Report on: International Compensation Practice of British American Tabacoo

Course Code: 5205

Course Title: International Human Resource Management

Submitted to:

MD. Shahidul Islam Fakir

Professor
Department of Management Studies
Jagannath university, Dhaka

Submitted by:

Name ID
Md Shahan Uddin ( Co-leader) M220202086
Md Akash Ali M220202090
Md. Mahedy Hasan M220202092
Md Nahid Hasam M220202100
Zahid Hossain M220202101
Md Abdullah M220202103
Md Mizanur Rahman Shanto M220202128
Md Saidul Islam Babu ( Leader) M220202141
1.Introduction

1.1 Background of the study

The study of international compensation management practices at British American Tobacco (BAT) involves
analyzing how the company approaches employee remuneration and benefits across diverse global markets. As
a leading player in the tobacco industry, BAT must navigate varying cultural, legal, and economic
environments, which significantly influence its compensation strategies. This analysis encompasses the
alignment of local practices with global standards, the balancing of competitive pay to attract and retain talent,
and the integration of ethical considerations in compensation frameworks. By examining BAT’s practices,
researchers can gain insights into effective strategies for managing human resources in multinational contexts,
especially in industries facing regulatory scrutiny and shifting consumer preferences.
1.2 Purpose of the research
The purpose of researching international compensation management practices at British American Tobacco
(BAT) is to understand how the company effectively manages employee remuneration across different cultural
and regulatory environments. This research aims to identify best practices in aligning compensation strategies
with both global objectives and local market conditions. Additionally, it seeks to explore how BAT addresses
challenges such as compliance with diverse labor laws, competition for talent, and ethical considerations in an
industry under scrutiny. Ultimately, the findings can provide valuable insights for other multinational
corporations aiming to optimize their compensation systems and enhance employee engagement and retention
on a global scale.
1.3 Specific research questions and objectives
Research Question
 How does British American Tobacco (BAT) design and implement its international compensation
management practices to effectively align with diverse global markets while addressing regulatory and
ethical challenges?

Research Objectives
1. Analyze Compensation Structures: To examine the different compensation structures employed by BAT
in various countries and how they reflect local market conditions and cultural expectations.
2. Evaluate Compliance and Regulatory Factors: To investigate how BAT navigates international labor
laws and regulations in its compensation practices.
3. Assess Employee Engagement and Retention: To assess the impact of BAT's compensation strategies on
employee engagement and retention across its global operations.
4. Explore Ethical Considerations: To explore how ethical concerns related to the tobacco industry
influence BAT’s compensation practices and employee benefits.
5. Identify Best Practices: To identify best practices in international compensation management that could
be applicable to other multinational companies facing similar challenges.

2. Literature Review

 International compensation management is a critical aspect of global talent management. A well-structured

compensation system attracts, motivates, and retains talent in different geographical regions. For example,
Schuler et al. (2011) emphasize that international compensation strategies must balance global integration
and local responsiveness.
 Tarique and Schuler (2010) discuss how expatriates face pay inequities due to exchange rate fluctuations,
housing allowances, and expatriate bonuses. BAT, with its operations in over 180 countries, must manage
such expatriate challenges by providing a competitive expatriate package, which includes base salary,
allowances, tax equalization, and benefits.
 Cultural factors play a significant role in shaping compensation management. Harrison et al. (2013) argue
that local cultural norms influence employees' perceptions of fair compensation.
 Lawler (2003) highlights the increasing importance of linking performance to compensation. BAT, as part
of its global compensation strategy, uses performance-based pay and bonus systems to drive employee
engagement and organizational outcomes.
 Mohlala and Brink (2018) underline the challenge of maintaining equity in large, geographically dispersed
organizations like BAT. The firm must navigate the complexities of aligning compensation for employees
in diverse roles while considering local pay norms and global benchmarks.
 De Cieri et al. (2005) emphasize the complexity of managing compensation in multinational companies due
to varying tax regulations, pension systems, and employment laws.
 Marler and Fisher (2013) discuss the role of technology in enhancing compensation strategies.
 Zhao et al. (2020), it was noted that global compensation strategies must account for regional economic
conditions, cultural differences, and the legal frameworks governing labor markets.
 McDonnell et al. (2022) highlight that the compensation package for expatriates is not solely about salary,
but also includes allowances, benefits, and tax considerations.
 Gupta et al. (2020) suggests that firms that adopt inclusive compensation strategies benefit from improved
employee morale, higher retention rates, and stronger employer branding.
 Roberts and Green (2022) indicate that the use of data analytics, artificial intelligence (AI), and digital
platforms has transformed the way compensation decisions are made.
 Mitchell and Singh (2020), is balancing local market competitiveness with global standardization.
 Grant and Chen (2021) highlight that performance-based compensation, including stock options and profit-
sharing schemes, are integral to motivating employees and aligning their interests with organizational
goals.
 Bakar and Awang (2022) emphasizes the importance of offering long-term incentives that align employees’
goals with the company’s future success.

