international assignment compensation - · pdf fileand also within financial services industry...
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1MERCER
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
2MERCER
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
5MERCER
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%
6MERCER
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
7MERCER
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
8MERCER
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
10MERCER
Emerging Trends
Increasing use of multi-tier policies
By assignment typeBy organizational level
By business unitRegional
11MERCER
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
12MERCER
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
13MERCER
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