Localizing international compensation decisions

Managing a global workforce is a complex and significant task for any organization that operates internationally. With cost considerations driving business decisions, compensation is of increasing concern for multinational companies operating in a variety of economic, social and political contexts. 

For employees, the issue of compensation is critical in assessing international work opportunities, especially in determining whether they can maintain the same standard of living for themselves and their families after they move.

These are the types of challenges Terri Oliver tackles every day as senior manager of global mobility at McCain Foods. Based in Toronto, Oliver oversees all of the company’s workforce movement across domestic and international borders. She manages everything involving expatriate and relocation programs, as well as frequent business travel, while ensuring compliance with tax and immigration policies globally. 

With more than 20 years of experience, Oliver has seen a shift in how international employees are compensated. For example, in the more traditional home-based approach, a Canadian working in another country would be kept on the Canadian payroll, often receiving additional allowances or benefits. However, more multinational companies such as McCain are starting to use host-based packages, where compensation is transferred to the payroll structure in the host country where it has established operations. Local, host-based pay can often provide significant advantages to companies and employees abroad, including greater cost-effectiveness, administrative simplicity and equity with colleagues within the host country. 

However, determining how to fairly compensate an employee who will be living and working in another country can be challenging, especially where there are significant cost-of-living differences, such as a worker experiencing compensation inequalities in a less-developed country. Similarly, employees moving to some of the most expensive cities for expatriates — such as Hong Kong, Singapore or Zurich — could experience a significant negative impact on their lifestyle if not adequately compensated. 

To help inform her decision-making around compensation for international employees, Oliver uses a tool to help establish or support a compensation package when moving employees between countries with different costs of living, housing and tax rates.

“It gives you an overall snapshot and breakdown of what we need to address,” she says.

The technology helps organizations simplify and streamline how they pay international employees. It calculates the economic impact on individuals moving to a different country and being placed on a local compensation package, taking into account the differences in the costs of goods and services, housing, taxes and other costs. 

The tool can apply standardized data from Mercer (the vendor that built it) or it can be customized to the company’s specifications. It can also include other key details about the employee, such as marital status and family size.

While the tool itself operates on complex calculations, the employer experience is fairly straightforward. 

“It’s a very simple tool to use,” says Oliver, as it helps automate the process of scouring various compensation data sources. By providing an accurate sense of how the change will impact the employee — with a breakdown of the net economic losses and gains involved — it provides the information needed to build fair compensation packages, with the goal of balancing both the employee’s and company’s needs.

Before using this tool, determining compensation packages for international employees was a “tedious, manual process because you’re accessing data from separate sources,” says Oliver — ultimately limiting the validity of the information.

Now, “running the report is very simplistic and the output is clearly defined and self-explanatory,” she says.

Additionally, support can be provided in cases where there may be limited data pertaining to locations outside of major urban centres and cities. This is especially helpful for a global company like McCain, which has facilities in areas such as Delmas, South Africa and Scarborough, U.K.     

Once all of the data is inputted and the calculations are completed, the tool recommends an adjusted net income for the employee, highlighting any adjustments needed to ensure he is not negatively impacted by the move. With a detailed, itemized breakdown of the calculations, employees and employers can develop a greater understanding of the rationale for the proposed compensation package. 

In some areas, an employee may be ahead while, in others, she may need further support to be economically whole. For example, she may be moving to a country with a higher income tax rate but substantially lower housing costs that offset the net impact. 

This can also be helpful when employees are moving to countries experiencing significant currency fluctuation, which can complicate decisions around compensation. For example, Oliver found it useful to run before and after reports to help determine the true impact on employees assigned to work in Switzerland or Brazil.

For HR, this information provides a detailed, data-driven compensation package to present to employees that, in turn, helps facilitate and ease discussions around pay. 

“It’s cost-effective to have instant information from a reliable source with valid data,” says Oliver. “If I am putting this in front of our CFO, I need assurance that the numbers are correct. (With this information), I have full faith.”