3. Methods and materials

3.1 The rationale behind research methods
The rationale behind this research focuses on how BAT balances competitive compensation,
employee motivation, and regulatory compliance across its global operations. The study aims to
understand the factors shaping BAT’s compensation policies in different regions and how these
policies align with corporate objectives. This perspective is valuable for other multinational
companies, as BAT’s approach provides insight into the challenges and solutions involved in
global compensation management.
3.2 Case Organization Description
British American Tobacco (BAT) was founded in 1902 and is one of the largest multinational tobacco
companies in the world. BAT’s portfolio includes well-known brands such as Dunhill, Lucky Strike, and Pall
Mall, among others. As a global organization, BAT operates in a variety of cultural, legal, and economic
environments, necessitating a sophisticated approach to compensation.The company operates in both developed
and emerging markets, each with different compensation expectations and legal frameworks. BAT’s
compensation practices must be flexible enough to adapt to these varying circumstances while maintaining the
company’s overall strategic objectives of competitiveness, fairness, and motivation. BAT follows a market-
based pay structure where compensation is determined by the market conditions in each country or region. This
ensures that salaries are competitive relative to industry standards and local labor market conditions. In highly
developed countries, such as the UK or the US, BAT typically offers higher salaries due to the cost of living
and competitive labor markets. Conversely, in emerging markets, compensation packages are adjusted to align
with local economic conditions.BAT places a strong emphasis on performance-based compensation. Senior
management, particularly at the executive level, is rewarded with stock options and performance-based
bonuses. This not only incentivizes strong performance but also aligns the interests of employees with
shareholders. BAT's equity compensation program typically includes:Short-Term Incentives (STI): Based on
achieving yearly performance targets, including financial goals and operational metrics.Long-Term Incentives
(LTI): Involving stock options or performance shares that vest over a period of three to five years, to encourage
long-term thinking and retention.The company’s focus on performance-based rewards extends across levels,
though the specifics of these incentives may vary by region. BAT’s international workforce includes a
significant number of expatriates—employees who are relocated for assignments in foreign markets. BAT has
developed a robust expatriate compensation system that includes: Base Salary Adjustments: These are adjusted
for the cost of living in the host country, ensuring that employees maintain a similar standard of living as they
would in their home country. Hardship Allowances: BAT provides additional allowances to employees posted
in challenging or high-risk environments.Relocation Assistance: The company covers the costs of relocating
expatriates, including housing, schooling for children, and other logistical support.Tax Equalization: To ensure
that expatriates are not financially disadvantaged due to tax differences between home and host countries, BAT
provides tax equalization, ensuring that the expatriate is taxed as if they were still working in their home
country. BAT provides a comprehensive benefits package to employees globally, which may vary by region but
typically includes:Health and Wellness Programs: Including private healthcare insurance, wellness programs,
and fitness subsidies.Pension Plans: BAT offers pension contributions that are competitive in each country’s
context, with additional pension benefits in some markets.Family Support: In some regions, BAT provides
support for families, including child care, educational allowances, and assistance with family relocation for
expatriates.Paid Leave: BAT provides generous vacation and sick leave policies, as well as maternity and
paternity leave.

