Before defining expatriate and executive compensation, it is essential to understand the meaning of the term compensation. Compensation is an approach to providing “monetary value to employees in exchange for work performed (“Compensation: Outline and Definitions” par. 1). In other words, compensation is all cash and cash-related modes of payment, including base salary and different types of incentives (Bussin 4).
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For defining an expatriate compensation, it is necessary to determine what an expatriate is. An expatriate is usually defined as anyone who is not working in his home country (Bussin 4). However, as numerous foreigners work on the local terms, it is necessary to emphasize that an expatriate works on the terms that are different from local conditions in the country. Therefore, expatriate compensation defines the monetary value provided for expatriate employees.
For defining an executive compensation, it is necessary to determine what an executive is. An executive is a senior manager in a corporation, often called chief executive officer (CEO). Therefore, executive compensation is monetary value provided for the company’s executives. Most corporations strive for establishing compensation systems that promote the motivation of executives to develop the company (Kolb 1).
Comparison between Expatriate and Executive Compensation
Compared in UAE
The Middle East region has attracted millions of expatriates during the last decades due to the huge economic opportunities certain countries in this region can give. The United Arab Emirates (Dubai and Abu-Dhabi in particular) have become one of the main attractions for potential expatriates, as the expatriate compensation there is very high. The main benefits of expatriate compensation in the UAE include little or no taxes, disposable income, and an opportunity to save considerable sums money at the end of each month (“A Comparison of Expat Salaries in the Middle East” par. 4).
One of the specifics of expatriate compensation in the UAE and other countries of the region is the higher level of monetary value provided for Western expatriates than to the eastern ones (“A Comparison of Expat Salaries in the Middle East” par. 9).
Executive compensation is also considerably high in the UAE. As well as expatriate compensation, executive compensation is significantly more common and higher in the private sector than in the public sector.
However, while expatriate compensation is regulated only by the companies, executive compensation is controlled by state institutions. For example, recently executive compensation arrangements in public sector attracted the attention of state institutions and prosecutorial authorities due to their excessiveness (Laubach 2). Therefore, providing an excessive executive compensation is considered an illegal action in the UAE while regulating the amount of expatriate compensation is controlled only by the heads of the companies. Such situation is caused by the high risk of abuse of privileges and powers given to the executives and the harm such behavior can cause to the rights of the ordinary employees.
As well as in the UAE, expatriate and executive compensation have numerous similarities and differences internationally. One of the main similarities between them that are recognized internationally is the high motivation of companies to provide a high level of both types of compensation due to the exclusiveness of services offered both by expatriates and executives. The exclusiveness of the services of an expatriate is based on his/her unique knowledge, skills, and the experience gained in the home country and required in the host country. Therefore, the company is motivated to provide the compensation that can attract the expatriate and persuade to change the place of residence.
Executives are also usually offered with compensation able to motivate them to work on the continuous development of the company and remain devoted to it. Both of the types of compensation are aimed at stimulating better performance and rewarding the employees possessing distinctive skills and occupying a privileged position.
The main differences between expatriate and executive compensation in different countries are related to various approaches to providing the compensation employed by the heads of the companies. There are two main approaches to expatriate compensation: the balance sheet approach, which is aimed at ensuring the same “purchasing power” that the expatriate had back in his home country, and the going rate approach, which is aimed at adjusting the compensation to the salary structure of the host country (Reiche par. 3). Therefore, the countries where the balance sheet approach is employed appear to be more attractive for expatriates from all over the world.
The Middle East (Qatar, Bahrain, Saudi Arabia, etc.) and Asia Pacific (India, China, Korean Republic) regions are the most active in terms of offering very advantageous contracts for expatriates. Such situation is related to high demand for specialists, especially with Western education and experience, due to fast rates of economic development of these countries in the last decades. However, the highest level of executive compensation is not typical for these regions. Western countries appear to have higher executive compensation, which even has provoked numerous concerns and debates on the enormous amount of compensation paid to the executives in such countries as the United States, Canada, the United Kingdom, etc.
The analysis of expatriate and executive types of compensation in the UAE and worldwide helps to suggest recommendations for their regulation.
Effective regulation of expatriate compensation requires careful analysis of the conditions provided to the expatriate in his/her home country. The compensation provided for an expatriate in the host country should not only correspond to the standards of the home country. It should be more beneficial. This condition is related to the need to persuade the expatriate to change the way of living he is accustomed to and experience stress related to changing the place of residence. However, though expatriate compensation should benefit the employee, it should not be enormously higher than the compensation of other employees working in the company. Expatriate compensation should be balanced according to the specifics of certain expatriate contracts and the overall strategy of the company.
Effective regulation of executive compensation requires employing adequate strategy on keeping the gap between the compensation received by executives and by average workers relatively adequate. Otherwise, extensive executive compensation will promote the dissatisfaction of average employees. Therefore, though executive compensation needs to be kept high to motivate executives to provide good performance, it should not be inadequate to the overall compensation strategy of the company.
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Expatriate and executive types of compensation appear to have many common features though certain specifics of each of them cause the differences in finding an effective approach to their regulation. The special characteristics of the particular position, the company, and the region should be carefully analyzed by the appropriate department prior to making any decision influencing expatriate or executive compensation.
Bussin, Mark. Expatriate Compensation, Bryanston, South Africa: Knowres Publishing, 2015. Print.
Compensation: Outline and Definitions. n.d. Web.
Kolb, Robert. Too Much Is Not Enough: Incentives in Executive Compensation, New York: Oxford University Press, 2012. Print.
Laubach, Charles. Executive Compensation and Employment Practices. n.d. Web.
Reiche, Sebastian. Expatriate Compensation: A Review. 2011. Web.