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INTERNATIONAL ASSIGNMENT COMPENSATIONALTERNATIVE APPROACHESJUNE 2012

Roger HerodPrincipal

Chicago

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Factors Affecting IA Package DesignEvolution of Expatriate Pay Packages

The Early Days Time of Consensus Currently

Individual deals The value of uniformity Variation

Lack of consistency Systematic approach • Assignment types/lengths

Overgenerous packages Reduce individual bargaining• Nationalities of expats

• Pay models

Lump sums Measure costs better Multiple policies/tiers

Lack of planning for duration and purpose of assignments

Make assignments 2 to 5 years Tolerance for pay differences

Headquarters centric Provide a philosophy (no unintended win or loss)

Cost awareness/reduction

Lack of clear principles underlying the purpose of the selected pay approach

Separate incentives from cost equalizers

Strategic planning/alignment with talent management

End result = The Balance Sheet

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Factors Affecting IA Package DesignKey Program Challenges

Diversity of Expats• Range of nationalities• Tolerance of pay differences• Emerging vs. developing countries

• New country entry• Some with significant security and hardship issues

• Short-term• Highly-mobile

• Recruitment & retention• Workforce analysis/staffing mix• Financial analysis

Talent Management

• Available technology & resources• Streamlined administration• Cost control

Return on Investment• Financial impact• Performance management

Program Design & Administration

Greater Range of Assignment Locations

Greater Variety of Assignment Lengths & Types

• Dual career issues• Work/life balance• Family issues

Resistance to Mobility due to:

• Rotational• Commuter

IA PAY OPTIONSHOST/LOCAL PLUS APPROACHES

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IA Pay OptionsPay Continuum

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IA Pay OptionsInternational Compensation Philosophy ~ Market Practice 2010 vs. 2008

Worldwide Americas EMEA APAC

2010 2008 2010 2008 2010 2008 2010 2008

Home-Based Balance Sheet

69% 73% 71% 77% 67% 75% 52% 69%

Headquarters-Based Balance Sheet

15% 11% 13% 11% 7% 8% 16% 9%

Host Based 12% 3% 13% 2% 14% 4% 28% 7%

Higher of Home/Host 4% 3% 4% 3% 6% 2% 6% 0%

Home Plus 7% 4% 7% 4% 5% 5% 7% 7%

Host Plus 4% 2% 3% 1% 5% 2% 5% 2%

Other 3% 4% 2% 2% 6% 4% 4% 7%

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IA Pay OptionsHost/Local-Based or Host/Local-Plus Packages

Historically a consideration for:• Direct/local hires • Transfers from low wage to higher wage countries• Permanent transfers• Localized expatriates

Expanded use for:• Entry-level/development or training assignments• Positions where incentive compensation plays a significant role

(e.g., financial services)• Employee requested assignments

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IA Pay OptionsTypical Practices: Host/Local Plus Packages

• Local-plus policies are most often used when permanently transferring an expatriate or when localizing an expatriate who is already on assignment.

• Local-plus policies often used for intra-regional assignments within Asia and also within financial services industry

• Most companies base the pay of employees on local-plus packages on the local pay structure without applying an adjustment, and handle the payroll in the country for these employees.

• The “Plus” most often consists of:– Housing assistance – Dependent education assistance– International medical assistance– Tax assistance

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IA Pay OptionsConsiderations: Host/Local Plus Packages

DisadvantagesDisadvantagesAdvantages Advantages

Simplicity of pay administrationPay structure is an attractive recruiting tool for those employees coming from a weaker economy (Example, India to UAE)Useful tool, if the employee is going to remain in the assignment locationEquity with local work staff

Simplicity of pay administrationPay structure is an attractive recruiting tool for those employees coming from a weaker economy (Example, India to UAE)Useful tool, if the employee is going to remain in the assignment locationEquity with local work staff

Breaks link to home pay and benefits – may cause long-term employment/retirement issuesHard to repatriateFails to fully equalize higher standard of living home expenditure patternsMay not be an incentive to take assignment

Breaks link to home pay and benefits – may cause long-term employment/retirement issuesHard to repatriateFails to fully equalize higher standard of living home expenditure patternsMay not be an incentive to take assignment

Workforce demographics (Nationality, Age)Operating locationsAdministrative PerspectiveTaxRetirement Benefits

Key Considerations

Key Considerations

IA PAY OPTIONSMULTI TIER APPROACHES

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Emerging Trends

Increasing use of multi-tier policies

By assignment typeBy organizational level

By business unitRegional

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Case StudyMulti-tier Survey Results

66%

12%9%

12%

7%9%

67%

10% 11% 10%6%

8%

71%

11%7%

11%

5%

11%

58%

17%

6%

17%

6%

16%

Single global assignment policy 

Location (e.g. regional)

Other criteria Job level (e.g. early career)

Type (e.g. virtual)

Purpose (e.g. skills gap)

Worldwide The Americas EMEA Asia Pacific

Mercer’s 2010 International Assignments Policies & Practices Survey

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Multi Tier Best Practices

Establish CriteriaEstablish Criteria Identify benefits that will be eliminated or reducedIdentify benefits that will be eliminated or reduced Compensation philosophyCompensation philosophy

Early careerDevelopmental vs. business needPosition/level – typically manager or belowEmployee accommodation

Early careerDevelopmental vs. business needPosition/level – typically manager or belowEmployee accommodation

Analysis of intent of benefitCost analysis to capture cost savings

Analysis of intent of benefitCost analysis to capture cost savings

Modified Balance SheetLocal Plus Modified Balance SheetLocal Plus

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Multi Tier ExamplePolicy Matrix

Exec. Level LT IA Policy Intra-Regional Developmental

Relocation allowance 1 month salary 1 month 1 month ½ month

Home sale closing costs Full + Loss on Sale

Realtor & Legal Fees Not Applicable Not provided

Pre-move house- hunting trip 7 days 5 days 5 days 5 days

Pre-Move

Compensation Approach Home Based Home Based Home Based Host Salary

On-A

ssignment

Incentive Premium 10% of base Not provided Not provided Not provided

Housing Allowance Expensive, no contribution

Moderate, housing norm

Moderate, housing norm

Inexpensive allowance

COLA Expatriate Index EPI Index EPI Index Not provided

Home Leave Business Class Economy up to 8 hours Economy Economy

Dependent Education Provided Provided Provided Not provided

Tax Equalization Full Full Full Host taxes

Transportation Company Car Car Allowance Car Allowance Not provided

QUESTIONS

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Contact Details

+1 (847) 847 1542ROGER HERODroger.herod@mercer.com