The purpose of this report is to outline the difficulties of developing a compensation and benefits package for our organization, New World Oil Refinery (NWOR), for sending a local manager on an annual salary of $100,000 as a parent country national ("PCN") to open the business in Lagos, Nigeria.
It is important to select the right PCN for the assignment because besides selecting the PCN with the technical know-how, he must also be culturally adaptable, patient, tolerant and flexible because the assignment can be extra-ordinarily challenging. This can be a difficult for the HR manager because the results of selecting the wrong PCN can lead to detrimental losses by the organisation.
Training and development is another important function to prepare the PCN for the assignment in terms of culture, country information, 'fit' to facilitate good working relationships with the locals and reduce culture-shock faced, leading to poor work performance, stress and failed assignment. Training can be difficult because Nigeria has one of the most ethnically diverse populations in the world.
Developing expatriate compensation packages can be very difficult because employers and employees usually have contracting goals. Various overseas allowances, taxes and health-care, housing allowance benefits are difficult to be identified due to the economic and political differences.
Expatriate management has to be well-managed especially when it costs three times more to send a PCN on an assignment. Repatriation management also has to be comprehensive so that repatriated employees do not feel demoralised.
Monetary recommendations to include in the compensation and benefits package includes compensating for perceived hardship, inconvenience and inaccessibility to be in contact with home-country family and friends, cost of living, housing allowance and tax equalization or tax protection. Non-monetary recommendations include home leave, travel allowance, insurance, hospital and medical benefits for an effective package.
Selection of staff
The selection of a suitable local manager, the parent country national ("PCN") for opening the business in Nigeria is important. New World Oil Refinery (NWOR) management should consider whether the prospective choice is the best suited person for the job. In today's corporate world, recruitment and selection is getting more and more challenging and important for an organization. Effective selection is important to achieve high organizational performance and minimize labour turnover.
Having selected the desired PCN, he has to be briefed on adapting to the foreign culture in Nigeria, provided with training and support from the headquarters to smoothen the transition and stay for business and personal purposes. NWOR also has to consider the repatriation of the employee for a successful cross-national assignment.
Selection involves the process in choosing a suitable candidate for the desired assignment. Once potential applicants have been recruited, the HR manager must devise a system for measuring applicants against predetermined job requirements. NWOR will have to define the strategic goals of setting up a branch in Nigeria in order to help the PCN and NWOR to obtrain maximum results from the assignment and evaluate the culture issues as culture shock is one of the main reasons for a failed assignment. By evaluating the culture's demand, differences, and barriers, we will be able to determine what the training needs are.
There could be possibility of the selected PCN rejecting the overseas assignment because of the extraordinary challenges that he may encounter while in the host country. Thus the selection criteria for a successful candidate are more extensive than for a home country position.
Job knowledge and personality traits are major factors for a successful assignment. One method to determine the potential success of an expatriate was developed by Michael Tucker of Tucker International (The Overseas Assignment Inventory, n.d). According to his Overseas Assignment Inventory, there are 14 predictors of a successful expatriate.
The expectations are: open-mindedness; respect for other beliefs; trust; tolerance; control flexibility; patience; social adaptability; initiative; risk-taking; sense of humor; interpersonal interest; and spousal communication. If the local manager accepts the overseas assignment, his family will also be affected, hence it is essential to assess the family's readiness and willingness to live overseas.
By using a PCN with knowledge of know-how, NWOR will require shorter period of time to 'fit in', easier to train, educate or retain talent (LavignaandHays, 2004), thus, making savings for NWOR. (Linda, 2009) stated by doing so, it will act as an incentive to all staff to work harder within the organization. Their strengths and weaknesses can be evaluated and placed as challenges for their career plan and development.
It is vital to select the right PCN who is patient and flexible as he will encounter frustration from the beginning of this assignment as things work differently in Nigeria. The rewards of working effectively within another culture will outweigh the difficulties and frustrations faced.
Training and development
Training and Development is an important function in creating an international mindset. Training is meant to improve the current work skills and behavior and understanding the culture of the host country whilst development is meant to create a career planning path for the individual possibly a higher level position (Dowling, Welch and Schuler, 1999). The PCN needs to possess good knowledge about the oil refinery industry, cultural sensitivity and responsibility so as to have the ability to lead and develop subordinates (Baumgarten, 1992).
The PCN could experience culture shock as he is unfamiliar with the culture of Lagos. As suggested by (Deresky, 2008), the inability to adjust to the culture could lead to several problems such as work performance, stress and resentment.
Failure to provide cross cultural training for the expatriate as well as the family members could result in premature return of the expatriate before the assignment is completed as the partner or family members are unable to adjust to the culture in the host country. Nigeria has one of most ethnically diverse populations in the world. Thus, it places more difficulty for the PCN to understand the cultures in Nigeria.
Realizing the impact of culture differences would affect the kind of training to be provided to the PCN as well as interacting with the subordinates and associates in Nigeria. Without understanding the culture of the host country, NWOR will not be able to effectively tailor-make training programs for the PCN and his family. One of the challenges encountered for NWOR is to develop an effective cross-cultural training for the PCN.
Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity. According to (Hofstede's framework of national culture),Nigeria has a high uncertainty avoidance index which tends to have strict rules, laws and regulation where the people adhere closely. The rules and regulations provide security and greater career stability. As suggested by (Training across cultures. 1995), cultures with strong uncertainty avoidance, trainers are expected to be knowledgeable with all answers at their finger tips. Trainers are considered experts, so disagreements with the trainers are considered disrespectful. Thus, without understanding the culture, it is unlikely to plan a good training program for the ground staff.
As (Scullion, 1996) suggested, it is difficult to recruit talented expatriates if they feel they will not have the opportunity to undertake important roles in the organization. Thus, it is important to include the PCN in the career-planning process. For example: The duration required for the posting to Lagos - Five years, longer or lesser? Upon the expatriate assignment, where will the local manager be posted to? These are questions NWOR has to plan ahead for the local manager to instil confidence in him for this posting to Nigeria. The fact is that organizations do not understand the importance of retaining the expatriates through career development and planning to retain talents.
A pre-departure training for the PCN such as cross-cultural awareness training to be provided before the overseas assignment is recommended. This provides him with skills and knowledge with a better understanding of Nigeria thus adapting to the culture better, which could reduce the possibility of early repatriation of the PCN due to inadaptability to the culture.
NWOR should prepare reading materials for the PCN to read about the culture in Nigeria before his trip. The PCN should respect the people and their culture because although he may be the "expert" sent from the parent company, he will have to learn to work in harmony with the people in the host country.
Providing as much information through the cultural training program will aid the PCN to form practical expectations, thus reducing uncertainty and facilitates adaptability increases performance (Caligiuri et al., 2001). It also helps the expatriate to adjust more rapidly to the new culture and perform better in his role in today's ever-changing environment.
As suggested by (Shen,2005), it is necessary to prepare post-arrival training for the expatriate once he has gone abroad conducting on-site training to be used to familiarize himself with the local working environment and procedures and to facilitate understanding of corporate strategy, corporate culture and socialization.
COMPENSATION AND PERFORMANCE MANAGEMENT
As organizations start to grow and branch out overseas, expatriates have become more and more important to organizations in their foreign subsidiaries. There is a substantial investment involved, with the costs of expatriate failing to reach exorbitant levels (Baruch, 2004). Especially, in recent studies which suggest that each expatriate failure, a premature departure, can cost an organization in excess of $1 million (Insch and Daniels, 2002; Wentland, 2003).
One of the contributing factors that NWOR has to address is the importance of compensation which plays in the whole expatriate dynamic (Baruch, 2004). Looking from an operational perspective, many organizations have repositioned or complete makeover of expatriate compensation (Phillips and Fox, 2003). Compensation is among the most important factors a prospective expatriate considers when accepting an overseas assignment (Baruch, 2004). In the current intensely competitive market, being able to attract and retain the best and brightest professional is a contributing success of an organization with global operations. The lack of professional expatriates who know the business and are motivated to perform at the highest level can affect the organization's competitive edge in the emerging foreign markets (Lowe et al., 2002).
Despite efforts made to develop effective expatriate compensation plans, many organizations are unable to obtain the "return on investment" estimated. It is common that there are conflicting goals with respect to expatriate compensation systems. For example, an organization often seeks to control the escalating costs normally associated with expatriate compensation packages. However, NWOR must strike a balance with our current expatriate, while trying to ensure that we offer a compensation package, competitive enough to attract, retain, and motivate expatriates (Cryne, 2004; Gould, 1999).
Most expatriates perceived that local market adjustment to be "only fair" and a measure of preventing any decrease in their purchasing power, due to the surge in pay for the expatriates, as a huge incremental cost and may turn into quite a substantial amount of financial burden to the parent organization.
More than often, due to liability restrictions, while on foreign assignment, healthcare services were inadequate resulting in the expatriate not receiving adequate and timely treatment for illness or injury. The Nigerian health care system is continuously faced with a shortage of doctors known as 'brain drain' due to the fact that many highly skilled Nigerian doctors emigrate to North America and Europe. Therefore, our organization needs to consider the concerns of healthcare services in Lagos. (Nigeria - Wikipedia, the free encyclopedia, 2009).
It is a norm for the headquarters to sponsor the expatriate's child/children education cost, and it is normally associated with an international school and cost may be somewhat high. Organizations try to convince its expatriates to be more flexible as parent organizations seek to reduce their expatriate costs. However, typically, children's' education comes under the "non-negotiable" category (Allard, 1996).
Generally, employers use a "no loss" approach when developing compensation packages. Within this framework, our organization can consider adjusting the expatriate compensation due to the higher costs of living, but it will not be adjusted downward even if the standard of living in the host country is less comparing to the home country (Frazee, 1998b; Overman, 2000).
NWOR could outsource our contract to insurance companies that offer special plans tailored to the needs of expatriates. These insurers have processes in place to handle language translation and may even remove the risk of currency fluctuation.
