Craft - A fair expatriate compensation deal

Working overseas is stressful enough for expatriates. So why make them worry about their salary packages? Here’s how HR practitioners can structure compensation packages that are equitable for both companies and employees.
By Lisa Cheong

In an increasingly globalised world, organisations are now seeing an increasing need to relocate their best talent to places where they are
needed. Executives alike are also embracing the mobile lifestyle, with many viewing an opportunity to work overseas as a stepping stone for
their career.

As such, developing a clear and fair expatriate rewards programme is important and vital to an organisation’s overall compensation and benefits policy and bottom line. Policies which are equitable to both expatriates and the company will result in happier and more engaged expats.

Money woes

One of the biggest considerations expats face when deciding whether to move overseas is the issue of compensation. Employees will always try to ensure that their salary packages and standard of living will not be compromised in the new country.

When designing expatriate benefits policies, HR practitioners usually tend to base it on two main models:

The home country approach:
One of the most commonly-used models is the home country approach. In this model, organisations first look at the compensation the employee is receiving in his or her home country. The company would then add on allowances to make up for any shortage (such as higher taxes) the employee might bear in the foreign country.

Companies often use this model when the employee’s expatriate assignment is for a stated duration, and the employee is expected to return to the home country after completing the assignment.

However, issues may arise when an employee is moving from an emerging country to a more developed one. Due to the disparate income levels in the two countries, the expatriate may face a loss in net income. Furthermore, expats with working spouses may also face a double whammy when their spouses face the possibility of losing their jobs, and subsequently a second income, during the relocation.

If an expatriate is only going to work overseas for a short duration (several months at most) and there is no justification of relocating the family,
companies may also choose to compensate any difference with a daily allowance. One benefit to using a daily allowance is the flexibility it gives HR practitioners, who would be able to adjust the figures according to inflation or company budgets.

The host country approach (localisation): When an employee is slated to live in a host country for a long-term assignment or possibly even
relocate there permanently, organisations will normally tend to favour the host country approach as a way of deciding the executive’s compensation package. This benefits package is typically based on how much a similar employee of the expat’s skill and seniority level would make in a host country.

Sometimes, the organisation would throw in some benefits to help the executive have an easier transition into the host country, such as paying for any freight costs or temporary housing.

Tailoring to suit different needs

Expat compensation packages also have to be tailored according to the different living standards of the home and host countries. Some of the factors which would affect the overall compensation & benefits package are:

Tax rates: Whether an employee is moving to a country that has a higher or lower tax bracket, employees generally expect that their net income will remain the same as if they were to remain in their home country.

This is why companies often engage in what is known as tax equalisation, which takes into account any difference in the tax rates of both home and host country, and makes up for the diff erence. On the flip side, if any employee is going to a country that has lower tax rates than his or her home country, the expatriate may see a reduction in his or her overall compensation to compensate for the reduced taxes he or she would have to pay.

Hardship allowance: In certain countries, issues such as pollution, crime rates and personal security may be an cause of concern for relocating expatriates and their families. In cases such as these, companies may choose to further reward their employees in a form of a
hardship allowance.

Family allowances: If expatriates are choose to relocate their families with them, HR would be likely to tackle issues revolving around the spouse and children.

For instance, one issue HR practitioners might have to deal with is the job loss faced by the expat’s spouse during the relocation. In order to make up for any loss in second income, certain companies provide employees a temporary spousal allowance during the transitioning months. Companies may also help engage recruiters or career coaches in the host country to help the spouse find a new job.

Expat benefits that do not hurt the bottom-line

Aside from allowances, HR practitioners can also tap onto an employee’s personal and career goals in order to ‘sell’ them the prospect of the move.

In a HSBC Bank International’s 2010 Expat Explorer survey, 57% of 4,127 expats surveyed were motivated to take an expat role for career and monetary prospects. Meanwhile, more than half (55%) also said they did it to broaden their life experiences. By tapping onto these intrinsic personal reasons, HR practitioners can also develop expat benefi ts that will not weigh heavily on the bottom-line.

Cross-cultural training: Whether it is learning how to communicate in the host country’s native language or coaching expats on cultural sensitivities, employees would be more eff ective in their new country if they learned more about their future colleagues and local culture in
which they operate in.

Mentoring: Some first-time expatriates may face adjustment issues working and living in a new country. HR practitioners can make this transition easier by assigning an experienced expat or a ‘work buddy’ to help navigate the expatriation pitfalls the new expat might face in a new environment.

Repatriation training: For expats who have worked overseas for a long time, returning to their home country could be just of a culture shock as when they first moved. Helping expatriate families and employees readjust back to living in their home country and original environment is often an overlooked expatriation process which could be benefi cial to employees.

Conclusion

Just like how each and every employee is different, no two expatriation packages are expected to be similar. Whether you are crafting an expatriation package for a young, single executive or a business leader with a family in tow, a flexible approach is always the best way to approach the expatriation process for both the company and employees.

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