Advantages and Disadvantages of The Going Rate Approach
Successful management of multinational companies requires knowledge of both benefits and compensation concepts. In fact, the sensitivity surrounding compensation issues associated with this concept should be well addressed before operating internationally. Notably, reimbursement works on two fundamental approaches, which include “The Balance-Sheet,” and “The Going Rate Approach” (Australia, 2016). Mostly, the latter concept relies on local market rates and a thorough domestic and international survey. In addition, compensations are provided from the study outcomes, while basic salaries and benefits in low-pay countries are supplemented by other additional payments (Rahim, 2012). In essence, there are several advantages and disadvantages associated with the Going Rate Approach concept.
First, the Going Rate Approach ensures equity between the local nationals and those residing in the country of the parent company. Consequently, host states whose cultures are similar to those of the original corporation usually acquire the prerequisite management practices of the parent organization, an approach that exhibits simplicity in various ways (Australia, 2016). Moreover, due to this method, the parent company quickly identifies with the host country, while the compensation approach ensures equity amongst people of different nationalities. Therefore, the Going Rate Approach becomes closer and more coordinated for the international subsidiaries. The employees in a host organization acquire experience through multinational experience, while internationally experienced executives establish a polished pool.
The Going Rate Approach exhibits variation patterns between employees with the same assignments. Consequently, expatriates of the same nationality serving in different countries experience differing variations (Rahim, 2012). Besides, this approach malignantly poses re-entry problems for an interested organization, especially due to high transfer costs and employee salaries. In essence, the Going Rate Approach highly predicates the failure of a company due to the local government’s restrictive processes. Moreover, despite various incentives, this approach barely affects the morale or motivation of local management.
In conclusion, the discussion above has indicated that although there are different approaches to handling compensation issues for multinational companies the best method remains to be The Going Rate Approach. Concisely, this methodology is merited by its ability to maintain equity, secure the transfer of an organization’s culture, simplicity, identity, coordination, and ease in the absorption of employees in a host country. However, this approach exhibits demerits due to variations in workers undertaking the same assignments, re-entry difficulties, organizational failure, and lowly motivated managers from the host country.
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Australia, C. L. (2016). Global Business. Cincinnati OH: Cengage Learning US. Print.
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Rahim, S. A. (2012). Compensation issues relating to expatriate managers: A review of related
literature. ASA University Review, 6(2), 185-195.