Employees who are assigned to international positions usually receive a pay package different from domestic employees. The international compensation package typically provides employees with a base salary plus allowances to cover the higher cost of living and housing in the international destination and sometimes incentives to provide encouragement for employees to accept and remain at international assignments.Generally, companies use one of three approaches to determine base pay for expatriate and third-country national employees: 1. A home-country based pay approach. Base salary for expatriates and third-country nationals is comparable to the base salary paid employees in their home country. 2. A host-country based pay approach. Base salary for expatriates and third-country nationals is comparable to the base salary paid employees at the host location. 3. A headquarters based approach. Base salary for expatriates and third-country nationals is comparable to the base salary paid employees at the headquarters location. A fourth approach used by some companies is a hybrid approach, “higher of home or host” policy, whereby companies compare the benefits of a home-country and host-country policy and choose that which is most favorable to the expatriate.Most global companies administer their international pay plan using a balance sheet approach. The balance sheet approach breaks down an expatriate’s compensation into major expenditure categories such as housing, goods and services, income taxes, etc., adjusting compensation within each category to reflect differences in living costs between the home country and the foreign post. This approach seeks to ensure that employees neither gain nor lose significant income because of the international assignment, compared to their home country colleagues. It assumes a tax equalization policy.