Which are the two philosophies that characterize the balance-sheet approach of expatriate compensation plans? Discuss some of the most important advantages of the balance-sheet approach.
What will be an ideal response?
The two philosophies that characterize the balance-sheet approach are as follows:
1. Protection, which is paying expatriates the supplements in home-country currency.
2. In a process known as equalization, the employer pays the reserve in home-country currency after deducting home-country norms from the expatriate's salary for income taxes, housing, and goods and services. The company pays all income taxes through the expatriate while making payments to the expatriate in local currency to provide housing and purchasing power for goods and services comparable to the purchasing power of a home-country peer.
The most important advantages of the balance-sheet approach are as follows:
1. It preserves the purchasing power of expatriates in a cost-effective manner.
2. It facilitates mobility among expatriates.
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