Berlin (2003), S. 194 An ethnocentric run corporation believes that home-country attitudes, management style, knowledge, evaluation criteria, and managers are superior to anything the host country has to offer. The polycentric run firm believes that only host-country managers can ever really understand the culture of the host country. A geocentric run firm believes that the best manager of a specified position may be from any country in which the firm operates. Recruiting internationally is important for several reasons. Sometimes the employer has virtually no choice. For example, many U.S. companies are looking in the United Kingdom, Germany, and Western Europe for high-tech employees to fill jobs. Nokia is looking for students at MBA-Schools all over Europe.

55. Group-Work (3) Geocentric approach = best people for the key jobs regardless of nationalityGeocentric approach = best people for the key jobs regardless of nationality

56. 3.4. Culture Shock Adjustments to work and environment New and old rules, “unspoken rules” and expectations You have no way of knowing (violating rules) You will not always know how to calculate or evaluate appropriate behavior Sufferings without apparent origin (strange own behavior) Everyone experiences culture shock somewhat differently Modes of adjustment: Integration Resistance Withdrawal Rules: Heavy psychological impact when you move from a familiar environment to an unfamiliar one: unfamiliar sights, sounds, smells... In your home culture, everybody knows the rules, you know how to deal with those consequences, You have a sense of control in your home culture.. The cumulative effect of all of these stresses is called culture shock In a new foreign country are lots of rules you don’t know, you don't understand any of them, this creates anxiety at deep levels. Knowing ”unspoken rules”. Inevitably you will break rules. Even at home many people have no real idea what the ”unspoken rules” are - even though they follow these rules every day - they just never think about them. Sufferings : You will behave toward others in ways you don’t like. Almost everyone experiences a succession of minor pains and ailments of unknown origin during their initial period in a new country or lower than normal energy levels. Modes of adjustment: Integration Resistance Withdrawal Rules: Heavy psychological impact when you move from a familiar environment to an unfamiliar one: unfamiliar sights, sounds, smells... In your home culture, everybody knows the rules, you know how to deal with those consequences, You have a sense of control in your home culture.. The cumulative effect of all of these stresses is called culture shock In a new foreign country are lots of rules you don’t know, you don't understand any of them, this creates anxiety at deep levels. Knowing ”unspoken rules”. Inevitably you will break rules. Even at home many people have no real idea what the ”unspoken rules” are - even though they follow these rules every day - they just never think about them. Sufferings : You will behave toward others in ways you don’t like. Almost everyone experiences a succession of minor pains and ailments of unknown origin during their initial period in a new country or lower than normal energy levels.

57. Stages of cultural shock The honeymoon phase is sweet but short. Characteristics: new and exotic, people seem friendly and helpful, most of the experiences are positive. People you meet don't seem very different, business seems to be handled in familiar ways. Disintegrative Characteristics: Doubt and loss of confidence, You begin to notice that you understand very little of what actually goes on around you. You may begin to play ”isn't it awful?” Normal emotional responses during this phase include confusion, disorientation, a sense of loss, apathy, and feelings of loneliness and inadequacy. Reintegrative characteristics: Negative feelings and experiences, you may become hostile, many experience a basic rejection of host culture (engaging in heavy stereotyping, rejecting many of the things you now don't like about your host country). Characteristics of functional state: increasingly in control of your life and destiny. You begin learning from all of your mistakes, from all of the things people have tried to tell you and show you. Creative independence: A strong, positive emotional state emerges, ”The old hand” appears. Your experience of everyday life will return to something approximately like normal, you get increasing appreciation, emotional state becomes naturally positive as ability to cope increases in ways that are obvious to those around you. You have stopped the use of stereotypes and attribution to cultural differences to explain things you don't understand. The honeymoon phase is sweet but short. Characteristics: new and exotic, people seem friendly and helpful, most of the experiences are positive. People you meet don't seem very different, business seems to be handled in familiar ways. Disintegrative Characteristics: Doubt and loss of confidence, You begin to notice that you understand very little of what actually goes on around you. You may begin to play ”isn't it awful?” Normal emotional responses during this phase include confusion, disorientation, a sense of loss, apathy, and feelings of loneliness and inadequacy. Reintegrative characteristics: Negative feelings and experiences, you may become hostile, many experience a basic rejection of host culture (engaging in heavy stereotyping, rejecting many of the things you now don't like about your host country). Characteristics of functional state: increasingly in control of your life and destiny. You begin learning from all of your mistakes, from all of the things people have tried to tell you and show you. Creative independence: A strong, positive emotional state emerges, ”The old hand” appears. Your experience of everyday life will return to something approximately like normal, you get increasing appreciation, emotional state becomes naturally positive as ability to cope increases in ways that are obvious to those around you. You have stopped the use of stereotypes and attribution to cultural differences to explain things you don't understand.

58. 3.5. Selection and Assignment A selection model Predictors of success Expatriation and Assignment to a foreign post Reservations to Expatriation

59. Selection Model for international Managers: Mendenhall and Oddou The self-oriented dimension (self- preservation, self-enjoyment, mental hygiene) The perceptual dimension (expertise in understanding why host nationals behave the way they do) The other-oriented dimension (degree to which the Expat is concerned about host-national co-workers and desires to affiliate with them) The cultural-toughness dimension (if degree of cultural disparity is high, only applicants with high scores should be considered) This proposes a four-dimensional approach that attempts to link specific behavioural tendencies to probable international performance This proposes a four-dimensional approach that attempts to link specific behavioural tendencies to probable international performance

60. Selection of international Managers Important Predictors of Success Family situation tops the list Flexibility/adaptability screening was high on results Traits that predict success in adapting to new environments (extra-cultural openness) Previewing what changes an international assignee can expect Job knowledge and motivation    

61. Study Results: Most important prerequisites for success abroad Characterisation of the international manager (Ashridge Survey 1989/90): Strategic awareness Adaptability to new situations Sensitivity to different Cultures Ability to work in international teams Language skills Understanding international marketing Relationship Skills International negotiating skills Self reliance High-task orientation Characterisation of the international manager (Ashridge Survey 1989/90): Strategic awareness Adaptability to new situations Sensitivity to different Cultures Ability to work in international teams Language skills Understanding international marketing Relationship Skills International negotiating skills Self reliance High-task orientation

62. Reasons not to accept a foreign assignment (PWC 1999) Concerns about family (76%) Difficulty finding spouse employment, career of the partner (59%) Fear about promotion on return, disadvantage for own career (34%) And.... Conflict in culture values Inadequate compensation Fear of losing touch with mainstream Problems with the hardships of special locations Cendant International (2000): “40 % of assignees said they would not work abroad again, between 20% and 40% return early; some companies experience attrition (“Zermürbung, Rückzug”) rates approaching 50% within the first year after repatriation” Wirth (1992): Three main reasons for saying no to an intern. Assignment: Spouse refusal (71%) Disadvantages for children (64%) Separation from friends and relatives (49%) Cendant International (2000): “40 % of assignees said they would not work abroad again, between 20% and 40% return early; some companies experience attrition (“Zermürbung, Rückzug”) rates approaching 50% within the first year after repatriation” Wirth (1992): Three main reasons for saying no to an intern. Assignment: Spouse refusal (71%) Disadvantages for children (64%) Separation from friends and relatives (49%)

63. Duration of assignment (2001, German companies) Source: Göggelmann, U., Mayerhöfer, A., Auslandseinsatz, in: Capital 2/2002, P. 99Source: Göggelmann, U., Mayerhöfer, A., Auslandseinsatz, in: Capital 2/2002, P. 99

64. Foreign Assignments (Growth rate 1997-1999) PwC-Study (270 International Companies in Europe) PwC-Study (270 International Companies in Europe)

65. 3.6. International Assignment Failure International assignment failure can cost hundreds of thousands of euros Why International Assignments fail? Personality Person’s intentions Family pressures Lack of cultural skills Other non-work conditions like living and housing conditions, and health care Personality is one factor. For example, in a study of 143 expatriate employees, extroverted, agreeable, and emotionally stable individuals were less likely to want to leave early. And the person’s intentions are important: People who want expatriate careers try harder to adjust to such a life. Non-work factors like family pressures One expert said: The selection process is fundamentally flawed. . . . Expatriate assignments rarely fail because the person cannot accommodate to the technical demands of the job. The expatriate selections are made by line managers based on technical competence. They fail because of family and personal issues and lack of cultural skills that haven’t been part of the process. Personality is one factor. For example, in a study of 143 expatriate employees, extroverted, agreeable, and emotionally stable individuals were less likely to want to leave early. And the person’s intentions are important: People who want expatriate careers try harder to adjust to such a life. Non-work factors like family pressures One expert said: The selection process is fundamentally flawed. . . . Expatriate assignments rarely fail because the person cannot accommodate to the technical demands of the job. The expatriate selections are made by line managers based on technical competence. They fail because of family and personal issues and lack of cultural skills that haven’t been part of the process.

66. Improving Failure Rates/ Solutions Provide realistic previews Have a careful screening process Improve orientation Provide good benefits Test employees fairly Shorten assignment length

67. Group-Work (4)

68. 3.7. Repatriation Five related phases: Planning: developing plans for the future, time of repatriation, gathering information about the new position, talks with HRM, Preparation: preparation for the transfer home, pre-departure training, training & development, Information about the new job, communication with new boss Physical relocation: removing personal effects, breaking ties with colleagues and friends, traveling to the next posting, relocation consultants / relocation assistance Transition: settling into temporary accommodation, making arrangements for housing and schooling, administrative tasks Readjustment: Coping with reverse culture shock and career demand ”52% of sampled firms experienced repatriate re-entry problem” (Harzing, 1996) Five related phases: Planning: developing plans for the future, time of repatriation, gathering information about the new position, talks with HRM, Preparation: preparation for the transfer home, pre-departure training, training & development, Information about the new job, communication with new boss Physical relocation: removing personal effects, breaking ties with colleagues and friends, traveling to the next posting, relocation consultants / relocation assistance Transition: settling into temporary accommodation, making arrangements for housing and schooling, administrative tasks Readjustment: Coping with reverse culture shock and career demand ”52% of sampled firms experienced repatriate re-entry problem” (Harzing, 1996)

69. Problems of Repatriation Reverse culture shock Leaving the firm prematurely Career Anxiety: Mediocre or makeshift jobs, finding former colleagues promoted Devaluing the International Experience Coping with new Role Demands Loss of Status and Pay Effect on Partner’s Career Social Factors Effectively repatriating returning employees is important. Particularly after companies spend hundreds of thousands of dollars helping the person develop international expertise, it’s disconcerting to know that perhaps 50% of returnees leave their companies within two years of coming home (Career Anxiety). Expatriates often fear they’re “out of sight, out of mind” during an extended foreign stay, and such fears are often well founded. Many firms hurriedly assign returning expatriates to mediocre or makeshift jobs (Devaluing the International Experience). Perhaps more exasperating is discovering that the firm has promoted the expatriate’s former colleagues while he or she was overseas. Even the expatriate’s family may undergo a sort of reverse culture shock, as they face the task of picking up old friendships and starting new schools (Social Factors), and giving up the perks of the over overseas job, like a company car and driver. Effectively repatriating returning employees is important. Particularly after companies spend hundreds of thousands of dollars helping the person develop international expertise, it’s disconcerting to know that perhaps 50% of returnees leave their companies within two years of coming home (Career Anxiety). Expatriates often fear they’re “out of sight, out of mind” during an extended foreign stay, and such fears are often well founded. Many firms hurriedly assign returning expatriates to mediocre or makeshift jobs (Devaluing the International Experience). Perhaps more exasperating is discovering that the firm has promoted the expatriate’s former colleagues while he or she was overseas. Even the expatriate’s family may undergo a sort of reverse culture shock, as they face the task of picking up old friendships and starting new schools (Social Factors), and giving up the perks of the over overseas job, like a company car and driver.

