Balance sheet approach

Definition

The balance sheet approach is a method used in international assignment management that focuses on ensuring that expatriates maintain their purchasing power and standard of living when relocated to another country. This approach typically involves compensating employees for the differences in cost of living, taxation, and other financial factors between their home country and the host country, aiming for a financial equilibrium that mirrors their home base.

5 Must Know Facts For Your Next Test

1. The balance sheet approach aims to eliminate any financial disadvantage for expatriates compared to their home country by adjusting their compensation based on the host location's costs.
2. This approach considers various factors such as housing costs, taxes, education expenses, and local market rates to calculate a fair compensation package.
3. Companies using this method typically analyze the differences in living costs between the home and host countries to adjust salaries accordingly.
4. The balance sheet approach can lead to higher compensation levels for expatriates in countries with a significantly higher cost of living or tax burden.
5. Employers often conduct regular reviews of the balance sheet to ensure that expatriates are fairly compensated as economic conditions change.

Review Questions

• How does the balance sheet approach help expatriates maintain their standard of living when relocating internationally?
  • The balance sheet approach helps expatriates maintain their standard of living by ensuring that their compensation reflects the cost of living differences between their home and host countries. By adjusting salaries to account for variations in housing, taxes, and other living expenses, this method aims to provide a financial equilibrium that allows expatriates to enjoy a similar quality of life as they would at home. This is crucial in motivating employees to accept international assignments without fear of financial loss.
• Discuss the advantages and potential drawbacks of implementing the balance sheet approach in international assignments.
  • Implementing the balance sheet approach offers several advantages, such as promoting employee satisfaction and retention by reducing financial stress during international assignments. However, potential drawbacks include the complexity and time required to calculate adjustments accurately, as well as the risk of creating inequities among employees if not managed properly. Additionally, companies may incur higher costs in countries with substantial cost-of-living differences, which can strain budgets if not carefully monitored.
• Evaluate how the balance sheet approach can influence an organization's international mobility strategy and its overall effectiveness.
  • The balance sheet approach significantly influences an organization's international mobility strategy by shaping how expatriate compensation is structured and communicated. By prioritizing equity and financial fairness, it enhances the organization's reputation as an employer that values its employees' well-being, which can improve recruitment efforts for international roles. However, organizations must balance these considerations with budget constraints and market competitiveness to ensure that their mobility strategies are both effective and sustainable in achieving global business objectives.

Related terms

Cost of Living Adjustment (COLA): A salary adjustment made to compensate for changes in living expenses when an employee is relocated to a different geographic area.

Expatriate: An employee who is sent to work in a foreign country, often involving relocation and adjustment to new cultural and economic conditions.

Compensation Package: The total remuneration offered to an employee, which may include base salary, bonuses, benefits, and allowances, particularly important for expatriates.