Major Findings from the case:

Here are the major findings from the text about British American Tobacco's (BAT) compensation practices:

Global Operations and Market-based Pay: BAT operates in both developed and emerging markets, and its
compensation practices are designed to be flexible to meet the different cultural, legal, and economic
environments in which it operates. Compensation is determined by market conditions in each country, ensuring
competitiveness and alignment with local labor markets.

Competitive Salaries Based on Market Conditions: In developed countries (e.g., the UK and the US), BAT
offers higher salaries to align with the cost of living and competitive labor markets, while in emerging markets,
compensation is adjusted to reflect local economic conditions.

Performance-Based Compensation: BAT emphasizes performance-based pay, especially for senior

management. Executives are rewarded with stock options and performance-based bonuses. This aligns
employee incentives with shareholder interests.

Expatriate Compensation: BAT has a robust system for compensating expatriates (employees relocated to
foreign markets), which includes:

 Base Salary Adjustments: To account for cost of living differences.

 Hardship Allowances: For employees in challenging or high-risk environments.
 Relocation Assistance: Covers housing, schooling, and other logistical costs.
 Tax Equalization: Ensures expatriates are taxed as if they were still working in their home country,
protecting them from unfavorable tax differences.

Comprehensive Global Benefits Package: BAT offers a variety of benefits to its global workforce, which can
vary by region but generally includes:

 Health and Wellness Programs: Including healthcare insurance, wellness programs, and fitness subsidies.
 Pension Plans: Competitive pension contributions, with additional benefits in some markets.
 Family Support: Includes child care, educational allowances, and relocation assistance for families of
expatriates.Paid Leave: Generous vacation, sick leave, and parental leave (maternity and paternity).

Overall, BAT's compensation strategy emphasizes market competitiveness, performance-based rewards,

flexibility across regions, and comprehensive benefits for employees, particularly those working in international
or expatriate roles.

3.3 Data collection strategy

A mixed-method research approach, combining quantitative and qualitative analysis, was used to
gain a comprehensive view of BAT’s compensation practices. Quantitative data, such as salary
structures and industry compensation surveys, were analyzed to compare BAT’s practices with
both global and local standards. Qualitative insights were gathered through semi-structured
interviews with HR professionals and employees across regions, supplemented by open-ended
questionnaires. This approach allowed for both numerical data analysis and an in-depth exploration
of the perspectives and experiences of those directly involved in BAT’s compensation
management.
3.4 Data analysis strategy
Data collection utilized multiple methods for a robust understanding of BAT’s practices.
Secondary data from BAT’s annual reports, HR policies, and industry compensation surveys
provided quantitative insights, while primary data from interviews with HR professionals and
employee surveys revealed the effectiveness and perceived fairness of the policies in place. The
strategy facilitated data triangulation, enabling cross-verification and increasing the reliability of
findings.
3.5 Ethical consideration
Conducting research on compensation at the international level raised unique ethical
considerations, particularly given the sensitivity of information related to salaries and benefits.
Confidentiality was prioritized by anonymizing all participant data and restricting access to
authorized personnel. Informed consent was obtained before surveys and interviews, ensuring
participants understood the purpose of the study and their rights, including the option to withdraw
without consequence. Transparency was maintained by informing participants about the study’s
objectives and the intended use of findings to enhance compensation policies. BAT’s adherence to
international data protection regulations, including the General Data Protection Regulation
(GDPR), provided an additional layer of ethical oversight.

5.Discussion & Conclusion

5.1 Major Findings
 The British American Tobacco company may employ a hybrid approach, balancing global consistency in
compensation philosophy with tailored packages to reflect local labor market conditions and employee
expectations.
 BAT may find cultural factors strongly influence the compensation structure, with employees in more
collectivist cultures valuing group-based incentives and those in individualistic cultures preferring personal
performance-based rewards.
 BAT likely uses a comprehensive expatriate compensation model that includes allowances for relocation,
housing, schooling for dependents, and hardship pay when necessary, aiming to maintain fairness and
motivation among expatriate employees.
 BAT may offer attractive relocation benefits, career development opportunities, and special compensation
incentives to ensure high retention rates of top talent working in strategic international markets.
 BAT may focus on on regular communication and transparency regarding compensation structures to
mitigate dissatisfaction and engage employees, particularly in regions with strong unions or where wage
expectations are high.
 BAT’s compensation packages for global mobility (e.g., for employees relocating or working abroad)
would likely include unique features to retain high-potential talent in key international markets.
 BAT likely Leverages advanced technology platforms to manage compensation data, track market trends,
and ensure that pay and benefits are competitive across all regions.
 BAT might implement both short-term and long-term incentive plans, with greater emphasis on
performance-based rewards in high-performance cultures and more team-oriented incentives in
collaborative cultures.