70. Exit after repatriation? An average of 20-30% of people returning from long term ( over one year) overseas assignment leave their employer within the first year home. High overall costs for company and expats Reasons for the lack of repatriate programs (Harvey-Study, 1989): *Lack of expertise in establishing a program (48%) *Cost of program to train repatriates (36%) *No perceived need for repatriation training by top management (35%) Repatriation problems seem to be not dramatic, or visible, or identifiable. A repatriate exiting the organisation can become just another statistic – contrary to the more exciting incidence of Expat-failure!

71. Repatriation Solutions Shorten time abroad – have written agreement Assign a sponsor Provide career counseling Keep communications open Develop reorientation programs Have returnees advise future expatriates Have written repatriation agreements. These guarantee in writing that the international assignee will not be kept abroad longer than some period (such as three years), and that on return he or she will be given a mutually acceptable job. Assign a sponsor. The employee should get a sponsor (such as a senior manager at the parent firm’s home office) whose role is to look after the expatriate while he or she is away. Provide career counseling. Formal career counseling sessions can ensure that the returnee’s new job assignments meet his or her needs. Keep communications open. Keep the expatriate “plugged in” to home-office business affairs by providing management meetings around the world, frequent home leave combined with stays at headquarters for specific projects, and regularly scheduled meetings at headquarters. Develop reorientation programs. Provide the repatriate and his or her family with a reorientation program to facilitate their adjustment back into the home culture. Have returnees advise future expatriates and manage projects involving their former host country Have written repatriation agreements. These guarantee in writing that the international assignee will not be kept abroad longer than some period (such as three years), and that on return he or she will be given a mutually acceptable job. Assign a sponsor. The employee should get a sponsor (such as a senior manager at the parent firm’s home office) whose role is to look after the expatriate while he or she is away. Provide career counseling. Formal career counseling sessions can ensure that the returnee’s new job assignments meet his or her needs. Keep communications open. Keep the expatriate “plugged in” to home-office business affairs by providing management meetings around the world, frequent home leave combined with stays at headquarters for specific projects, and regularly scheduled meetings at headquarters. Develop reorientation programs. Provide the repatriate and his or her family with a reorientation program to facilitate their adjustment back into the home culture. Have returnees advise future expatriates and manage projects involving their former host country

72. 3.8. Retention Employees should be seen as valuable assets which need permanent motivation to thrive High fluctuation costs (direct and indirect costs, problems with clients) Know-how-outflow Work climate suffers Image problems

73.

75. 3.9. Summary Steps in recruitment and selection process Internal sources of candidates Outside sources of candidates Hiring locals or using expatriates Culture shock Prerequisites for success abroad Why expats fail Repatriation and Retention

76. 4. Managing Performance and Appraising

77. Outline of Chapter Some basics of appraisals and the role in managing performance The appraisal process and its functions Some new tools of appraisal Performance management in a competitive world Expatriate performance and appraisal

78. After Studying This Chapter You Should Be Able To: describe the appraisal process and its functions explain and discuss the pros and cons of at least four innovative performance appraisal methods explain and illustrate the Performance Management Process describe the factors influencing managers performance overseas discuss the specialties of Performance Appraisals in an international environment

79. 4.1. Basics of Appraisals Why Appraise Performance? Steps in Appraising Performance Who does the Appraisal? The Development Plan Succession Plan

80. Why Appraise Performance? First, appraisals provide information upon which you make promotion and salary decisions. Second, they provide an opportunity for you and your subordinate to review his or her work-related behavior. This in turn lets both of you develop a plan for correcting any deficiencies the appraisal might have unearthed, and for reinforcing things done right. Third, the appraisal is part of the firm’s career-planning process, because it provides an opportunity to review the person’s career plans in light of his or her strengths and weaknesses. Finally, appraisals therefore help you better manage and improve your firm’s performance. First, appraisals provide information upon which you make promotion and salary decisions. Second, they provide an opportunity for you and your subordinate to review his or her work-related behavior. This in turn lets both of you develop a plan for correcting any deficiencies the appraisal might have unearthed, and for reinforcing things done right. Third, the appraisal is part of the firm’s career-planning process, because it provides an opportunity to review the person’s career plans in light of his or her strengths and weaknesses. Finally, appraisals therefore help you better manage and improve your firm’s performance.

81. Steps in Appraising Performance Employers usually write job descriptions not for specific jobs, but for groups of jobs, and the descriptions rarely include specific goals. You therefore have to quantify your expectations. The most straightforward way to do this is to set measurable standards for each expectation. The point is this: Employees should always know ahead of time how and on what basis you’re going to appraise them. The Supervisor’s Role Must be familiar with basic appraisal techniques Be candid but fair when delivering bad news HR will often outline guidelines but leave implementation to supervisorsEmployers usually write job descriptions not for specific jobs, but for groups of jobs, and the descriptions rarely include specific goals. You therefore have to quantify your expectations. The most straightforward way to do this is to set measurable standards for each expectation. The point is this: Employees should always know ahead of time how and on what basis you’re going to appraise them. The Supervisor’s Role Must be familiar with basic appraisal techniques Be candid but fair when delivering bad news HR will often outline guidelines but leave implementation to supervisors

82. Who Does the Appraising? The Immediate Supervisor Supervisors’ ratings are the heart of most appraisals. This makes sense: The supervisor should be and usually is in the best position to observe and evaluate the subordinate’s performance, and is responsible for that person’s performance. Peer Appraisals With more firms using self-managing teams, peer or team appraisals (appraisal of an employee by his or her peers) are becoming more popular. Rating Committees Many employers use rating committees. These committees usually contain the employee’s immediate supervisor and three or four other supervisors. Self-Ratings Should employees appraise themselves? The basic problem, of course, is that employees usually rate themselves higher than they are rated by supervisors or peers. Appraisal by Subordinates More firms today let subordinates anonymously rate their supervisor’s performance, a process some call upward feedback.The Immediate Supervisor Supervisors’ ratings are the heart of most appraisals. This makes sense: The supervisor should be and usually is in the best position to observe and evaluate the subordinate’s performance, and is responsible for that person’s performance. Peer Appraisals With more firms using self-managing teams, peer or team appraisals (appraisal of an employee by his or her peers) are becoming more popular. Rating Committees Many employers use rating committees. These committees usually contain the employee’s immediate supervisor and three or four other supervisors. Self-Ratings Should employees appraise themselves? The basic problem, of course, is that employees usually rate themselves higher than they are rated by supervisors or peers. Appraisal by Subordinates More firms today let subordinates anonymously rate their supervisor’s performance, a process some call upward feedback.

83. The Development Plan or Appraisal Interview Development Plan: an interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths. Adequate preparation and effective implementation are therefore essential. There are four things to keep in mind in actually conducting the interview: 1. Be direct and specific. Talk in terms of objective work data. Use examples such as absences, tardiness, quality records, inspection reports, scrap or waste, orders processed, productivity records, material used or consumed, timeliness of tasks or projects, and so on. 2. Don’t get personal. Don’t say, “You’re too slow in producing those reports.” Instead, try to compare the person’s performance to a standard (“These reports should normally be done within 10 days”). 3. Encourage the person to talk. Stop and listen to what the person is saying; ask open-ended questions such as, “What do you think we can do to improve the situation?” 4. Don’t tiptoe around. Don’t get personal, but do make sure the person leaves knowing specifically what he or she is doing right and doing wrong. Give specific examples; make sure the person understands; and get agreement before he or she leaves on how things will be improved, and by when. There are four things to keep in mind in actually conducting the interview: 1. Be direct and specific. Talk in terms of objective work data. Use examples such as absences, tardiness, quality records, inspection reports, scrap or waste, orders processed, productivity records, material used or consumed, timeliness of tasks or projects, and so on. 2. Don’t get personal. Don’t say, “You’re too slow in producing those reports.” Instead, try to compare the person’s performance to a standard (“These reports should normally be done within 10 days”). 3. Encourage the person to talk. Stop and listen to what the person is saying; ask open-ended questions such as, “What do you think we can do to improve the situation?” 4. Don’t tiptoe around. Don’t get personal, but do make sure the person leaves knowing specifically what he or she is doing right and doing wrong. Give specific examples; make sure the person understands; and get agreement before he or she leaves on how things will be improved, and by when.

84. 4.2. New Developments in Appraisals Forced Distributions Upward Evaluation 360o Appraisals TQM Oriented Appraisals

85. Forced Distribution – High Performance Insight The forced distribution method is similar to grading on a curve. Predetermined percentages of ratees are put into performance categories. For example: 15% high performers 20% high-average performers 30% average performers 20% low-average performers 15% low performers (The proportions in each category need not be symmetrical; GE uses top 20%, middle 70%, and bottom 10% for managers.) Forced distribution means two things for employees: Not everyone can get an A; and one’s performance is always rated relative to one’s peers. One practical, if low-tech, way to do this is to write each employee’s name on a separate index card. Then, for each trait (quality of work, creativity, and so on), place the employee’s card in the appropriate performance category. Alternation ranking method: Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked. There are many other similar methods: Critical incident method Keeping a record of uncommonly good or undesirable examples of an employee’s work-related behavior and reviewing it with the employee at predetermined times. The forced distribution method is similar to grading on a curve. Predetermined percentages of ratees are put into performance categories. For example: 15% high performers 20% high-average performers 30% average performers 20% low-average performers 15% low performers (The proportions in each category need not be symmetrical; GE uses top 20%, middle 70%, and bottom 10% for managers.) Forced distribution means two things for employees: Not everyone can get an A; and one’s performance is always rated relative to one’s peers. One practical, if low-tech, way to do this is to write each employee’s name on a separate index card. Then, for each trait (quality of work, creativity, and so on), place the employee’s card in the appropriate performance category. Alternation ranking method: Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked. There are many other similar methods: Critical incident method Keeping a record of uncommonly good or undesirable examples of an employee’s work-related behavior and reviewing it with the employee at predetermined times.

86. Risks of introducing a forced distribution system Fits possibly to an individualistic culture ..in a team-culture there is a risk of tension in groups or contra productive results Harms harmony, there will be losers, May have detrimental effects to personnel development (connection between appraisal and wages), delivers no information for Training & Development Risk potential between manager and employee, demotivation In an international context: Who will grade HCN’s? A PCN? How big is the difference between the best and the “worst”? Underlying assumption of a normal distribution is not correct

87. Upward feedback What is Upward feedback? Why? In which culture do you expect to find this method? Which preconditions (for a success of this feedback) should be fulfilled? How effective is upward feedback in improving supervisor performance? Example: FedEx Uses a three-phase upward feedback system - Survey Feedback Action (SFA) First, HR gives a standard, anonymous survey each year to every employee. It contains items designed to gather information about those things that help and hinder employees in their work environment. Phase 2 is a feedback session between the manager and his or her work group. The feedback meeting should lead to a third, “action plan” phase. The action plan itself is a list of actions the manager will take to address employees’ concerns and boost results. Example: FedEx Uses a three-phase upward feedback system - Survey Feedback Action (SFA) First, HR gives a standard, anonymous survey each year to every employee. It contains items designed to gather information about those things that help and hinder employees in their work environment. Phase 2 is a feedback session between the manager and his or her work group. The feedback meeting should lead to a third, “action plan” phase. The action plan itself is a list of actions the manager will take to address employees’ concerns and boost results.

88. 360o Appraisals 360o assessments evolved from upward feedback appraisals Ratings are collected “all around” an employee Peers, supervisors, subordinates, customers, suppliers, other departments complete surveys on an individual Great deal of paperwork Many firms have expanded the idea of upward feedback into “360-degree feedback.” Ratings are collected “all around” an employee, from supervisors, subordinates, peers, and internal or external customers. The feedback is generally used for development, rather than for pay increases. Most 360-degree feedback systems contain several common features. Appropriate parties - peers, supervisors, subordinates, and customers, for instance - complete surveys on an individual. The surveys take many forms but often include supervisory skill items such as “returns phone calls promptly,” “listens well,” or “[my manager] keeps me informed.” Many firms have expanded the idea of upward feedback into “360-degree feedback.” Ratings are collected “all around” an employee, from supervisors, subordinates, peers, and internal or external customers. The feedback is generally used for development, rather than for pay increases. Most 360-degree feedback systems contain several common features. Appropriate parties - peers, supervisors, subordinates, and customers, for instance - complete surveys on an individual. The surveys take many forms but often include supervisory skill items such as “returns phone calls promptly,” “listens well,” or “[my manager] keeps me informed.”