Our organization could also use a balance sheet approach to be able to provide purchasing power of equivalence abroad and local, to help maintain home lifestyle for our PCN (Overman, 2000). While utilizing the balance sheet approach, it is essential to keep expatriate salaries in line with their home country peers, not with host country colleagues. In other words, the focus is on maintaining internal equity with peers in the home country (Reynolds, 2000). Under this approach, the PCN would generally be responsible for the same costs and expenses as their domestic counterpart with our headquarters paying additional income in an effort to keep the employee whole.
MANAGEMENT OF EXPATRIATES
Expatriates management includes selection, preparation, transition, support and repatriation of the PCN for his assignment in Nigeria. It is important that international compensation policies deal fairly among expatriates. Haile (2002) stated that expatriate managers are three times more expensive than local national managers and the HR manager has to keep in mind that the compensation strategy has to keep expatriates motivated while meeting organization goals and conforming within the organization's budget.
After the PCN has been transferred to Nigeria, NWOR have to continue manage the entire expatriate program. McDonald (1993) suggested appointing a local staff from Nigeria for a short period of time to assist the PCN to adapt to the environment. However, this could be difficult because NWOR is new in Nigeria and does not have the resource to accommodate this.
Within the expatriate program, NWOR must keep constant contact with the PCN. McDonald (1993) suggested that maintaining communication with the PCN is vital so as to keep him updated of the organization's latest news and that he would not feel alienated from the headquarters.
Punnett (1997) suggested that success of the PCN for overseas assignment is critical and many organizations could benefit from including the spouse in the expatriation process. Rejection of the expatriate program is usually due to the career of spouse. This means that the HR manager would need to consider the compensation of the spouse in the compensation and benefits package of the PCN.
Punnett (1997) suggested that inclusion of the spouse in the expatriate program - selection, training and support increases time and cost to the expatriation process. The process can be very complex because of the diverse needs of the spouse. Ultimately, the adjustment and decisions of the spouse and family members thus affects the success of the assignment. Punnett (1997) stated that if the PCN is affected by the negative adjustment of the spouse, he will not be able to perform well for the assignment.
Management of expatriates does not only comprise of managing the remuneration package of the local manager while he was there, but also managing the expatriate package when the staff repatriates to the home country. NWOR has to assist him in residing back to the home country as he may experience reverse culture-shock. McDonald (1993) defined reverse culture-shock as the troubles related to readjusting back to one's own culture, especially when the culture has modified over time.
One big problem to resolve is that the PCN may not have a suitable position to take on upon his repatriation, which results in him taking on a lower or redundant job scope. He may also think that he should enjoy a promotion because he has gained more experience. It could be difficult for HR to plan ahead for a suitable or higher position for the returned PCN.
McDonald (1993) stated that other "invisible" difficulties that the HR manager has to handle for the returned PCN are that he perceived lack of recognition, loss of authority and professional, freedom, resentment from colleagues, system and policy changes as well as technical obsolescence. These can result in the resignation of the PCN upon repatriation, thus high cost of the replacement process.
Expatriate failures encompass the PCN returning halfway during the assignment and termination, and the costs can be significant because time and effort has been wasted on screening, selection and training the local manager. Other costs include re-location of staff and/or family, cost of housing and much more.
From the perspective of the PCN, McDonald (1993) also mentioned loss of self-esteem which can affect other staff's morale, client's trust and even organization's market share within its industry.
Deresky (2008) stated that the HR manager should have expertise in developing the repatriation training, take into consideration the cost of the programs and having top-management support for having such training. Deresky (2008) stated that few managers would be willing to take on the assignment if there is an ineffective repatriation program developed.
This shows that development of the remuneration package can be complex and takes up a lot of time and effort from the HR manager. Thus, the expatriate program has to be comprehensive and effective in attracting future staff to take up the assignment.
RECOMMENDATION
Monetary Terms
NWOR should consider providing other adjustments to be added to the basic annual salary of $100,000 in order to compensate for the perceived hardship of an overseas assignment. They include:
Non-monetary Terms
NWOR should also consider other benefits in order to retain and motivate expatriates such as:
CONCLUSION
From the report, we conclude that for a good and effective selection process, it can be the difficult between making a profit and sustaining any loss within the organization. Increased in job satisfaction, will help to reduce absenteeism and employee turnover (Hilton, 2000) and organization commitment resulting from a closer fitting of the person to the job. Nonetheless, selecting the right candidate for the right job can be difficult task because not all people or jobs are similar.
Expatriate compensation can be rather complicated, and there are a lot of contributing factors that can directly or indirectly affect the compensation. Organizations may not utilize the typical or most common approaches to expatriate compensation. However, organizations may mix and match, to develop a hybrid-type system for compensating their expatriates (Wentland, 2003) or other type of flexible plan (Burns, 2003) in an attempt to be "fair" (Baruch, 2004). Given the implications of these considerations, it is apparent that expatriate compensation will be the focus of more research by the academic community, particularly with respect to systematic, empirical studies on expatriate compensation.
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