MODULE 4
EXPATRIATE
COMPENSATION
Expatriate Compensation
The main compensation items for expatriates involve base
pay, cost-of-living adjustments, housing allowances,
home leave, education assistance for dependents and
premium pay. The U.S. Department of State indexes the
living costs abroad, quarters allowances, hardship
differentials and hazard pay allowances.
Expatriate assignment approaches
⚫ There are a few methods commonly used to determine
global expatriate compensation. These include:
home-based approach (also known as the balance
sheet approach), the host-based approach, and the
global market approach. And one of the greatest
challenges is determining which method is best for
your organization.
Home-Based Approach
The home-based, or balance sheet approach, is the most popular
of these approaches and used by more than 85% of U.S.
multinational companies. The balance sheet approach provides
international employees with an expatriate compensation
package that equalizes cost differences between the international
assignment and the same assignment in the home country of the
individual or the organization. The balance sheet approach is
based on some key assumptions and is designed to protect
expatriations from cost differences between their home and host
countries.
Host-Based Approach
The host-based approach means the assignee transfers to the
host country payroll and receives base and incentive pay based
on host country compensation practices and regulations. There
are limited, if any, assignment related allowances. The host
payroll typically delivers base pay and incentive pay and
above-base allowances. With organizations looking for
cost-cutting opportunities, they have looked to localize
assignees. The host-based approach may be a cost-effective
option to the traditional home-based approach, including local
plus policy components. Difficulties can occur in repatriating
assignees, if applying this approach, because it integrates
employees into the local host salary structure. It can make it
very difficult to move the assignees to another destination or
back to their home country.
Global Market Approach
Unlike the balance-sheet approach, a global market approach
to expatriate compensation requires the international
assignment be viewed as continuous, even though the
assignment may be for various periods of time and the
employee may be in various countries. All assignees are on the
equivalent compensation scale, regardless of their home
country. This approach is much more inclusive. Regardless of
which country the assignee is assigned, the main benefits are
provided.
Example:
If General Motors sent one of its U.S. executives to oversee a
new development in Brazil, the executive would be an
expatriate, General Motors would be the parent company, and
Brazil would be the host country.
Career management of
expatriates.
⚫ Professional career specialists can help expatriates
manage their own careers and also provide individual
career counseling. Such services can be offered
face-to-face, over the telephone, or online.
⚫ By linking the use of expatriates to a corporate
strategy of globalization, expatriation could be seen as
a way to establish control and coordination, at the
same time creating international informal personal
networks between managers in the corporate
organizational structure
JOB PRICING
⚫ Job pricing can be defined as the process to determine the
optimum pay values or wages depending on the job that
the employees are performing in the organization
compared to internal as well as external factors.
⚫ Job pricing takes into account the job description, the
relative industry and regional values, market values etc.
and analyze the data to decide on to an appropriate pay or
salary value.
•The job pricing is one of the methods of job evaluation. The
optimum salary and wages value should be determined
precisely based on the criticality of the job, external
environment, employee performance etc.
•External analysis is very critical. If the salary and wages for a
particular role is less as compared to other similar companies
and across industry then the employee would not feel valued.
This can lead to attrition.
• Job pricing becomes very important in keeping the workforce
motivated and salaries at optimum industry level.
Expatriate Reward Models
and Fringe benefits
Calculating the right reward package for expatriate
employees
Many factors must be taken into account for employers to
calculate the right reward package for expatriate employees.
They are ;
Fair package
Wherever an organisation is posting people overseas, the
reward package has to be fair. If it is not, the employer will not
be able to persuade anyone to work overseas for them.
International package
some employers, especially large multinational organisations, adopt an international
benefits package.
Expatriate information
To make this calculation, employers can enlist the services of companies that collect
expatriate information.
Social security
The other major issue related to healthcare is the fact that many countries have social
security arrangements in place for their residents. In the Netherlands, for example, paying
into the Dutch healthcare system is compulsory, even when a resident is working overseas.
Hardship allowance
Destination can also affect what is in an employee’s benefits package. Although the
equalisation process can take account of variations in the cost of living in their new
location, some places require further financial reward in the form of a hardship allowance.
Repatriation and reintegration
⚫ Repatriation refers to the process where a service assists
the survivor, and any dependents, to return to the
survivor’s place of origin. Ideally, the survivor will have
family at their place of origin able to provide supportive
care once the repatriation has occurred. Additional support
should be provided by the service provider, so the survivor
is not completely dependent upon family.
Reintegration refers to a process where, at the survivor’s
request, a service assists the survivor to return to the place
they moved from when escaping violence. There are many
reasons why it is important for survivors to be assisted to
return to their communities if the threat of violence lessens
sufficiently.
Expatriate management systems
⚫ The Expatriate Management System (EMS) allows the
employer or the authorized person for any
establishment to do transactions such as: applying for
new work permits, work permit renewal, change of
expatriate occupation, and all LMRA (Labour Market
Regulatory Authority) transactions related to the
employer.
Expatriate success factors
⚫ 1. Send employees abroad for the right reasons
⚫ Many companies will send employees to an office
abroad when there is a significant business need like a
competitor gaining market share or when opening a
new manufacturing plant. However, it is important
your business has longer term goals in mind for that
employee too. In addition to managing the opening of
the new plant can the expat assist in streamlining
processes or training local professionals to increase the
likelihood of long-term success
2. Choose the right person
Expat life is not for everyone. There are certain characteristics that make
some employees more likely to succeed as an expat. When choosing
potential candidates for an expat role consider:
Previous experience: have they previously lived and worked abroad
successfully?
Language skills: do they speak the language of their destination
country?
Cultural adaptability: there are tools available that can help you to assess
how able an employee may be to change their behaviour to fit into a
different culture. This is likely to reduce culture shock and make their
overall transition easier.
Do they have the skills for the role? Ensure any candidates considered
have demonstrated the kind of hard and soft skills that will be required
on assignment.
While these points are in no way exhaustive, they should certainly help
when it comes to choosing the right person for an expat assignment
3. Include their family
One of the top causes of failure is the inability of an expat’s
family’s to adjust to life in their new home. Therefore, it is
critical that once an employee has been selected for the role,
their family are considered. They may have a partner who will
become a trailing spouse, children who need places at
school or family that they care for in their home country who
may need additional support. Often expats are reluctant to
share personal concerns with their employer in case it is seen
as a weakness. Reassure them this is not the case and that you
want to help them settle into their new home in any way you
can. Ensure pre-departure training makes provision for
everyone who may move with the expat.
4. Pre-departure training
Provide the candidate, and their family, with
comprehensive pre-departure training. As a minimum it should
cover:
Cultural awareness
Information on their host country
Language training
Expectations around their role
Support available to them while abroad
Pre-assignment training can make or break an expat’s
experience in their new role so it is worth ensuring it takes
place over a number of weeks or months before departure.
5. Plan for returning expats
Last but by no means least is planning for returning expats. Do not run
the risk of losing valuable employees and their knowledge of living and
working abroad by not preparing for their return. Rates of turnover for
returning expats can be as high as 25%. Challenges many returning
expats face include:
Waiting too long for a permanent position when they return
Not taking their new skills into consideration when they return
Returning to junior or unsuitable roles
Companies that have the highest rates of expat retention following an
assignment, take their return seriously. They have a plan and role for
returning expats that allows them to use their global insight and
experience effectively.
Another way to help your employees succeed in expat roles is to ensure
they have access to the healthcare they may need with international
health insurance cover that includes an expat assistance
programme offering emotional support during their time abroad.