89. 4.3. Performance Management Approach Performance management - managing all elements of the organizational process that affect how well employees perform The Performance Management Approach The performance management process may thus encompass goal setting, worker selection and placement, performance appraisal, compensation, training and development, and career management; in other words, all those parts of the HR process that affect how an employee performs. Performance Management can also be viewed as a process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets. Strong goal setting (management-by-objectives) and appraisal are key elements of a performance management system. Performance can be seen as a combination of several variables such as: motivation, ability, working conditions, expectations. Activities like recruiting, training, rewarding and appraising aren’t performed in an isolated or unfocused way. Instead, managers design and assess each activity based on the extent to which it contributes to what the company is trying to achieve. The Performance Management Approach The performance management process may thus encompass goal setting, worker selection and placement, performance appraisal, compensation, training and development, and career management; in other words, all those parts of the HR process that affect how an employee performs. Performance Management can also be viewed as a process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets. Strong goal setting (management-by-objectives) and appraisal are key elements of a performance management system. Performance can be seen as a combination of several variables such as: motivation, ability, working conditions, expectations. Activities like recruiting, training, rewarding and appraising aren’t performed in an isolated or unfocused way. Instead, managers design and assess each activity based on the extent to which it contributes to what the company is trying to achieve.

90. Management by Objectives MBO refers to a organizational 6 step goal setting and appraisal program MBO requires the manager to set specific measurable goals with each employee and then periodically discuss the latter’s progress toward these goals. 1. Set.. Establish an org.-wide plan for next year and set company goals. 2. Set ... Next, department heads take these company goals like “boost profits by 20%”) and, with their superiors, jointly set goals for their departments. 3. Discuss dep.l goals with all subordinates, often at a department-wide meeting. Ask employees to their own preliminary individual goals; how can each employee contribute to the department’s goals? 4. Define ... (set individual goals). Department heads and their subordinates set short-term individual performance targets. 5. Performance rev. :Compare each employee’s actual and targeted performance. 6. Provide feedback: Dep. heads and employees discuss and evaluate the latter's progress. There are problems in using MBO? MBO requires the manager to set specific measurable goals with each employee and then periodically discuss the latter’s progress toward these goals. 1. Set.. Establish an org.-wide plan for next year and set company goals. 2. Set ... Next, department heads take these company goals like “boost profits by 20%”) and, with their superiors, jointly set goals for their departments. 3. Discuss dep.l goals with all subordinates, often at a department-wide meeting. Ask employees to their own preliminary individual goals; how can each employee contribute to the department’s goals? 4. Define ... (set individual goals). Department heads and their subordinates set short-term individual performance targets. 5. Performance rev. :Compare each employee’s actual and targeted performance. 6. Provide feedback: Dep. heads and employees discuss and evaluate the latter's progress. There are problems in using MBO?

91. New Trends in Performance Management ? Skepticism about an overall motivating effect of appraisals: Excellent interview and counseling skills required Performance Management is more than a Review of Performance: It must be supplemented by an integrated cooperative objective-setting and a development planning process Goals should be flexible to reflect changing conditions Ongoing discussion and feedback by “coaches” who are not focused to judge their employees but to help them achieve success (e.g. through training, better resources) Upward appraisals and forms of ranking systems gain ground

92. Group-Work (5) 5.A. Which special Factors may (adversely) affect performance abroad (goal attainment)? 5.B. Technicalities (specialties) of Performance Appraisals in an international context (Which criteria? Who are the partners? Which form? Frequency? etc.) 5.C. Role Game: Forced Distribution with HVB 4 Groups according the assignment

93. Compensation package Task / Role Headquarters Support Host Environment Cultural adjustment Different management styles Who conducts the Performance Appraisal? Performance Appraisal Practise (standardized or customized, frequency ) 4.4. Expatriate performance and appraisal Who appraises the expatriate is key. Stipulate the assignment’s difficulty level: Most would view being an expatriate manager in China more difficult than working in England; the appraisal should take into account such difficulty-level differences. Favor the on-site manager’s appraisal: Weigh the evaluation more toward the on-site manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance. If (as is usually the case) the home-office manager does the actual written appraisal, have him or her use a former expatriate from the same overseas location for advice. This helps ensure consideration of unique local issues during the appraisal. Modify the normal performance criteria used for that particular position to fit the overseas position. Who appraises the expatriate is key. Stipulate the assignment’s difficulty level: Most would view being an expatriate manager in China more difficult than working in England; the appraisal should take into account such difficulty-level differences. Favor the on-site manager’s appraisal: Weigh the evaluation more toward the on-site manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance. If (as is usually the case) the home-office manager does the actual written appraisal, have him or her use a former expatriate from the same overseas location for advice. This helps ensure consideration of unique local issues during the appraisal. Modify the normal performance criteria used for that particular position to fit the overseas position.

94. Example: Performance appraisals in Western MNE’s in China Source: Lindholm, Tahvanainen and Björkman, in Brewster/Harris, International HRM, Contemporary Issues in Europe, (see Reader) Appraisals in the US are held illegal if they are Based on subjective observations Not administered and scored consistently Based on evaluators who did not have regular contact Appraisals affect promotions, raises, and dismissals. US-courts have therefore addressed the link between appraisals and personnel actions. The courts have found that inadequate appraisal systems often cause discriminatory layoffs, promotions, discharges or merit pays. Source: Lindholm, Tahvanainen and Björkman, in Brewster/Harris, International HRM, Contemporary Issues in Europe, (see Reader) Appraisals in the US are held illegal if they are Based on subjective observations Not administered and scored consistently Based on evaluators who did not have regular contact Appraisals affect promotions, raises, and dismissals. US-courts have therefore addressed the link between appraisals and personnel actions. The courts have found that inadequate appraisal systems often cause discriminatory layoffs, promotions, discharges or merit pays.

95. 4.5. Summary of Chapter People want & need feedback – an appraisal gives them that feedback Clarify the performance you expect in advance Appraisals help in managing performance by providing concrete and non-threatening basis for analysis of employee’s work-related performance We’ve seen tools like: Forced Distributions, 360o Appraisals, Upward Evaluation, TQM Oriented Appraisals Performance and appraisal in an international surrounding is a challenging task 1. People want and need feedback regarding how they are doing, and appraisal provides an opportunity to give them that feedback. 2. Before the appraisal, make sure to clarify the performance you expect so that the employee knows what he or she should be shooting for. Ask, “What do I really expect this person to do?” 3. Performance appraisal tools include the graphic rating scale, alternation ranking method, forced distribution method, BARS, MBO, critical incident method, and computer and Web-based methods. 1. People want and need feedback regarding how they are doing, and appraisal provides an opportunity to give them that feedback. 2. Before the appraisal, make sure to clarify the performance you expect so that the employee knows what he or she should be shooting for. Ask, “What do I really expect this person to do?” 3. Performance appraisal tools include the graphic rating scale, alternation ranking method, forced distribution method, BARS, MBO, critical incident method, and computer and Web-based methods.

96. 5. Training and Development Training: Improvement of individual skills Development: Systematic development of the present and potential skills and abilities for future jobs Training: Improvement of individual skills Development: Systematic development of the present and potential skills and abilities for future jobs

97. Outline of Chapter 5 Introduction: Training and Development Process Expat preparation, tools and instruments Cultural Awareness Programs Managerial Development and Training Development of a cadre of international Managers HCN-Training

98. After Studying This Chapter You Should Be Able To: discuss how to prepare, to train and develop employees for international posts give some arguments for attendance of cultural-awareness-seminars describe some on- and off-the job training methods illustrate some Career management practices explain how a company may build up a pool of international managers

99. 5.1. Introduction: Training and Development Process Training programs consist of five steps. The first, or needs analysis step, identifies the specific job performance skills needed, analyzes the skills and needs of the prospective trainees, and develops specific, measurable knowledge and performance objectives. In the second step, instructional design, you decide on, compile, and produce the training program content, including workbooks, exercises, and activities; here, you’ll probably use techniques such as on-the-job training and computer-assisted learning. There may be a third, validation step, in which the bugs are worked out of the training program by presenting it to a small representative audience. The fourth step is to implement the program, by actually training the targeted employee group. Fifth is an evaluation and follow-up step, in which management assesses the program’s successes or failures.Training programs consist of five steps. The first, or needs analysis step, identifies the specific job performance skills needed, analyzes the skills and needs of the prospective trainees, and develops specific, measurable knowledge and performance objectives. In the second step, instructional design, you decide on, compile, and produce the training program content, including workbooks, exercises, and activities; here, you’ll probably use techniques such as on-the-job training and computer-assisted learning. There may be a third, validation step, in which the bugs are worked out of the training program by presenting it to a small representative audience. The fourth step is to implement the program, by actually training the targeted employee group. Fifth is an evaluation and follow-up step, in which management assesses the program’s successes or failures.

100. Training and Development: Group-Work (6)

101. 5.2. Expat preparation Why preparation? Why often no predeparture training? What Special Training Do Overseas Candidates Need? Level 1 training focuses on the impact of cultural differences, and on raising trainees’ awareness of such differences and their impact on business outcomes. Level 2 aims at getting participants to understand how attitudes (both negative and positive) are formed and how they influence behavior. (For example, unfavorable stereotypes may subconsciously influence how a new manager responds to and treats his or her new foreign subordinates.) Level 3 training provides factual knowledge about the target country, while Level 4 provides skill building in areas like language and adjustment and adaptation skills.

102. Tools and Instruments Cultural Awareness Programs Management and Technical Training Language Courses Look-and-sea trips Practical assistance Communication with returned or current expats Organization of social events Job for spouse Practical assistance (removal- relocation specialists, agreed contract, visa, driving licenses, illness insurance, schools, language training for spouse and children...) Organization of social events / cultural support ,supportive groups for newcomer Practical assistance (removal- relocation specialists, agreed contract, visa, driving licenses, illness insurance, schools, language training for spouse and children...) Organization of social events / cultural support ,supportive groups for newcomer

103. Cultural Awareness Training and Assignment Performance The exhibit shows the components of the three following models: 1. Tung proposed a contingency framework for deciding the nature and level of training. The training should focus on cross-cultural skill development as well as on the new task when there is a high level of expected interaction with host nationals and a large dissimilarity between the cultures 2. Mendenhall/ Oddou proposed a model that builds upon Tung´s. Additional Guidelines for determining an appropriate program: Training methods (cultural briefings via lectures, movies or books up to culture assimilators and role-plays) Level of training rigor (high, medium, low) Duration of the training relative to degree of interaction and culture novelty 3. Bandura´s social learning theory : attention (paid by the potential Expat to the contents, targets and probable outcomes of the cultural awareness training program), retention (the individuals ability and willingness to retain learned behaviours) and reproduction (of the learned in the host environment) – how are these influenced by individual differences in expectations and motivations and the incentives to apply learned behaviours in the foreign location. The exhibit shows the components of the three following models: 1. Tung proposed a contingency framework for deciding the nature and level of training. The training should focus on cross-cultural skill development as well as on the new task when there is a high level of expected interaction with host nationals and a large dissimilarity between the cultures 2. Mendenhall/ Oddou proposed a model that builds upon Tung´s. Additional Guidelines for determining an appropriate program: Training methods (cultural briefings via lectures, movies or books up to culture assimilators and role-plays) Level of training rigor (high, medium, low) Duration of the training relative to degree of interaction and culture novelty 3. Bandura´s social learning theory : attention (paid by the potential Expat to the contents, targets and probable outcomes of the cultural awareness training program), retention (the individuals ability and willingness to retain learned behaviours) and reproduction (of the learned in the host environment) – how are these influenced by individual differences in expectations and motivations and the incentives to apply learned behaviours in the foreign location.