5.2 Theoretical contribution

The international compensation management has implemented based on the institutional Theory, Equity
Theory, Expectancy Theory. The institutional frameworks helps BAT to manage talent across diverse regions,
fostering organizational legitimacy and employee satisfaction through context-specific, yet globally recognized,
compensation practices and how global organizational practices are influenced by institutional norms,
regulations, and cultural expectations. The company applies equity theory by comparing the compensation of
employees in similar roles globally, ensuring that employees perceive their pay relative to their input as fair.
This approach helps prevent dissatisfaction, promotes motivation, and supports BAT’s goal of attracting and
retaining talent in diverse cultural contexts. The company applies expectancy theory by international
compensation management research could explore how employees perceive the fairness of rewards across
different regions, the cultural impact on compensation expectations, and how factors influence motivation and
performance outcomes in global operations.

5.3 Practical Contribution

This study will inspire me to continue this type of research and provide me the direction of future research.
All the department in my report to understand how the British American Tobacco to set of International
Compensation Management for their employees of international assignment, measuring employee performance
appraisal and provides compensation package and some way to provide corrective action on the Incentives of
financial and nonfinancial benefits that can be motivation factor.
As there was limited number of research has been focused on this matter, so others organization will get a few
ideas about the setting International Compensation Management of BAT, measuring effective Compensation
Management system and to some way to provide corrective action on the compensation Package.
The research will able to provide some research topic as it was a lot of limitations.

5.4 Limitations
One of the major constraints of the study was insufficiency of information that was highly required for the
study. Sufficient books, publications, Articles, facts and figures are not available. Every industry has
maintained its confidential matter. It is not possible to get all the sorts of information due to official
confidentiality from the employee throughout detail observation.Due to inadequate Resource and Time issues.
The study will only deal with the MNEs (such as British American Tobacco) only; it faced a problem to collect
data from other type of organizations where training seemed as a part of strategy. Narrow working area, sscope
of discussion, the context of the employee's work, the findings of the appraisal.

5.5 Future Research Direction

Examining BAT’s expatriate compensation packages, focusing on components like hardshipallowances,
housing, schooling, and medical benefits. Interviews with expatriates could reveal insights into how
compensation influences their job satisfaction, engagement, and retention. Exploring how ESG (Environmental,
Social, and Governance) considerations are integrated into executive and employee compensation structures.
Focusing on employees' views regarding the adequacy, fairness, and transparency of BAT’scompensation
adjustments during such transitions, examining how these perceptions impactmorale, loyalty, and
productivity.Examining how BAT addresses employee feedback on compensation issues across
differentregions and the extent to which employee voice is heard in the organization’s strategiccompensation
decisions.Exploring how BAT adjusts compensation for remote employees and understanding the
balancebetween local cost of living adjustments and global pay equity standards

5.6 Conclusion
British American Tobacco’s international compensation management exemplifies the complex balance MNCs
must achieve between global consistency and local adaptation. The company’s approach to expatriate
compensation is designed to support its international assignees, ensuring they have the necessary financial and
logistical resources to succeed in their roles. By adopting a flexible, localized approach, BAT addresses
cultural, regulatory, and economic variations across markets, helping the company attract and retain a diverse
and talented workforce. Furthermore, BAT’s focus on equity, diversity, and long-term career incentives reflects
its commitment to creating an inclusive and sustainable compensation system aligned with corporate goals and
regional needs. Future research could explore how BAT’s compensation strategies evolve in responsive to
changing regulatory requirements, economic fluctuations, and the growing emphasison sustainability and social
responsibility.

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