The Dilemma at Zippo SolutionsExpanding the international workforce to include non-parent-country employees has broughtincreased capabilities and decreased costs—along with a new set of compensation problems.Aaron Price is the director of international HR for Zippo Solutions – a large multinational ITcompany headquartered in Detroit, Michigan (USA). Aaron was talking to Zippo’s Chief HROfficer:It seems as though our international compensation program hasgotten out of hand. I have parent-country expatriates, third-countrynationals, and inpatriates* yelling at me about their allowances.Headquarters is yelling at me because the costs are too high. Quitefrankly, I can’t seem to get any answers from our consultant abouthow to handle compensation for such a global workforce, and no oneelse in the industry seems to know how to approach the problem,either. *Inpatriation is transferring HCNs from the foreign subsidiary to the headquarter (expatriation is defined in transferring PCNsfrom the headquarter to a subsidiaries).Zippo Solutions has 50 highly paid US expatriates working as field engineers and marketingmanagers in 15 countries. It also has foreign employees from Germany, Malaysia, andArgentina working alongside the US employees in eight locations worldwide. And, finally, it hasinpatriates – foreign nationals from Mexico and the Philippines working with US nationals atthe organization’s headquarters in Detroit. In all cases, it is the firm’s policy to send suchinpatriates out on foreign assignments for less than five years and then return them to theirhome countries. An example of the types of complaints that were being received from theexpats involves the following problem concerning inpatriate employees who are working at thecompany’s headquarters.Zippo has a field engineer named Eric Rojas from the Philippines who has been earning theequivalent of 25,000 USD while located in Manila (Philippines). It has another field engineernames Carlos Hernandez from Mexico who has been earning the equivalent of 30,000 USDwhile located in Mexico City (Mexico). Both Eric and Carlos have been relocated to Zippo’sDetroit headquarters, and are now working with American field engineers who earn 70,000USD for the same job. Not only do they work next to each other, but they also live in similarneighborhoods, go shopping at the same places, and eat at the same restaurants. The problemthat Aaron Price is facing is that Zippo is spending a lot of money on cost-of-living adjustmentdata for Eric and Carlos in Detroit, and yet their current standard of living is the same, and thesame as that of their local peers. They are both angry because their allowances don’t reflecthow they are now living in Detroit. Their allowances also don’t reflect how they lived in theirhome countries, either.Therefore, what Zippo now have are two employees – one earning 25,000 USD and the otherearning 30,000 USD (plus cost-of-living adjustments), working and living side by side with theirAmerican counterparts who are earning 70,000 USD. The solution that most companies havetried is to simply raise the inpatriates’ salaries to the 70,000 USD level, thereby creating a host-country pay system for a home-country employee. Unfortunately, this creates the undesirablesituation that HR has to inform these foreign employees at their time to return home that theirsalary will be cut to the pre-headquarters’ assignment level. *Inpatriation is transferring HCNs from the foreign subsidiary to the headquarter (expatriation is defined in transferring PCNsfrom the headquarter to a subsidiaries).What Aaron Price needs is a compensation system that will compensate Eric, Carlos and otherinpatriates like them either by pay or by provided benefits (including, housing, transportation,etc.) in a consistent, fair and equitable manner, and that will allow the company to repatriatethese employees to their home countries with minimal trauma.Questions1. What should Aaron Price do now?2. What kind of global compensation policy would deal effectively with this sort ofproblem?

Question

The Dilemma at Zippo SolutionsExpanding the international workforce to include non-parent-country employees has broughtincreased capabilities and decreased costs—along with a new set of compensation problems.Aaron Price is the director of international HR for Zippo Solutions – a large multinational ITcompany headquartered in Detroit, Michigan (USA). Aaron was talking to Zippo’s Chief HROfficer:It seems as though our international compensation program hasgotten out of hand. I have parent-country expatriates, third-countrynationals, and inpatriates* yelling at me about their allowances.Headquarters is yelling at me because the costs are too high. Quitefrankly, I can’t seem to get any answers from our consultant abouthow to handle compensation for such a global workforce, and no oneelse in the industry seems to know how to approach the problem,either. *Inpatriation is transferring HCNs from the foreign subsidiary to the headquarter (expatriation is defined in transferring PCNsfrom the headquarter to a subsidiaries).Zippo Solutions has 50 highly paid US expatriates working as field engineers and marketingmanagers in 15 countries. It also has foreign employees from Germany, Malaysia, andArgentina working alongside the US employees in eight locations worldwide. And, finally, it hasinpatriates – foreign nationals from Mexico and the Philippines working with US nationals atthe organization’s headquarters in Detroit. In all cases, it is the firm’s policy to send suchinpatriates out on foreign assignments for less than five years and then return them to theirhome countries. An example of the types of complaints that were being received from theexpats involves the following problem concerning inpatriate employees who are working at thecompany’s headquarters.Zippo has a field engineer named Eric Rojas from the Philippines who has been earning theequivalent of 25,000 USD while located in Manila (Philippines). It has another field engineernames Carlos Hernandez from Mexico who has been earning the equivalent of 30,000 USDwhile located in Mexico City (Mexico). Both Eric and Carlos have been relocated to Zippo’sDetroit headquarters, and are now working with American field engineers who earn 70,000USD for the same job. Not only do they work next to each other, but they also live in similarneighborhoods, go shopping at the same places, and eat at the same restaurants. The problemthat Aaron Price is facing is that Zippo is spending a lot of money on cost-of-living adjustmentdata for Eric and Carlos in Detroit, and yet their current standard of living is the same, and thesame as that of their local peers. They are both angry because their allowances don’t reflecthow they are now living in Detroit. Their allowances also don’t reflect how they lived in theirhome countries, either.Therefore, what Zippo now have are two employees – one earning 25,000 USD and the otherearning 30,000 USD (plus cost-of-living adjustments), working and living side by side with theirAmerican counterparts who are earning 70,000 USD. The solution that most companies havetried is to simply raise the inpatriates’ salaries to the 70,000 USD level, thereby creating a host-country pay system for a home-country employee. Unfortunately, this creates the undesirablesituation that HR has to inform these foreign employees at their time to return home that theirsalary will be cut to the pre-headquarters’ assignment level. *Inpatriation is transferring HCNs from the foreign subsidiary to the headquarter (expatriation is defined in transferring PCNsfrom the headquarter to a subsidiaries).What Aaron Price needs is a compensation system that will compensate Eric, Carlos and otherinpatriates like them either by pay or by provided benefits (including, housing, transportation,etc.) in a consistent, fair and equitable manner, and that will allow the company to repatriatethese employees to their home countries with minimal trauma.Questions1. What should Aaron Price do now?2. What kind of global compensation policy would deal effectively with this sort ofproblem?

Accepted Answer

If I were the HR manager, I would take the following steps. It's impossible to match US salaries…