104. Cultural Awareness Programs Recognize own culture Compare behaviors of the host-country with our culture Sensitivity for the host-culture Promotion of intercultural competence Enhance performance Targets of cross-cultural training To recognize how the own culture influences our behavior (Consciousness of prejudices...) To compare behaviors / values of the host-country with our culture (self awareness training) Sensitivity for the host-culture, foster an appreciation of the host-country’s culture, Without an understanding of the host-country culture the Expat is likely to face some difficulties during the international assignment Promotion of intercultural competence: Adaptation or Adjustment, developing appropriate coping patterns Foster performance. Targets of cross-cultural training To recognize how the own culture influences our behavior (Consciousness of prejudices...) To compare behaviors / values of the host-country with our culture (self awareness training) Sensitivity for the host-culture, foster an appreciation of the host-country’s culture, Without an understanding of the host-country culture the Expat is likely to face some difficulties during the international assignment Promotion of intercultural competence: Adaptation or Adjustment, developing appropriate coping patterns Foster performance.

105. Training For Special Purposes Diversity training Global business training samples include: Executive etiquette for global transactions Cross-cultural technology transfer International protocol and presentation Business basics for the foreign executive Diversity Training With an increasingly diverse workforce, more firms are implementing diversity training programs. One aim may be to create a better sensitivity among supervisors about the issues and challenges women and minorities face in pursuing their careers and so to create better cross-cultural sensitivity, with the aim of fostering more harmonious working relationships among a firm’s employees. Results include:improving interpersonal skills; understanding and valuing cultural differences; improving technical skills; socializing employees into the corporate culture; reducing stress; indoctrinating new workers into the work ethic; mentoring; improving language proficiency; Global business training: Executive Etiquette for Global Transactions: training managers in business etiquette in other cultures. Cross-Cultural Technology Transfer: This program shows how cultural values affect perceptions of technology and technical learning's. International Protocol and Presentation: This program shows the correct way to handle people with tact and diplomacy in other countries Business Basics for the Foreign Executive: negotiating cross-culturally, making presentations using the phone and writingDiversity Training With an increasingly diverse workforce, more firms are implementing diversity training programs. One aim may be to create a better sensitivity among supervisors about the issues and challenges women and minorities face in pursuing their careers and so to create better cross-cultural sensitivity, with the aim of fostering more harmonious working relationships among a firm’s employees. Results include:improving interpersonal skills; understanding and valuing cultural differences; improving technical skills; socializing employees into the corporate culture; reducing stress; indoctrinating new workers into the work ethic; mentoring; improving language proficiency; Global business training: Executive Etiquette for Global Transactions: training managers in business etiquette in other cultures. Cross-Cultural Technology Transfer: This program shows how cultural values affect perceptions of technology and technical learning's. International Protocol and Presentation: This program shows the correct way to handle people with tact and diplomacy in other countries Business Basics for the Foreign Executive: negotiating cross-culturally, making presentations using the phone and writing

106. Look-and-see trips Assess suitability for and interest in the assignment Introduce expatriate candidates to the business context in the host location Encourage more informed predeparture preparation Gather information for the decision Exposure to the expatriate-community The couple may reject the assignment on the basis of the preliminary visit : Most firms that utilize predeparture visit weigh their cost against premature recall and under-performance risk. The couple may reject the assignment on the basis of the preliminary visit : Most firms that utilize predeparture visit weigh their cost against premature recall and under-performance risk.

107. Language training The role of English as the language of world business Host-country language skills and adjustment Knowledge of the corporate language Language training: Language training delivered by certified instructors, usually determined by the learner’s needs rather than by the requirements of a predetermined curriculum or textbook. Host-country language skills and adjustment The monolingual English speaker has less room to manoeuvre, no possibility of finding out more that he is given. What he says and understands is filtered through the other speakers competence, over which he has no control Disregarding the importance of foreign language skills may reflect a degree of ethnocentrism The ability to speak a foreign language can improve the expatriates effectiveness and negotiating ability and access to information Language training: Language training delivered by certified instructors, usually determined by the learner’s needs rather than by the requirements of a predetermined curriculum or textbook. Host-country language skills and adjustment The monolingual English speaker has less room to manoeuvre, no possibility of finding out more that he is given. What he says and understands is filtered through the other speakers competence, over which he has no control Disregarding the importance of foreign language skills may reflect a degree of ethnocentrism The ability to speak a foreign language can improve the expatriates effectiveness and negotiating ability and access to information

108. Training Trends for Expatriates Trends in expatriate training and development: Use of continuing cross-cultural training Use returning managers as resources for new assignees Software and internet programs like Bridging Cultures for cross-cultural training There are several trends in expatriate training and development. First, rather than providing only predeparture cross-cultural training, more firms are providing continuing, in-country cross-cultural training during the early stages of an overseas assignment. Second, employers are using returning managers as resources to cultivate the “global mind-sets” of their home-office staff. For example, automotive equipment producer BOSCH- Blaichach holds regular seminars in which newly arrived returnees pass on their knowledge and experience to relocating managers and their families. There’s also increased use of the software and the Internet for cross-cultural training. For example, Bridging Cultures is a self-training multimedia package for people who will be traveling and/or living overseas. It uses short video clips to introduce case study intercultural problems, and then guides users to selecting the strategy to best handle the situation. There are several trends in expatriate training and development. First, rather than providing only predeparture cross-cultural training, more firms are providing continuing, in-country cross-cultural training during the early stages of an overseas assignment. Second, employers are using returning managers as resources to cultivate the “global mind-sets” of their home-office staff. For example, automotive equipment producer BOSCH- Blaichach holds regular seminars in which newly arrived returnees pass on their knowledge and experience to relocating managers and their families. There’s also increased use of the software and the Internet for cross-cultural training. For example, Bridging Cultures is a self-training multimedia package for people who will be traveling and/or living overseas. It uses short video clips to introduce case study intercultural problems, and then guides users to selecting the strategy to best handle the situation.

109. 5.3. Managerial Development Management development is any attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills with an aim to enhance the future performance of the company itself. Three principal steps: Assessing the company’s strategic needs Appraising the managers’ performance, skills and potential Developing the managers

110. The changing role of the manager The Boss: CEO, leadership (Local leader with authority and autonomy and country responsibility, measured on country financial results) Chief Supervisor: Transfer Agent, Implementer, Integrator Customer Originator, Salesman, Initiator Facilitator, Coordinator, Mediator, Enabler Conductor, Networker (networking skills: “Matrix is not a structure, but a mind-set!”), orchestrating worldwide resources: Chief Executive for External Relations, “Ambassador” The Boss: CEO, leadership (Local leader with authority and autonomy and country responsibility, measured on country financial results) Chief Supervisor: Transfer Agent, Implementer, Integrator Customer Originator, Salesman, Initiator Facilitator, Coordinator, Mediator, Enabler Conductor, Networker (networking skills: “Matrix is not a structure, but a mind-set!”), orchestrating worldwide resources: Chief Executive for External Relations, “Ambassador”

111. Managerial Training Job rotation Coaching/understudy approach Action learning The case study method Games Seminars University programs Role playing Behavior modeling - 4 steps Job Rotation: moving managers to different jobs or from department to dep. to broaden their understanding of all parts of the business and to test their abilities. Coaching: manager/trainee works directly with a senior manager or with the person he is to replace; the latter is responsible for the trainee’s coaching. Action Learning programs give managers time to work on projects, analyzing and solving problems in departments other than their own. Several trainees may work together as a project group, or compare notes and discuss each other’s projects. The Case Study Method presents a trainee with a written description of an organizational problem. The person then analyzes the case, diagnoses the problem, and presents his or her findings and solutions in a discussion with other trainees. Management Games: computerized or CD-ROM-based management games, trainees are divided into groups, which compete in a simulated marketplace. Each group typically must decide, for example, how much to spend on advertising etc. Outside Seminars Web-based or traditional management development seminars University-Related Programs provide executive education and continuing education programs in leadership, supervision, and the like. Role Playing: aim is to create a realistic situation and then have the trainees assume the roles of specific persons in that situation. Behavior Modeling involves showing trainees the right way of doing something, letting trainees practice that way, and giving feedback on the trainees’ performance. Job Rotation: moving managers to different jobs or from department to dep. to broaden their understanding of all parts of the business and to test their abilities. Coaching: manager/trainee works directly with a senior manager or with the person he is to replace; the latter is responsible for the trainee’s coaching. Action Learning programs give managers time to work on projects, analyzing and solving problems in departments other than their own. Several trainees may work together as a project group, or compare notes and discuss each other’s projects. The Case Study Method presents a trainee with a written description of an organizational problem. The person then analyzes the case, diagnoses the problem, and presents his or her findings and solutions in a discussion with other trainees. Management Games: computerized or CD-ROM-based management games, trainees are divided into groups, which compete in a simulated marketplace. Each group typically must decide, for example, how much to spend on advertising etc. Outside Seminars Web-based or traditional management development seminars University-Related Programs provide executive education and continuing education programs in leadership, supervision, and the like. Role Playing: aim is to create a realistic situation and then have the trainees assume the roles of specific persons in that situation. Behavior Modeling involves showing trainees the right way of doing something, letting trainees practice that way, and giving feedback on the trainees’ performance.

112. Career Development Management must provide development opportunities, feedback, and career-oriented appraisals Careers are no longer viewed as an upward linear progression but reinvented constantly as work environments change Globalization is a great challenge and step for career development

113. The Employer’s Role Posting job openings Formal education Career-oriented performance appraisals Management counseling Application of HR instruments (portfolio, training) Succession planning Lateral development

114. 5.4. Development of a cadre of international Managers Developing a small cadre of international employees International Trainee-Programs (Bosch) Short-term and long-term development assignments International job rotation Externally provided training programs (INSEAD in France provides educational opportunities) Field trips to investigate business opportunities, international project work International meetings, teamwork, management seminars No career without having worked in an international subsidiary (Unilever)

115. Selection-Development-Assignment-Process The exhibit attempts to illustrate the stages of expatriation from recruitment and selection to completing of the particular assignment. The question for the multinational firm is how to maintain and leverage its human resources so that suitably trained, internationally oriented personnel are available to support its strategic responses and contribute to its core competencies. An indication of the importance of t+d staff is the increasing number of MNEs that establish their own universities. Most of literature is devoted to expatriate predeparture training activities that are mainly concerned with developing cultural awareness (PWC-Study 1997-98), mostly on an voluntary basis. The exhibit attempts to illustrate the stages of expatriation from recruitment and selection to completing of the particular assignment. The question for the multinational firm is how to maintain and leverage its human resources so that suitably trained, internationally oriented personnel are available to support its strategic responses and contribute to its core competencies. An indication of the importance of t+d staff is the increasing number of MNEs that establish their own universities. Most of literature is devoted to expatriate predeparture training activities that are mainly concerned with developing cultural awareness (PWC-Study 1997-98), mostly on an voluntary basis.

116. Global Executive Development Candidates backgrounds Family situations Brief candidates on all relocation policies Comprehensive training Provide a mentor Establish a repatriation program 1. Choose candidates whose educational backgrounds and experiences are appropriate for overseas assignments. 2. Choose those whose personalities and family situations can withstand the cultural changes they will encounter in their new environments. When many of these executives fail, it is because their spouses or children were unhappy in their new setting. 3. Brief candidates fully on all relocation policies, including moving expenses, salary differentials, and benefits such as paid schooling 4. Give executives and their families comprehensive training in their new culture and language. 5. Provide all relocating executives with a mentor to monitor their overseas careers and to help them secure appropriate jobs with the company when they return. This person is usually a high-level supervisor in the expatriate’s functional area. 6. Establish a repatriation program that helps returning executives and their families readjust to their professional personal lives in their home country. 1. Choose candidates whose educational backgrounds and experiences are appropriate for overseas assignments. 2. Choose those whose personalities and family situations can withstand the cultural changes they will encounter in their new environments. When many of these executives fail, it is because their spouses or children were unhappy in their new setting. 3. Brief candidates fully on all relocation policies, including moving expenses, salary differentials, and benefits such as paid schooling 4. Give executives and their families comprehensive training in their new culture and language. 5. Provide all relocating executives with a mentor to monitor their overseas careers and to help them secure appropriate jobs with the company when they return. This person is usually a high-level supervisor in the expatriate’s functional area. 6. Establish a repatriation program that helps returning executives and their families readjust to their professional personal lives in their home country.

