It costs money to have a global workforce, and the way to offset that cost, writes Mercer, the huge human consultancy, is to try to "localize" compensation. In other words, try to get American employees, as much as possible, to accept the same pay, or close to it, as the locals receive (i.e. less).
Today the company put out a list of 12 pointers for expatriate staff. I thought it was interesting. Some issues raised were to consider whether the employee is in the expat assignment to perform critical strategic functions or to prepare for advancement in the company. Compensation for those two categories of workers may follow different philosophies. Mercer also suggests paying attention to how currency fluctuations impact compensation and to how families adjust. Also important, the company said, is a developing a plan to transition the returning expat into American corporate culture. Obviously, job one is to make sure there's a safety plan in place, given all the weirdness in the world.
I'm copying Mercer's pointers and commentary here:
“Employers face a difficult balancing act as they continue to manage human capital costs without losing competitive advantage in important markets,” said Ed Hannibal, Partner and Leader of Mercer's Global Mobility business for North America. “Signs of economic recovery, particularly in emerging markets, and a continuing mismatch in talent supply and demand mean that multinational employers must continue to deploy workers outside their home countries. Yet, the total cost of moving a senior executive with family abroad for a multi-year commitment, including compensation, benefits and special accommodations, can easily be three times base pay.”
Mercer’s action items for employers with globally mobile employees are:
1. Take a fresh look at strategy vs. reality
Many expatriation programs grow organically. In some cases, stated policies are undermined by serial exceptions allowed to expatriates in different countries. Organizations should determine whether they are operating by rules. If exceptions have become the rule, it may be time to review policies. Also, organizations should consider whether their expatriate program is really part of the company’s overall talent management strategy. Has the mobility program grown in response to a perceived urgent need or to develop top talent by giving them exposure outside their home country?
2. Divide and conquer
Treating globally mobile employees as a homogeneous group that need similar, robust compensation, benefits and support structures may mean that organizations are providing too much in some cases. Organizations should consider segmenting their expatriate population by type of assignee and type of assignment. Introducing flexibility into expatriate compensation packages can reduce investment in human capital without hurting corporate goals.
Also, employers should consider distinguishing between “developmental” assignments and “strategic” or “critical needs” assignments. Developmental assignees often consider an international assignment as a way to gain significant experience and do not expect to be treated as though they are “equalized to home.” These workers may be satisfied with compensation packages similar to those in the host countries without many of the allowances and benefits associated with a traditional full expatriate package.
3. Consider “local plus”
Employers should look critically at why each expatriate is working away from his or her home country. Are some employees on temporary international secondments with the intention to repatriate them after the assignment is over? Or are some employees locally hired foreigners or directly hired on one-way or indefinite assignments? For the latter types, a more localized or “local plus” package may be more appropriate than a traditional expatriate package based on maintaining ties to a home country.
4. Mark your bench
Compensation and benefit levels change dynamically based on many factors outside organizations’ control. Employers that have not benchmarked their expatriate program and policies to see what the market is doing may be wasting money by over-compensating or risking attrition by under-compensating. Benchmarking can be based on assignment locations, type of assignee or industry practices.
5. Tend to family matters
Unhappy spouses, partners or children can make expatriates’ lives so conflicted that they give up and return home before completing their mission. Organizations should consider whether they are spending enough energy on the front end preparing expatriates and their family members for life in host countries. Importantly, stay in contact with them continually throughout the assignment.
6. Make sure emergency exits are accessible
The political upheavals and natural disasters of 2011 demonstrated ways expatriates and their families can be put in sudden danger. Organizations should not wait until another disaster happens before reviewing their emergency policies for expatriates, including swift evacuation.
Depending on the country, the sensitivity of the project and availability of talent, organizations may find it makes sense to hire locally rather than to send an expatriate from a home country. Or, they may be able to localize expatriated employees by aligning their compensation and benefits package with local market levels. Conversely, they may be relying too much on localization. Localizing an expatriate may not always be appropriate and can cause potential business disruption and unwanted attrition.
8. Consider your choice of Cost of Living Adjustment (COLA)
Organizations should re-examine the assumptions made when choosing how to compute cost-of-living allowances. Adjustments for cost-of-living differences in host countries can be done in a number of ways. Choices depend on overall assumptions on employees’ familiarity with host locations and cost elements already addressed in other allowances or benefits. Changing the COLA index can be both cost-effective and realistic.
9. Equalize taxes, but do not go overboard
To minimize the financial impact of income taxes on the assignee, most organizations adopt a tax equalization policy. Doing so requires a surprising number of assumptions about hypothetical taxes. Some employers have saved millions of dollars by auditing their tax equalization policies and adjusting them to more equitable levels.
10. Make sure your housing policy is realistic
Expatriate housing is one of the highest-cost components of almost every assignment. Organizations should take time to establish appropriate, reasonable-cost rental guidelines for all assignment locations and make sure these are clearly communicated in advance to potential expatriates and the relocation firms that will help them find accommodation. If possible, require top management approval for any exception requests.
11. Stay current with currency fluctuations and inflation
The global economic crisis (and persistent inflation in some countries) has resulted in some gyrations in currency exchange rates and purchasing power between home and host countries. Organizations should examine their policies and adjust for such fluctuations. They do not want to penalize expatriates for being on the wrong end of a big shift in exchange rates or relative prices, yet they do not want to enrich them if rates move in their favor.
12. Welcome “repats” back
Even employers with mature, well-developed expatriation programs drop the ball when expatriates return from years of service in host countries. And returning can be as stressful as making a new life in a host country. What communication programs are in place to ease the transition back home? Do you have a specific job in mind for each “repat” after the current assignment ends?