Should executives who have similar responsibilities for a company, but who are located in different countries have similar compensation? Why or why not? Is it acceptable for a Vice-President of Marketing located in the United States to make more than a Vice-President of Marketing located in Portugal? Please reply with a 600 to 800 words
Compensation of executives in different countries with similar responsibilities is dependent on a lot of factors:
- Economy of the country: If your country is a developing one, consumable goods and daily expenses will be considerably lower than that of the developed one. PPP (Purchasing power parity) of a country also determines the consumption capability of an individual in a country.
- Currency: If the value of a currency is lower than that of the other, it might seem that the salary of an individual is higher in the highly valued currency than the lowly valued one. E.g.: A salary of $75000 in USA is equivalent to about 5 million Rupees. While with $75000 in USA one can lead a normal life, a salary of 5 million Rupees in India will lead a lavish life. This is because the currency value of USA is high, it has lesser purchasing power in USA but more in India.
- Availability of efficient workforce decides the salary structure. In a country having much money but less educated or efficient person such as UAE might hire an executive with higher pay package, because they need him anyhow.
- Minimum wage law: The minimum wage law in certain countries for the citizens and inflowing immigrants restrict the company from paying remuneration below a certain level. This minimum remuneration may, in itself, be higher than the pay package of an executive with same responsibilities in a different country.
- Certain countries make it mandatory for the companies to pay certain facilities such as medical coverage, pension scheme etc., which is also a part of the compensation structure. Thus, the salary structure tends to differ.
- The tax structure of a country may also force the companies to pay higher salary to an employee as compared to his/ her counterparts with the same responsibilities. This is because an employee may accept an offer only when his take home is reasonable enough irrespective of the tax structure in the country.
Hence executives with similar responsibilities but in different countries may not have similar compensation when compared to one another. But if you want to check the compensation package with the country’s economy or inflation, it is almost similar. At some points it may be higher, such as in places where you need the executive in your company at any price, an organization may pay a higher remuneration.
Acceptability is a subjective factor. It depends on the factors you choose to decide and more so, if the factors are relevant to the level. I may find it acceptable that there is a salary difference given the above reasons; the Vice President may not find it acceptable to have a difference though, considering that the revenue earned by every company is generally calculated at a dollar level. So, if the Vice-President wishes to take a salary proportionate to the revenue of the company, he is very much right in doing so. Overall both the Vice president in United States and Portugal are handling the same amount of revenue and would expect a proportionate salary.