117. HCN-Training is important Why train the HCNs? Effects of training HCN Poaching of trained HCNs “Inpatriation”: HCNs as Expats Poaching of trained HCNs Trained employees may well become attractive to its foreign and local competitors, if this ”poaching” is successful, the multinational discovers that its competitors reap the training benefits while it receives little return for its investments in human capital. Similar problems in connection with joint ventures.Poaching of trained HCNsTrained employees may well become attractive to its foreign and local competitors, if this ”poaching” is successful, the multinational discovers that its competitors reap the training benefits while it receives little return for its investments in human capital. Similar problems in connection with joint ventures.

118. 5.5. Summary Expat Preparation: Training tools and instruments We saw a number of special purpose training methods Management and career development Global executive Development Building a pool of internationally experienced managers Why HCN is important

119. 6. Compensation

120. Outline of Chapter 6 Incentives: Tools and components Strategy and Manager Compensation Long-Term-Incentives International Rewarding: Trends and Examples Expatriates Compensation: Objectives, Components, Methods, Taxation

121. After Studying This Chapter You Should Be Able To: discuss the various incentives for employees and management discuss the pros and cons of short and long-term incentives describe the main trends regarding international compensation for executives explain why many incentive plans fail describe the main objectives, components and methods as well as the pros and cons of Expat-compensation approaches

122. 6.1. Incentives: Tools and Components Merit pay or a merit raise is any salary increase awarded an employee based on individual performance Usually granted exempt employees Only a modest correlation is seen between merit pay and performance. Merit increases are cumulative in time. Only a modest correlation is seen between merit pay and performance. Merit increases are cumulative in time.

123. Lump sum raises Lump sum raises are not cumulative; traditional raise is Lump sum can be a bigger motivator Two adaptations of merit pay plans are becoming more popular. One awards merit raises in a lump sum once a year (making them, in effect, short-term bonuses ). The other ties merit awards to both individual and organizational performance. Traditional merit increases are cumulative, but most lump sum merit raises are not. Therefore, the rise in payroll expenses can be significantly slowed. Lump-sum merit increases can also be more dramatic motivators than traditional merit pay raises. Two adaptations of merit pay plans are becoming more popular. One awards merit raises in a lump sum once a year (making them, in effect, short-term bonuses ). The other ties merit awards to both individual and organizational performance. Traditional merit increases are cumulative, but most lump sum merit raises are not. Therefore, the rise in payroll expenses can be significantly slowed. Lump-sum merit increases can also be more dramatic motivators than traditional merit pay raises.

124. The Annual Bonus A bonus is aimed at motivating short term performance with three issues to consider when awarding them: Eligibility – based on job level and salary Fund size – use a formula Individual awards – based on performance Eligibility: Most firms opt for broad eligibility — they include both top- and lower-level managers. Fund size formula: Some use a straight percentage (usually of the company’s net income) to create the short-term incentive fund.. Some firms don’t use a formula, but make that decision on a totally discretionary basis. Individual Awards: Typically, a target bonus (as well as maximum amount, perhaps double the target bonus) is set for each eligible position, and the actual award reflects the person’s performance. The firm computes performance ratings for each manager, computes preliminary total bonus estimates, and compares the total amount of money required with the bonus fund available. If necessary, it then adjusts the individual bonus estimates. Eligibility: Most firms opt for broad eligibility — they include both top- and lower-level managers. Fund size formula: Some use a straight percentage (usually of the company’s net income) to create the short-term incentive fund.. Some firms don’t use a formula, but make that decision on a totally discretionary basis. Individual Awards: Typically, a target bonus (as well as maximum amount, perhaps double the target bonus) is set for each eligible position, and the actual award reflects the person’s performance. The firm computes performance ratings for each manager, computes preliminary total bonus estimates, and compares the total amount of money required with the bonus fund available. If necessary, it then adjusts the individual bonus estimates.

125. Incentives for Professionals Determining this type of incentive is challenging Professionals are well-paid and driven Keep highly motivated professionals by using: Stock options and profit sharing Improved pension plans More training and education Home offices Definition: Professional employees are those whose work involves the application of learned knowledge to the solution of the employer’s problems. They include lawyers, doctors, economists, and engineers. Professionals reach their positions through prolonged periods of formal an in-company study. Challenging why? For one thing, firms usually pay professionals well anyway; for another, they’re already driven — by the desire to produce high-caliber work and receive recognition from colleagues. In some cases, offering financial rewards to people like these may actually diminish their intrinsic motivation—not add to it. Definition: Professional employees are those whose work involves the application of learned knowledge to the solution of the employer’s problems. They include lawyers, doctors, economists, and engineers. Professionals reach their positions through prolonged periods of formal an in-company study. Challenging why? For one thing, firms usually pay professionals well anyway; for another, they’re already driven — by the desire to produce high-caliber work and receive recognition from colleagues. In some cases, offering financial rewards to people like these may actually diminish their intrinsic motivation—not add to it.

126. Gainsharing Multiple measures: Productivity, cost savings, performance, product damage, customer complaints, shipping errors, safety, and attendance Committed managers and workers Employee involvement Straightforward formula Eight basic steps: Gainsharing: incentive plan that engages employees in a common effort to achieve a company’s productivity objectives, with any resulting cost-savings gains shared among employees and the company. Financial formula: simple and reward performance with a specific measurable goals Eight basic steps: Establish general plan objectives: These might include boosting productivity or lowering costs. Choose specific performance measures: For example such as labor hours per unit produced Decide on a funding formula: What portion of gains will employees receive? For instance 40% of incremental gains. Decide on a method for dividing and distributing the employees’ share of the gains: e.g. equal percentage of pay Make the disbursement significant enough to get participants’ attention and to motivate their behavior. Choose the form of payment: Usually cash, but occasionally is common stock. Decide how often to pay bonuses. Involvement system: Steering committees, update meetings, suggestion systems, problem-solving teams, auditors. Gainsharing: incentive plan that engages employees in a common effort to achieve a company’s productivity objectives, with any resulting cost-savings gains shared among employees and the company. Financial formula: simple and reward performance with a specific measurable goals Eight basic steps: Establish general plan objectives: These might include boosting productivity or lowering costs. Choose specific performance measures: For example such as labor hours per unit produced Decide on a funding formula: What portion of gains will employees receive? For instance 40% of incremental gains. Decide on a method for dividing and distributing the employees’ share of the gains: e.g. equal percentage of pay Make the disbursement significant enough to get participants’ attention and to motivate their behavior. Choose the form of payment: Usually cash, but occasionally is common stock. Decide how often to pay bonuses. Involvement system: Steering committees, update meetings, suggestion systems, problem-solving teams, auditors.

127. 6.2. Manager Compensation When designing a compensation plan, first define strategic context: Meet unique company and strategic needs Long-term incentives have a profound impact on strategic success Shape components into balanced plan Legal and tax effective Install a review and evaluation process Define the strategic context for the executive compensation program, including the internal and external issues that face the company, and the firm’s business objectives. For example, ask: What are our organization’s long-term goals, and how can the compensation structure support them? What are our company’s specific business objectives —for example, growth in market share or expansion abroad—and how can the compensation program help push the company in that direction? Create a stock option or other long incentive plan that meet the unique needs of the executives and the company and its strategy. Based on your strategic aims, shape each component of the executive compensation package (base salary, short-term incentives, long-term incentives, and benefits and perquisites), and then group the components into a balanced plan that makes sense in terms of these aims. Check the executive compensation plan for compliance with all legal and regulatory requirements and for tax effectiveness. Install a process for reviewing and evaluating the executive compensation plan whenever a major business change occurs.Define the strategic context for the executive compensation program, including the internal and external issues that face the company, and the firm’s business objectives. For example, ask: What are our organization’s long-term goals, and how can the compensation structure support them? What are our company’s specific business objectives —for example, growth in market share or expansion abroad—and how can the compensation program help push the company in that direction? Create a stock option or other long incentive plan that meet the unique needs of the executives and the company and its strategy. Based on your strategic aims, shape each component of the executive compensation package (base salary, short-term incentives, long-term incentives, and benefits and perquisites), and then group the components into a balanced plan that makes sense in terms of these aims. Check the executive compensation plan for compliance with all legal and regulatory requirements and for tax effectiveness. Install a process for reviewing and evaluating the executive compensation plan whenever a major business change occurs.

128. Incentives for Managers and Executives (Example)

129. Types of Incentive Plans Individual Team Employee group Profit sharing Variable pay Performance plans Incentive plans can be classified in several ways. Individual incentive plans provide income over and above base salary to individual employees who meet specific individual performance standards. Team incentive programs pay all members when the group or team collectively meets its performance standard. Plans can also be classified by employee group —such as plans for operating employees, sales employees, or managers. Profit sharing plans are generally organization-wide, and provide all or most employees with a share of the company’s profits in a specified period. Variable Pay: Part of your salary is linked to your performance. Performance Plans: next slideIncentive plans can be classified in several ways. Individual incentive plans provide income over and above base salary to individual employees who meet specific individual performance standards. Team incentive programs pay all members when the group or team collectively meets its performance standard. Plans can also be classified by employee group —such as plans for operating employees, sales employees, or managers. Profit sharing plans are generally organization-wide, and provide all or most employees with a share of the company’s profits in a specified period. Variable Pay: Part of your salary is linked to your performance. Performance Plans: next slide

130. Manager’s Performance Plan or Bonus Split it with part based on individual performance rest on corporate performance Never give outstanding performers too little Never give poor performers normal or average awards Use a (performance) plan where executives do not prosper unless the company does Make executives have some risk to garner their reward – a multiyear bonus 1. Will managers receive bonuses based on individual performance, corporate performance, or both? There are no hard-and-fast rules. Firms usually tie top-level executive bonuses to overall corporate results.Further down the chain of command, corporate profits become a less accurate gauge of a manager’s contribution. Many firms tie short-term bonuses to both organizational and individual performance. 2. Don’t pay outstanding performers less than their target reward, regardless of organizational performance, and pay them substantially larger awards than you do other managers. 3. Use a Performance plans where executives do not prosper unless the company does: payment in cash or shares of stock is contingent on financial performance measured against objectives such as profit or growth in earnings per share. 4. Make executives have some risk: So use plans whose value is contingent on financial performance measured against objectives set at the start of a multi-year period.1. Will managers receive bonuses based on individual performance, corporate performance, or both? There are no hard-and-fast rules. Firms usually tie top-level executive bonuses to overall corporate results.Further down the chain of command, corporate profits become a less accurate gauge of a manager’s contribution. Many firms tie short-term bonuses to both organizational and individual performance. 2. Don’t pay outstanding performers less than their target reward, regardless of organizational performance, and pay them substantially larger awards than you do other managers. 3. Use a Performance plans where executives do not prosper unless the company does: payment in cash or shares of stock is contingent on financial performance measured against objectives such as profit or growth in earnings per share. 4. Make executives have some risk: So use plans whose value is contingent on financial performance measured against objectives set at the start of a multi-year period.

