INTERNATIONAL REWARD
Employers urged to adopt more flexible approach to expatriate pay
“Instead of a single compensation system applicable to all assignments, expatriate compensation must be conceived in a flexible approach . . . however even though flexibility is necessary, there should be some basic policies internally, otherwise, too much room for negotiation or too many individual differences may lead to equity problems.” This is one of the messages from recent research appearing in the US WorldatWork Journal.
The report’s author, Yu-Shan Hsu of University of Minnesota, examines the challenges that companies currently face associated with placing expatriates and, by focusing on the balance sheet approach to setting expatriate pay, suggests a number of different ways to tackle them.
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Key challenges
In particular, the challenges highlighted include:
employee inequality and morale problems
lack of connection between strategy and expatriates’ compensation
repatriation issues
family issues.
Employee inequality and morale problems
Despite knowing that employees will react negatively when they perceive that others are paid more than them for the same effort, underlying issues of supply and demand will often mean that companies have no choice but to differentiate between home employees and expatriates in order to attract key staff to move abroad.
Providing a calculation showing the pay differences based on a balance sheet approach to expatriate remuneration, for example, the author says that the cost to a company of a typical expatriate could be two-and-a-half times more in total compensation than a United States-based counterpart. The difference is explained mainly by housing and tax reimbursement costs but such differences can produce negative feelings among host employees as well as employees back in the home country.
In response to such inequality problems, the report suggests that HR practices should focus on a number of issues including:
providing more equitable compensation for local and expatriate employees while selecting only those who are truly worthy of being placed overseas
increasing the transparency of pay practices so that local employees can see more clearly the linkage between work inputs and compensation
anticipating local employees’ questions and making sure they understand the procedures used to determine pay packages for expatriates
communicating the pay differences so that local employees realise the challenges faced and the sacrifices made by expatriates
localising expatriates after a number of years in the host country
varying compensation packages according to assignment length and type and using sophisticated measures to calculate cost-of-living differences
using short-term assignments and business trips to avoid the need for expatriates.
Connecting with strategy
Another problem levelled at the balance sheet method to expatriate remuneration is that it is focused on the past whereas business strategy is about the future. Therefore, it has no real links to business or compensation strategies and therefore acts more like a “band-aid” rather than adding anything to future growth or strategy. The report recommends expatriate policy be linked to business strategy.
Repatriation issues
Many organisations in the United States experience significant problems with employees who return from expatriate assignments primarily due to career development, personal finance and other readjustment issues.
In fact, the report says, most multinationals do not guarantee a job upon return and do not counsel repatriates when they come home. Because of these issues, some employees view oversees assignments as “career graveyards” forcing up the expatriate package necessary to attract suitable candidates.
In order to overcome these and associated problems the report recommends that:
expatriates should be assured that a placement will not affect their professional development
expatriates should be compensated for repatriation costs
all repatriation arrangements should be planned and agreed before the assignment.
Family issues
Concerns linked to the family and, in particular, children, spouses and dual careers have increasingly limited employee mobility. Schooling arrangements for expatriate children are often a pre-requisite but problems associated with accompanying spouses are more complex. In fact, family adjustment and lifestyle issues are the leading causes of early return.
The report suggests a number of solutions to help overcome the pressures associated with this including:
helping the spouse obtain a work visa and a job
helping them to find suitable unpaid activities such as study, volunteer work or hobbies
career counselling
compensation for loss of income.
A final word
The report’s author adds: “HR practitioners should avoid the possibility of equity issues, link the corporate strategy to the expatriate compensation policy, establish sound repatriation policy and take expatriates’ families into consideration when designing compensation and benefits packages.”
Want to know more?
Title: "Expatriate compensation: Alternative approaches and challenges", by Yu-Shan Hsu, WorldatWork Journal, first quarter 2007.
Availability: Contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email: worldatworkjournal@worldatwork.org.
WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it "provides practitioners with knowledge leadership to effectively implement total rewards – compensation, benefits, work-life, performance and recognition, development and career opportunities – by connecting employee engagement to business performance”. WorldatWork is a not-for-profit association with a membership of more than 30,000 human resource professionals, consultants, educators and others, in 30 countries. For further details visit www.worldatwork.org.