The major challenge that firms face when trying to create international compensation programs is the challenge of creating systems that seem fair and equitable to all involved. This can be very complicated when the firm has employees from many countries working in many countries.
When a company has people from various countries working in various countries compensation can be very complicated. For example, imagine that a firm takes what can be called a “balance sheet” approach to compensation. Here, the firm tries to make sure that every employee receives compensation that would end up giving them a standard of living similar to what they had in their home country. This could end up causing problems because expatriates from different countries would be getting very different levels of compensation. This would not seem fair to many of them.
But then imagine if the firm takes a “going rate” approach in which it pays expatriates the same as it pays workers from the country in which the work is being done. This way, everyone is making the same amount. The problem is that this might not seem fair to some people. For example, two Americans of the same rank might be sent to different countries where they will make very different amounts of money.
Thus, it is very hard to ensure that everyone will feel that they are being treated fairly in an international compensation program.