131. International Trend to Long Term Incentives (LTI) Stock options Stock appreciation Phantom stock Performance plans Deferred plans Stock-option and other deferred-compensation (Performance-) plans reward employees based on company performance over the long term LTC injects a long-term perspective into executives’ decisions. They focus key employees on improving the financial performance of the company over the longer term. With only short-term criteria, a manager could boost profitability by reducing plant maintenance, this tactic might catch up with the company two or three years later. Traditional LTC (like stock options) often don’t build in any real risk for the executive, so the executives’ and the shareholders’ interests could diverge. The solution is to design the plan so that executives don’t prosper unless the company does. Stock appreciation rights permit the recipient to take any appreciation in the stock price in cash, stock, or some combination. Under phantom stock plans, executives receive not shares but “units” that are similar to shares of company stock. Then at some future time, they receive value (usually in cash) equal to the appreciation of the “phantom” stock (or measures such as return on equity) they own. Deferred plans place proceeds in a tax exempt account to be used at a later time (retirement).Stock-option and other deferred-compensation (Performance-) plans reward employees based on company performance over the long term LTC injects a long-term perspective into executives’ decisions. They focus key employees on improving the financial performance of the company over the longer term. With only short-term criteria, a manager could boost profitability by reducing plant maintenance, this tactic might catch up with the company two or three years later. Traditional LTC (like stock options) often don’t build in any real risk for the executive, so the executives’ and the shareholders’ interests could diverge. The solution is to design the plan so that executives don’t prosper unless the company does. Stock appreciation rights permit the recipient to take any appreciation in the stock price in cash, stock, or some combination. Under phantom stock plans, executives receive not shares but “units” that are similar to shares of company stock. Then at some future time, they receive value (usually in cash) equal to the appreciation of the “phantom” stock (or measures such as return on equity) they own. Deferred plans place proceeds in a tax exempt account to be used at a later time (retirement).

132. Stock Options A stock option is the right to purchase a stated number of shares of a company stock at a preset price at some time in the future A restricted stock option is an option grant which has constraints on its use (e.g. realizing the option only after 3-5 years or only eligible when still working in the company) Especially multinational companies have introduced such devices to motivate managers across borders in a cross-border-common scheme for managers. Especially multinational companies have introduced such devices to motivate managers across borders in a cross-border-common scheme for managers.

133. Implementing Incentive Plans (1) Use common sense Incentive linked to strategy Effort linked to reward Easily understood Set effective standards Standard is a contract 1. Common sense. Sometimes incentive pay doesn’t make as much sense. For example: when employees are unable to control quantity or output (such as on machine-paced assembly lines); 2. Link incentive with strategy. Decide how the incentive plan will contribute to implementing the firm’s goals/strategy. 3. Make sure effort and rewards are directly related. The incentive plan should reward employees in direct proportion to increased productivity or quality. Employees must also perceive that they can actually do the tasks required. The standard has to be attainable, and you have to provide the necessary tools, equipment, and training. 4. Employees should understand the plan and be able to calculate their rewards for various levels of effort. 5. Effective standards. Make standards high but reasonable—there should be about a 60% to 70% chance of success. And the goal should be specific—this is much more effective than telling someone to “do your best.” 6. View the standard as a contract with your employees. Once the plan is working, use caution before decreasing the size of the incentive. Rate cuts have long been the nemesis of incentive plans.1. Common sense. Sometimes incentive pay doesn’t make as much sense. For example: when employees are unable to control quantity or output (such as on machine-paced assembly lines); 2. Link incentive with strategy. Decide how the incentive plan will contribute to implementing the firm’s goals/strategy.3. Make sure effort and rewards are directly related. The incentive plan should reward employees in direct proportion to increased productivity or quality. Employees must also perceive that they can actually do the tasks required. The standard has to be attainable, and you have to provide the necessary tools, equipment, and training. 4. Employees should understand the plan and be able to calculate their rewards for various levels of effort. 5. Effective standards. Make standards high but reasonable—there should be about a 60% to 70% chance of success. And the goal should be specific—this is much more effective than telling someone to “do your best.” 6. View the standard as a contract with your employees. Once the plan is working, use caution before decreasing the size of the incentive. Rate cuts have long been the nemesis of incentive plans.

134. Implementing Incentive Plans (2) Get support Use accurate measurement Long and short view Consider corporate culture Comprehensive commitment oriented approach 7. Get employees’ support for the plan. Restrictions by members of the work group can undermine the plan. 8. Use good measurement systems. The process used to appraise performance must be clear and fair. 9. Emphasize long-term as well as short-term success. For example, just paying assembly workers for quantity produced may be shortsighted: Longer-term improvements like those deriving from work-improvement suggestions are often equally important in increasing the firm’s value. 10. The incentive plan should be consistent with the culture you want to create. For example, a bank with different divisions may have difficulty to share information and refer new business leads to each other. A possible solution could be that employees can earn extra commissions by referring new business to another division better suited for the client. Over time, “this was enough to change the thought process from ‘me’ to ‘we.” 11. Adopt a comprehensive, commitment-oriented approach. From the employees’ point of view, incentive plans don’t exist in isolation. For example, trying to motivate employees with a new incentive plan when they don’t have the skills to do the job, or are demoralized by unfair supervisors or a lack of respect, might well fail. 7. Get employees’ support for the plan. Restrictions by members of the work group can undermine the plan. 8. Use good measurement systems. The process used to appraise performance must be clear and fair.9. Emphasize long-term as well as short-term success. For example, just paying assembly workers for quantity produced may be shortsighted: Longer-term improvements like those deriving from work-improvement suggestions are often equally important in increasing the firm’s value. 10. The incentive plan should be consistent with the culture you want to create. For example, a bank with different divisions may have difficulty to share information and refer new business leads to each other. A possible solution could be that employees can earn extra commissions by referring new business to another division better suited for the client. Over time, “this was enough to change the thought process from ‘me’ to ‘we.” 11. Adopt a comprehensive, commitment-oriented approach. From the employees’ point of view, incentive plans don’t exist in isolation. For example, trying to motivate employees with a new incentive plan when they don’t have the skills to do the job, or are demoralized by unfair supervisors or a lack of respect, might well fail.

135. Why Incentive Plans Can Fail Performance pay can’t replace good management You get what you pay for Pay is not a motivator Rewards undermine intrinsic motivation People work for more than money Rewards rupture relationships Rewards can unduly restrict performance Rewards may undermine responsiveness Management: Performance pay is supposed to motivate workers, but lack of motivation is not always the culprit. Ambiguous instructions, lack of clear goals, inadequate employee selection and training, unavailability of tools, and a hostile workforce (or management) may impede performance. You get ... people often put their effort where they know they’ll be rewarded. But this also can backfire. An incentive plan that rewards a group based on how many pieces they produce may lead to rushed production and lower quality. Motivator? Herzberg says that money only buys temporary compliance, and that as soon as you remove the incentive, the motivation disappears. Insofar employers should provide adequate financial rewards, and then build other, more effective motivators (like opportunities for achievement) into jobs. Money. People do work for money, but they also work for meaning in their lives. Intrinsic motivation: There is considerable evidence that contingent financial rewards (incentives) may actually undermine the intrinsic motivation that often results in optimal performance. The argument is that financial incentives undermine the feeling that the person is doing a good job voluntarily. Rewards rupture relationships. Incentive plans have the potential for encouraging individuals (or individual groups) to pursue financial rewards for themselves. Rewards can restrict performance. One expert says: “Excellence pulls in one direction; rewards pull in another. Tell people that their income will depend on their productivity or performance rating, and they will focus on the numbers. Sometimes they will manipulate the schedule for completing tasks or even engage in patently unethical and illegal behavior.” Responsiveness. When employees’ main focus is on achieving some specific goal like cutting costs, any changes or distractions make achieving that goal harder. Incentive plans can therefore mediate against change and responsiveness.Management: Performance pay is supposed to motivate workers, but lack of motivation is not always the culprit. Ambiguous instructions, lack of clear goals, inadequate employee selection and training, unavailability of tools, and a hostile workforce (or management) may impede performance. You get ... people often put their effort where they know they’ll be rewarded. But this also can backfire. An incentive plan that rewards a group based on how many pieces they produce may lead to rushed production and lower quality. Motivator? Herzberg says that money only buys temporary compliance, and that as soon as you remove the incentive, the motivation disappears. Insofar employers should provide adequate financial rewards, and then build other, more effective motivators (like opportunities for achievement) into jobs. Money. People do work for money, but they also work for meaning in their lives. Intrinsic motivation: There is considerable evidence that contingent financial rewards (incentives) may actually undermine the intrinsic motivation that often results in optimal performance. The argument is that financial incentives undermine the feeling that the person is doing a good job voluntarily. Rewards rupture relationships. Incentive plans have the potential for encouraging individuals (or individual groups) to pursue financial rewards for themselves. Rewards can restrict performance. One expert says: “Excellence pulls in one direction; rewards pull in another. Tell people that their income will depend on their productivity or performance rating, and they will focus on the numbers. Sometimes they will manipulate the schedule for completing tasks or even engage in patently unethical and illegal behavior.” Responsiveness. When employees’ main focus is on achieving some specific goal like cutting costs, any changes or distractions make achieving that goal harder. Incentive plans can therefore mediate against change and responsiveness.

136. 6.3. Trends in international rewarding Less Merit-Increases (incremental yearly increases) Trend towards variable performance-related reward More long-term Incentives Equity participation by stock options for managers Relative and absolute compensation differences between (Top-) Management and blue-collar workers widen Non-monetary Components (i.e. training, development) grow in importance (higher contribution to intrinsic motivation) Strategy-Development: There seems to be a return to centralized policy development. Some years ago there was a trend toward decentralizing both policy and administration. This resulted in people within the same company receiving vastly different packages. Today more and more firms are going back to being more strategically centralized, especially for policy development. This has brought back al little bit more management control and efficiency and when the process is centralized it can be benchmarked to the industry. This may help to cut costs (coordinating selecting, buying data, create a more efficient framework).Strategy-Development: There seems to be a return to centralized policy development. Some years ago there was a trend toward decentralizing both policy and administration. This resulted in people within the same company receiving vastly different packages. Today more and more firms are going back to being more strategically centralized, especially for policy development. This has brought back al little bit more management control and efficiency and when the process is centralized it can be benchmarked to the industry. This may help to cut costs (coordinating selecting, buying data, create a more efficient framework).

137. Incentive Plans in Practice - Insight FedEx’s pay plan illustrates how firms use innovative incentive plans to boost quality and productivity Uses quarterly pay reviews Has a strong emphasis on pay for performance Merit program. All employees receive merit salary increases based on their individual performance. Pro Pay. Employees can receive lump-sum merit bonuses once they reach the top of their pay range. Star/Superstar Program. Supervisors can nominate salaried employees with a specified performance rating for a Star or Superstar lump-sum bonus. Profit sharing. FedEx’s profit-sharing plan distributes profits based on the overall profit of the corporation. The board of directors annually sets the amount paid, based on pretax profits. The Management Incentive Compensation (MIC) and Professional Incentive Compensation (PIC) Programs generally reward managers and professionals for achievement of divisional and corporate profit goals. Bravo Zulu Voucher Program. The BZV Program allows managers to provide immediate rewards to e. for outstanding performance. BZ vouchers can be in the form of a check or as dinner vouchers or theater tickets. Golden Falcon Award. FedEx gives the Golden Falcon Award to permanent employees who demonstrate service to customers that is above the call of duty.Merit program. All employees receive merit salary increases based on their individual performance. Pro Pay. Employees can receive lump-sum merit bonuses once they reach the top of their pay range. Star/Superstar Program. Supervisors can nominate salaried employees with a specified performance rating for a Star or Superstar lump-sum bonus. Profit sharing. FedEx’s profit-sharing plan distributes profits based on the overall profit of the corporation. The board of directors annually sets the amount paid, based on pretax profits. The Management Incentive Compensation (MIC) and Professional Incentive Compensation (PIC) Programs generally reward managers and professionals for achievement of divisional and corporate profit goals. Bravo Zulu Voucher Program. The BZV Program allows managers to provide immediate rewards to e. for outstanding performance. BZ vouchers can be in the form of a check or as dinner vouchers or theater tickets. Golden Falcon Award. FedEx gives the Golden Falcon Award to permanent employees who demonstrate service to customers that is above the call of duty.

