Global & International Compensation Flashcards

Which international compensation approach maintains an expatriate's home-country purchasing power by adjusting pay to account for cost-of-living differences between the home and host country?

Answer: Balance sheet approach

The balance sheet approach equalizes the expatriate's purchasing power to what they would have at home, typically covering housing, goods/services, and taxes.

Under tax equalization, which party typically bears the cost when an expatriate's actual host-country tax liability exceeds the hypothetical tax calculated on the home-country salary?

Answer: The employer pays the excess tax on behalf of the employee

Tax equalization ensures the expatriate pays only a hypothetical home-country tax; the employer absorbs any additional host-country tax liability above that amount.

A 'hypothetical tax' in the context of international assignments refers to:

Answer: The approximate home-country tax an employee would have paid had they not gone on assignment

The hypothetical tax is the estimated amount the employee would have owed in taxes at home, used as the employee's tax contribution under tax equalization.

Which type of international assignment premium compensates employees for living in locations with significant physical hardship, safety risks, or political instability?

Answer: Hardship allowance

Hardship allowances compensate expatriates for adverse conditions in the host location, such as political instability, health risks, or lack of amenities.

Which classification describes an employee who is transferred to a country that is neither their home country nor the company's headquarters country?

Answer: Third-country national (TCN)

A third-country national (TCN) is an employee who works in a host country that is neither the employee's home country nor the company's home country.

Under the host-country-based compensation approach, expatriate pay is primarily determined by:

Answer: The compensation standards and market rates of the host country

The host-country approach aligns expatriate pay with local market rates, treating the employee similarly to a local hire.

Which index is most commonly used by multinational companies to calculate cost-of-living adjustments (COLAs) for international assignees?

Answer: Mercer Cost of Living Survey or ECA International data

Mercer, ECA International, and similar third-party providers publish city-specific cost-of-living data widely used to calculate COLAs for international assignees.