Expatriate Compensation

The globalization of businesses, financial markets, trade agreements and even labour markets is affecting every workplace and every employment relationship, employee compensation and change at workplace in terms of social, political, cultural and economic arrangement. Learning objective is examining expatriate compensation in the era of globalization.

Expats or TCNs may be brought in for a number of reasons
 

• Skill Shortage and expertise  in local  Labour Market
• Strategy and policy of organization for confidential position, company interest, reliability much more
• Global HR  & succession planning  ( Future requirement )

Some consideration for expatriate compensation
 

• Living in Tokyo is three times more expensive than living in Edmonton. If the cost of living differences are not considered, it may be almost impossible to get managers to take “high cost “assignments.
• Most of Multinational Global pay planning process uses an electronic tool that enables annual global pay planning, Leaders use this system around the world to determine their employees’ compensation This allows managers to evaluate employees in the same way, regardless of their location and the process is applicable across business units, functions and international boundaries to local market in each country , leaders make decisions on base pay, bonuses, long term incentives online, where a second level leader reviews them. Employee compensation based on a similar set of criteria regardless of location.

-The lump sum/Cafeteria approach offers expats more choices, this approach sets salaries according to the home country system and simply offers employees lump sums of money to offset differences in standards of living.
 

• Other alternatives localization ties salary to the host country salary scales and provides some cost of living allowances for taxes, housing and dependants, the allowances tend to be similar to those under the balance sheet but the salary can vary. The downside is that individual salaries vary with the location rather than with the job or performance
• Another common modification is to decrease allowances over time, the logic is that the longer the employee is in the host country, the closer the standard of living should come to that local employees.

• Most North American, European and Japanese global firms combine these elements of pay in a balance sheet approach. The name stems from accounting, where credits and debits must balance, it is based on the premise that employees on overseas assignments should have the same spending power as they would in their home country Therefore the home country is standard for all payments. The objective is to

• Ensure mobility of the people to global assignments as cost effectively as is feasible
• Ensure that expatriates neither gain nor the lose financially
• Minimize adjustments required of expatriates and their dependants

• Equalizing pay may not motivate an employee to move to another country, particularly if the new location has less personal appeal, therefore many employers also offer some form of financial incentive or bonuses to encourage the move
• Four out of five multinational operations pay relocation bonuses to induce people to take expatriate assignment.

Elements of Expatriate compensation.
 

• Salary  - Base pay plus incentives, allowances and bonus plan etc..
• Income Tax 
• Housing
• Allowance & Premium
• Security, Insurance, Recreation & entertainment ,cultural training and language assistant
• Family settlement, spouse job assistant, Kids school
• Travel expenses
• Health, benefits and wellness
• Family Emergency services
• International EAPs: EAPs are going global and helping expatriates to take care pf their mental health. Which is often affected by the stressful relocation process, Problems such as homesickness boredom, withdrawal, depression, compulsive eating and drinking , irritability, marital stress, family tension and conflict are all common reactions to culture shock, Employees on short term assignment without their families can experience extreme loneliness.
• Safety and fair Treatment Abroad. – Local condition and what threat exists, Kidnapping has become a way of life  in some countries in central and South America and in many places like Brazil, Nigeria, Russia, Guinea etc.. street crime , polluted environment, issues of health in society
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• Repatriation : Repatriation is often bittersweet experience for the returning expatriate repatriation, the process of moving back to the parent company and country from the foreign assignment means returning one’s family to familiar surroundings and old friends,

Progressive multinationals anticipate and avoid repatriation problems by taking number of steps
 

• Write repartition agreement
• Assign a sponsor
• Provide career counselling
• Keep communication open
• Offer financial support
• Develop reorientation program
• Build return trips.

The most common approach to formulating expatriate pay is to equalize purchasing power across countries, a technique known as the balance sheet approach, Experts in international compensations focus on the complexities of taxes, exchanges rates, housing differences and the like rather than how the expatriate pay system affects competitive advantage

I believe, globalization, technological development and high mobility rate under immigration services may be the reasons of drop down in international assignment rate and no more innovation in expatriate compensation policy and procedures,
 

• People prefer to work as consultant, agent and independence contractor and change in definition of employee to agent
• Change in business set up, now business community work as network of people, franchisees, joint venture, outsourcing services or service provider and many other changes in business nature reduce and change the expatriate concept and compensation.
• Apart from compensation most of expatriate looking for location of work, perks, family supports and assistant offers before moving for international assignments.
• Advancement in terms of knowledge, seniority, promotion and growth within organizational hierarchy 
• Does they get the higher position in term of responsibility when they move back to home country .? 54 % return to lower level jobs and only 11 % are promoted.77 % percent have less disposable income when they return home.