138. International Compensation: Group-Work (7)

139. 6.4 Expatriates Compensation Objectives Key Components Compensation Strategies: -The Going Rate Approach -The Balance Sheet Approach Taxation Trends and Management Compensation The whole area of international compensation presents some tricky problems. On the one hand, there is logic in maintaining company-wide pay scales and policies so that, for instance, divisional marketing directors throughout the world are paid within the same narrow range. This reduces the risk of perceived inequities, and dramatically simplifies the job of keeping track of disparate country-by-country wage rates. Yet not adapting pay scales to local markets can produce more problems than it solves. The fact is, it can be enormously more expensive to live in some countries (like Japan) than others (like Greece); if these cost-of-living differences aren’t considered, it may be almost impossible to get mangers to take “high-cost” assignments. However, the answer is usually not just to pay, say, marketing directors more in one country than in another. For one thing, you could get resistance when you tell a marketing director in Tokyo who’s earning $3,000 per week to move to your division in Spain, where his or her pay for the same job will drop by half (cost of living notwithstanding). One way to handle the problem is to pay a similar base salary company-wide, and then add on various allowances according to individual market conditions. The whole area of international compensation presents some tricky problems. On the one hand, there is logic in maintaining company-wide pay scales and policies so that, for instance, divisional marketing directors throughout the world are paid within the same narrow range. This reduces the risk of perceived inequities, and dramatically simplifies the job of keeping track of disparate country-by-country wage rates. Yet not adapting pay scales to local markets can produce more problems than it solves. The fact is, it can be enormously more expensive to live in some countries (like Japan) than others (like Greece); if these cost-of-living differences aren’t considered, it may be almost impossible to get mangers to take “high-cost” assignments. However, the answer is usually not just to pay, say, marketing directors more in one country than in another. For one thing, you could get resistance when you tell a marketing director in Tokyo who’s earning $3,000 per week to move to your division in Spain, where his or her pay for the same job will drop by half (cost of living notwithstanding). One way to handle the problem is to pay a similar base salary company-wide, and then add on various allowances according to individual market conditions.

140. 6.4.1. Objectives Consistency with the overall strategy, structure and business needs Attract and retain staff for international postings Facilitation of the transfer of international employees in the most effective manner Due consideration to equity and ease of administration Cost efficiency Plans must consider various factors: Tax treatment Regulatory environment Foreign exchange controls

141. Determining Equitable Wages Lots of compensation data available Some companies rely on own surveys, especially for Cost-of-living allowance (COLA) Services: Organization Resource Counselors, Hay Consultants, Anderson Consulting, Lufthansa, Statistisches Bundesamt, Big-Mac-Index (The Economist). Cost-of-living allowance (COLA): compensates for differences in expenditures between the home country and the foreign country to neutralize the consumptive part of salary. Kraft (like many other companies) conducts an annual study of total compensation in Belgium, Germany, Italy, Spain, and the United Kingdom. It focuses on the total compensation paid to each of the senior-management positions held by local nationals in these firms. The survey covers all forms of compensation including cash, short- and long-term incentives, retirement plans, medical benefits, and perquisites. This information becomes the basis for annual salary increases and proposed changes in the benefits package, especially the Cost-of-living allowance (COLA). Sometimes the firm grants also a settlement (compensation) of currency fluctuations . Cost-of-living allowance (COLA): compensates for differences in expenditures between the home country and the foreign country to neutralize the consumptive part of salary. Kraft (like many other companies) conducts an annual study of total compensation in Belgium, Germany, Italy, Spain, and the United Kingdom. It focuses on the total compensation paid to each of the senior-management positions held by local nationals in these firms. The survey covers all forms of compensation including cash, short- and long-term incentives, retirement plans, medical benefits, and perquisites. This information becomes the basis for annual salary increases and proposed changes in the benefits package, especially the Cost-of-living allowance (COLA). Sometimes the firm grants also a settlement (compensation) of currency fluctuations .

142. 6.4.2. Key Components Base Salary Foreign Service or Mobility Inducement Hardship Premium or Hardship allowances Other Allowances (COLA, Housing, Home leave, Education, Relocation) Benefits Non-monetary rewards Base Salary: Primary component of a package of allowances, many of which are directly related to base salary. Foreign Service and/or Mobility Inducement: Inducement to accept a foreign assignment normally in the form of a percentage of salary, usually 10 to 35% of base pay, depending upon the assignment, actual hardship, tax consequences, and length of assignment. Mobility premiums are typically lump-sum payments to reward employees for moving from one assignment to another. Hardship Premium Compensate expatriates for exceptionally hard living and working conditions at certain locations. Housing Allowance: employees should be entitled to maintain their home-country living standards. Home leave allowance: covering expense of one or more trips back to the home country each year (airfares), rest and rehabilitation leave, emergence provisions (in case of death or illness) Education allowances: Employer typically covers the cost of local or boarding school for dependent children. Often language class tuition. Relocation allowances: Moving, shipping, and storage charges, temporary living expenses, subsidies regarding appliance or car purchases, and down payments or lease-related charges. Allowances regarding perquisites (cars, club memberships, servants) may also need to be considered. Benefits: Pension plans, medical coverage, social security – national practices vary considerably: Maintain expatriates in home-country programs or enrolling expatriates in host-country benefit programs Non-monetary rewards Perhaps state-of-the-art training and development programs Base Salary: Primary component of a package of allowances, many of which are directly related to base salary. Foreign Service and/or Mobility Inducement: Inducement to accept a foreign assignment normally in the form of a percentage of salary, usually 10 to 35% of base pay, depending upon the assignment, actual hardship, tax consequences, and length of assignment. Mobility premiums are typically lump-sum payments to reward employees for moving from one assignment to another. Hardship Premium Compensate expatriates for exceptionally hard living and working conditions at certain locations. Housing Allowance: employees should be entitled to maintain their home-country living standards. Home leave allowance: covering expense of one or more trips back to the home country each year (airfares), rest and rehabilitation leave, emergence provisions (in case of death or illness) Education allowances: Employer typically covers the cost of local or boarding school for dependent children. Often language class tuition. Relocation allowances: Moving, shipping, and storage charges, temporary living expenses, subsidies regarding appliance or car purchases, and down payments or lease-related charges. Allowances regarding perquisites (cars, club memberships, servants) may also need to be considered. Benefits: Pension plans, medical coverage, social security – national practices vary considerably: Maintain expatriates in home-country programs or enrolling expatriates in host-country benefit programs Non-monetary rewards Perhaps state-of-the-art training and development programs

143. 6.4.3. The Going (or Market-) Rate Approach Based on local market rates Relies on survey comparisons -local nationals -Expatriates of same nationality -Expatriates of all nationalities -in the same industry or general labor market Compensation based on the selected survey comparison Base pay and benefits may be supplemented by additional payment for low-pay countries Base salary is linked to the salary structure in the host country. A German insurance company operating in New York would need to decide whether its reference point would be local U.S. salaries, other German competitors in New York or all foreign insurance companies operating in New York. Base salary is linked to the salary structure in the host country. A German insurance company operating in New York would need to decide whether its reference point would be local U.S. salaries, other German competitors in New York or all foreign insurance companies operating in New York.

144. 6.4.4. The Balance Sheet (or Build-up-) Approach Maintenance of home-country living standard, plus financial inducement Home-country pay and benefits as benchmark Adjustments to home package to balance additional expenditure in host country Financial incentives added to make the package attractive The most common approach to formulating expatriate pay is to equalize purchasing power across countries, a technique known as the balance sheet approach. Basis objective is to ”keep the expatriate whole” through maintenance of home-country living standards plus a financial inducement to make the package attractive. 1. Living Standard: The basic idea is that each expatriate should enjoy the same standard of living he or she would have had at home. In practice, this usually boils down to building the expatriate’s total compensation around five or six separate components. Foreign assignees should not suffer a material loss due to their transfer. 2. Home-country as benchmark: For example, base salary will normally be in the same range as the manager’s home-country salary. 3. Additional expenditure: 4. Financial incentives: In addition, however, there might be an overseas or foreign service premium. The most common approach to formulating expatriate pay is to equalize purchasing power across countries, a technique known as the balance sheet approach. Basis objective is to ”keep the expatriate whole” through maintenance of home-country living standards plus a financial inducement to make the package attractive. 1. Living Standard: The basic idea is that each expatriate should enjoy the same standard of living he or she would have had at home. In practice, this usually boils down to building the expatriate’s total compensation around five or six separate components. Foreign assignees should not suffer a material loss due to their transfer. 2. Home-country as benchmark: For example, base salary will normally be in the same range as the manager’s home-country salary. 3. Additional expenditure: 4. Financial incentives: In addition, however, there might be an overseas or foreign service premium.

145. Balance Sheet Approach 60-80% of all MNE’s use it Has 4 main home-country expense groups: Income taxes Housing Goods and services Discretionary expenses Expatriate receives base pay + additional for each group With the balance sheet approach, four main home-country groups of expenses are the focus of attention: ……and discretionary expenses (child support, car payments, contribution to savings, payments for benefits, investments, education expenses) The employer estimates what each of these four expenses is in the expatriate’s home country, and what each will be in the host country. The employer then pays any differences—such as additional income taxes or housing expenses. However, the way some companies apply the balance sheet may allow windfalls to the employee in taxes and housing allowances, or even in goods and services. With the balance sheet approach, four main home-country groups of expenses are the focus of attention: ……and discretionary expenses (child support, car payments, contribution to savings, payments for benefits, investments, education expenses) The employer estimates what each of these four expenses is in the expatriate’s home country, and what each will be in the host country. The employer then pays any differences—such as additional income taxes or housing expenses. However, the way some companies apply the balance sheet may allow windfalls to the employee in taxes and housing allowances, or even in goods and services.

146. Sample balance sheet approach

147. Example for Balanced Sheet A.

148. 6.4.5. Other approaches The ”better of home-or-host approach” : The idea behind this is that no expatriate should have to live at a lower than a local or home level. The international approach tries to create an equitable system among all international employees. It’s especially useful for highly placed executives who will be moving from location to location. International approach: Usually this approach begins with a common point of reference for senior-level management who receive equivalent pay and benefits regardless of country of origin or destination. The notion of equity assumes that employees at the same organizational level, performing at virtually the same level of performance, would expect quite similar reward. The strict balance-sheet approach may not do that and consequently may not contribute to a global viewpoint. International approach: Usually this approach begins with a common point of reference for senior-level management who receive equivalent pay and benefits regardless of country of origin or destination. The notion of equity assumes that employees at the same organizational level, performing at virtually the same level of performance, would expect quite similar reward. The strict balance-sheet approach may not do that and consequently may not contribute to a global viewpoint.

149. 6.4.6. Taxation Tax implications can be tricky May be responsible for both US and foreign taxes Tax Equalization: firms withhold an amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country Tax Protection: employee pays up to the amount of taxes he would pay on compensation in the home country Laissez-faire Taxes are a major company expense. And they’re complex, making tax professionals crucial in this area: Tax implications can be tricky. Tax equalization: firms withhold an amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country, most common approach. The firm typically pays any additional premiums or allowances, tax-free to the employee. Tax protection: employee pays up to the amount of taxes he would pay on compensation in the home country. In such a situation, the employee is entitled to any windfall received it total taxes are less in the foreign country than in the home country. Laissez-faire: employees are ”on their own” in conforming to host-country and home-country taxation laws and practices) Plans must consider various factors: Tax treatment Regulatory environment Foreign exchange controls Taxes are a major company expense. And they’re complex, making tax professionals crucial in this area: Tax implications can be tricky. Tax equalization: firms withhold an amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country, most common approach. The firm typically pays any additional premiums or allowances, tax-free to the employee. Tax protection: employee pays up to the amount of taxes he would pay on compensation in the home country. In such a situation, the employee is entitled to any windfall received it total taxes are less in the foreign country than in the home country. Laissez-faire: employees are ”on their own” in conforming to host-country and home-country taxation laws and practices) Plans must consider various factors: Tax treatment Regulatory environment Foreign exchange controls

150. 6.5. Summary Incentives influence short and long-term behavior Compensation plans should be based on strategy and clear objectives: Beware of pitfalls! Worldwide performance-related pay and long term incentives are gaining ground There are various Expat compensation approaches and some important key components

151. 7. Business and Ethics

152. After Studying This Chapter You Should Be Able To: describe some ethical topics in international business name some universal values and applications of these values describe managers role in ethical matters explain a company code of conduct recap fundamentals of the PUMA Ethical Concept write down important implications for the HR function

153. Outline of Chapter 7 What are the problems? Common universal values? International Agreements? Examples for Company Codes Grease and Bribery Implications for HR?

154. 7.1. Ethics in Business Public sensitivity to unethical behavior has increased. Why? Deciding on the correct ethical norms is difficult when legitimate interests are concerned Values in the culture influence ethical attitudes (e.g. workforce interest vs. stakeholder) Different cultures apply different criteria in making ethical decision What is a “good corporate citizen”? Sensitivity: Better Information Growing awareness of the cost of unethical behavior (e.g. corruption) Public expects standards of behavior Growing sense of ethical norms (consumers, customers, suppliers)Sensitivity: Better Information Growing awareness of the cost of unethical behavior (e.g. corruption) Public expects standards of behavior Growing sense of ethical norms (consumers, customers, suppliers)

155. Common universal values Ethical Relativism Ethical Absolutism Ethical universalism In the international context there is the question about the existence of universal ethical standards (transcultural standards of moral behavior). Host countries have often different standards of business practice. There are three main responses: 1. Ethical relativism: No universal or international rights and wrongs. When in Rome one should do as the Romans do. 2. Ethical absolutism: This view gives priority to one’s own cultural values. Most problematic to transfer one’s own cultural values – could lead to expat failure. 3. Ethical universalism: The proponent of this theory believe that there are some fundamental principles of right and wrong, which cross cultural boundaries, MNE must adhere to these fundamental principles, careful distinction between practices that are simply culturally different and those that are morally wrong. In the international context there is the question about the existence of universal ethical standards (transcultural standards of moral behavior). Host countries have often different standards of business practice. There are three main responses: 1. Ethical relativism: No universal or international rights and wrongs. When in Rome one should do as the Romans do. 2. Ethical absolutism: This view gives priority to one’s own cultural values. Most problematic to transfer one’s own cultural values – could lead to expat failure. 3. Ethical universalism: The proponent of this theory believe that there are some fundamental principles of right and wrong, which cross cultural boundaries, MNE must adhere to these fundamental principles, careful distinction between practices that are simply culturally different and those that are morally wrong.

156. Applications of core human values within MNE’s ? Adequate workplaces Health and safety standards Payment of basic living wages Equal employment opportunities No child labor Training and education Allowing workers to organize and forming unions

157. 7.2. Manager‘s role in ethical matters Identifying the real ethical dilemmas staff encounter Stimulation discussion, including the views and problems of expatriate and HCN staff on dilemmas, possible solutions, standards, support.. Contributing to the development of ethical codes and setting appropriate examples Code communication and explanation

158. Corporate code of conduct Public statement of the firms values and guiding principles. 90% of all US-Fortune 500 firms have codes of conduct. A common difficulty is their enforcement. In the USA ethics is seen more in terms of rules and laws universal approach, whistle-blowers (Japan: traitor!) enjoy legal protection. In Europe more skepticism about legal rules, company check lists, individual responsibility Which content? Pros and Cons?

159. Bribery Most frequent ethical problem encountered by international managers B. involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage How B. can be distinguished from so-called gifts or ”grease” payments or extortions B. undermines public confidence in markets, adds to the cost of products and may affect the safety and economic well-being of the general public. In 1977 US enacted the Foreign Corrupt Practices Act to prohibit US based firms from making bribery payments to foreign government officials. OECD: The Convention on Combating Bribery of Foreign Public Officials in International Business (Dec. 1997). According to the convention each member country had to introduce and enact its own legislation criminalizing bribery by the end of 1998. Bribing: is paying people to induce them to behave unethically or to gain some particular advantage Extortion: paying people to do their jobs, i.e. making payments not required by law but which people subtly demand or obtain by threats (extortion is often paid just to get normal business is transacted).In 1977 US enacted the Foreign Corrupt Practices Act to prohibit US based firms from making bribery payments to foreign government officials. OECD: The Convention on Combating Bribery of Foreign Public Officials in International Business (Dec. 1997). According to the convention each member country had to introduce and enact its own legislation criminalizing bribery by the end of 1998. Bribing: is paying people to induce them to behave unethically or to gain some particular advantage Extortion: paying people to do their jobs, i.e. making payments not required by law but which people subtly demand or obtain by threats (extortion is often paid just to get normal business is transacted).

160. 7.3. Example: Levi Strauss 1993 retreat from China because of human rights violation 1995 retreat from Myanmar (and threat to Bangladesh), between 30 and 50 thousand children were dismissed by (human unworthy) local clothing companies and then enslaved by small firms and families (Oxfam-Report 1995)

161. By rigorously enforcing the principles listed above, PUMA tries to ensure that labor is not exploited and that production methods are continuously revised. To learn more about S.A.F.E.’s polices and control measures, please have a look at PUMA’s first Sustainability Report: “Perspective” (www.puma.com) Example Transparency (Excerpts from the Sustainability Report 2004, PUMA): We expect the same transparency that we provide to our stakeholders from our own business partners worldwide. We carry out supplier audits at all direct PUMA suppliers. As such we aim to implement strategic partnerships with our manufacturers in which transparency and openness are essential factors. Dialogue: willingness to dialogue with ecologist and human rights organizations, customers, suppliers etc. Evaluation: implementation, audits, compliance to the rules and standards Example Social Accountability: The observance of human rights forms an essential part of social accountability. PUMA places the highest of demands on our global production sites. All activities must comply with enacted regulations and be carried out in a manner that does not present health risks. In close cooperation with its manufacturers, PUMA aims to guarantee a socially responsible workplace. The social standards that have been laid down in our Code of Conduct contain the most important social principles and are based on the conventions of the International Labour Organization (ILO). Example Sustainability: It is the integration of the three pillars of environmental, social and economic performance of an enterprise that shows the broader picture. Sustainability is more than the protection of the environment or the monitoring of social standard. We understand it as a social vision that links the actions of the present with the options for future generations. By rigorously enforcing the principles listed above, PUMA tries to ensure that labor is not exploited and that production methods are continuously revised. To learn more about S.A.F.E.’s polices and control measures, please have a look at PUMA’s first Sustainability Report: “Perspective” (www.puma.com) Example Transparency (Excerpts from the Sustainability Report 2004, PUMA): We expect the same transparency that we provide to our stakeholders from our own business partners worldwide. We carry out supplier audits at all direct PUMA suppliers. As such we aim to implement strategic partnerships with our manufacturers in which transparency and openness are essential factors. Dialogue: willingness to dialogue with ecologist and human rights organizations, customers, suppliers etc. Evaluation: implementation, audits, compliance to the rules and standards Example Social Accountability: The observance of human rights forms an essential part of social accountability. PUMA places the highest of demands on our global production sites. All activities must comply with enacted regulations and be carried out in a manner that does not present health risks. In close cooperation with its manufacturers, PUMA aims to guarantee a socially responsible workplace. The social standards that have been laid down in our Code of Conduct contain the most important social principles and are based on the conventions of the International Labour Organization (ILO). Example Sustainability: It is the integration of the three pillars of environmental, social and economic performance of an enterprise that shows the broader picture. Sustainability is more than the protection of the environment or the monitoring of social standard. We understand it as a social vision that links the actions of the present with the options for future generations.

163. Audits with PUMA “The main tool to ensure that our stringent social standards are upheld is the S.A.F.E. Audit. Regular audits are conducted at all of PUMA’s direct suppliers and licensees to ensure that the requirements of our Code of Conduct and our S.A.F.E. Manual are met. The S.A.F.E. Audits usually take place prior to production and involve standard questionnaires on social, environmental, health and safety issues; a review of relevant business documents such as payrolls, time records or personal files; a complete factory walk-through as well as interviews with randomly selected workers in a friendly atmosphere and in the absence of the factory management. Union representatives are invited to participate in this procedure where possible. By carrying out audits at all our direct suppliers, as well as documenting the audit results, we hold our manufacturers accountable for their social performance and at the same time evaluate the social footprint of PUMA.” A factory will pass a S.A.F.E. Audit if the ranking result of the audit evaluation amounts to 75% or more according to the S.A.F.E. Standards. Whenever non-compliance issues are detected in these factories, they are thoroughly discussed with the local representatives and documented in a Corrective Action Plan. The Corrective Action Plan serves as an instrument for documenting conditions that need to improve and also includes a target schedule for implementing these improvements. Depending on the result of this first visit and the following classification of the factory, re-audits are scheduled after a period of several weeks (C-Factory), one year (B-Factory) or two years (A-Factory). In addition, all PUMA staff working at the factories (for example technicians, quality controllers, etc.) are obliged to follow up and control the improvements made based on the Corrective Action Plan. Main reasons for non-conformance of the S.A.F.E. Standards Fire fighting equipment First aid training Personal protective equipment Fire drill Payment of annual/maternity leave Excessive overtime First aid kits Weekly rest day Overtime premium Housekeeping Working contract Minimum wage Payment of public holidays Safety teamA factory will pass a S.A.F.E. Audit if the ranking result of the audit evaluation amounts to 75% or more according to the S.A.F.E. Standards. Whenever non-compliance issues are detected in these factories, they are thoroughly discussed with the local representatives and documented in a Corrective Action Plan. The Corrective Action Plan serves as an instrument for documenting conditions that need to improve and also includes a target schedule for implementing these improvements. Depending on the result of this first visit and the following classification of the factory, re-audits are scheduled after a period of several weeks (C-Factory), one year (B-Factory) or two years (A-Factory). In addition, all PUMA staff working at the factories (for example technicians, quality controllers, etc.) are obliged to follow up and control the improvements made based on the Corrective Action Plan. Main reasons for non-conformance of the S.A.F.E. Standards Fire fighting equipment First aid training Personal protective equipment Fire drill Payment of annual/maternity leave Excessive overtime First aid kits Weekly rest day Overtime premium Housekeeping Working contract Minimum wage Payment of public holidays Safety team

164. The S.A.F.E.-Concept as an ongoing Process

165. 7.5. Implications for the HR function Minimize the exposure of employees to corruption by appropriate codes of conduct Training programs and negotiation skills to handle problem situations Employees should understand the difference between corrupt bribery payments, gifts, and allowable facilitation payments Align performance appraisal, promotion and compensation systems Selecting staff operating across national borders who are best able to cope with the ethical dilemmas Appointment of an ethics ombudsperson to whom staff could apply for guidance International Accords and Corporate Codes of Conduct Caux Roundtable Principles for Business Conduct: Developed in 1994 by Japanese, European and North American business leaders meeting in Caux, Switzerland. Aims to set a global benchmark against which individual firms can write their own codes and measure the behavior of their executives. Mainly two principles: kyosei (living and working together for the common good – enabling cooperation and mutual prosperity to coexist with healthy and fair competition) and human dignity. Aims further to reach this goals by promoting free trade, environmental and cultural integrity and the prevention of bribery and corruption. OECD-Guidelines for MNE’s (1976) ILO - Tripartite Declaration of Principles Concerning MNE and Social Policy (1977) International Accords and Corporate Codes of Conduct Caux Roundtable Principles for Business Conduct: Developed in 1994 by Japanese, European and North American business leaders meeting in Caux, Switzerland. Aims to set a global benchmark against which individual firms can write their own codes and measure the behavior of their executives. Mainly two principles: kyosei (living and working together for the common good – enabling cooperation and mutual prosperity to coexist with healthy and fair competition) and human dignity. Aims further to reach this goals by promoting free trade, environmental and cultural integrity and the prevention of bribery and corruption. OECD-Guidelines for MNE’s (1976) ILO - Tripartite Declaration of Principles Concerning MNE and Social Policy (1977)

166. 7.6. Summary Corporate ethics is an increasing “business” Common global values How we can translate values into corporate regulations Corporate code of conduct Puma’s S.A.F.E.-Concept Implications for HR-function and HR’s responsibilities

167. Thank you for your attention!

  • Login