A lot has changed since the formative days of corporate expatriate assignments. The roots of traditional assignments go back several decades to the oil and gas industry. These companies knew they’d have to export talent to these new lands and it would take some effort to encourage people to uproot themselves and their families — sometimes for several years — for the good of the company.
Soon, other industries began to expand internationally, and nearly all adopted a one-policy-fits-all, out-and-back, home-based compensation approach. The so-called home-based balance sheet — which links most or all elements of compensation and benefits to the home country while providing certain income equalizers to account for differences in cost of living, housing and income taxes — has endured and is still the most common approach used, according to Mercer’s 2015 Worldwide Survey of International Assignment Policies and Practices (WIAPPS).
At the same time, nearly two-thirds of the 831 global companies surveyed indicate they use multiple policy types and these extend beyond the typical differentiation between short-term, long-term and permanent assignments.
What’s driving the change?
As the global business environment continues to shift, more and more multinational employers are faced with a conundrum. Expanding into foreign markets is critical to growth but that growth can be costly to achieve — and may be impossible without the right resources in place. Critical skill shortages still exist in many markets and in others, valuable company culture needs to be seeded and grown. International experience might also be important or even mandatory for those who hope to climb the corporate ladder.
Companies are using a wide range of assignment types to respond to these changing business needs as well as changes in demographic patterns in the global workforce. Global mobility leaders at top companies now have a seat at the strategy table as mobility has become an important lever in the talent management tool kit.
While the traditional three- to five-year assignment is still common, more than one-half (51 per cent) of WIAPPS participants saw an increase in the number of short-term assignments over the past two years and even more (57 per cent) expect an increase over the next two years.
There has also been a dramatic increase in the use of permanent or one-way international transfers. Many companies are also enforcing time limits on international assignment benefits, often ending costly expatriate allowances and converting employees to local employment terms and conditions after three to five years.
Many companies are also using mobility to provide developmental opportunities for young, high-potential employees, and to develop a global mindset in future business leaders. In fact, these types of assignments are expected to grow more than any other type of assignment over the next two years, according to Mercer’s survey.
Mobility as a diversity and inclusion tool
On average, companies now report that about 15 per cent of international assignees are female, up from less than nine per cent five years ago. On the surface, such a change may not seem statistically impressive, but consider this — relatively speaking, females now represent more than twice the international assignee population than they did five years ago.
There are many possible reasons for this: In general, the number of women in the workforce has increased and diversity initiatives at many companies may be resulting in women being given more opportunities.
More women may also be the primary earners in the household, so making the decision to take an international assignment might be less disruptive to the family’s financial situation.
Dual-career challenges are regularly cited among the top three issues mentioned by companies. Many expat partners aspire to work overseas and although it’s becoming marginally easier for spouses to secure work in some countries, it’s easy to understand why the disruption of a professional career or loss of significant family income can be a formidable obstacle to mobility.
Companies have also become more liberal in the definition of spouses eligible for relocation and spouse assistance benefits, with just 17 per cent of WIAPPS respondents strictly defining a spouse as “a husband/wife of the opposite sex.” However, a host country may not have such a liberal outlook, which can make it difficult or impossible for a non-married partner or partner of the same sex to obtain a visa to enter the country, let alone work authorization.
Nearly all companies allow the family to accompany the employee on a long-term assignment. In fact, one-quarter don’t even have an unaccompanied long-term assignment policy, found Mercer Either they require the married employee to be accompanied or they do not make special considerations if they choose not to be.
For those companies that do send employees on unaccompanied status, the reasons cited are often personal considerations (such as dual-career issues, children’s education, security concerns or the remoteness of the location). Interestingly, very few companies (14 per cent) say they make the decision based purely on cost.
When employees go without their families, it’s common practice for the company to provide some consideration and also adjust other assignment-related benefits. Most often, additional assistance comes in the form of more frequent home leave trips.
Many companies will also give the employee the option of allowing the family to fly to the assignment location in lieu of a home leave trip. Other elements of the package (cost of living and housing allowances) are often reduced to reflect the lower level of local expenditure experienced as a single assignee, although the family may be considered when establishing the housing allowance.
Expatriates from everywhere
Today’s international assignee may be sourced from just about anywhere. Traditional expatriate compensation approaches work for the majority of home-to-host location combinations, but their effectiveness is put to the test when applied at the extreme ends of the home-country economic continuum. Why?
When employees are transferred from one economically developed country to another, there are a range of compensation options that are effective. These include the home-based balance sheet approach and, in some circumstances, host pay or hybrid approaches. When employees from developed countries are transferred to less economically developed countries (LDCs), the balance-sheet approach is also effective.
In recent years, more companies are transferring employees from LDCs. In some cases, this is to send the employee to a developed country for training or other purposes. In others, it is to transfer an employee regionally.
Increasingly, transfers may involve employees with top management potential or with specialist skills such as IT staff from India. Problems arise when lower-level employees receive very low base salaries and the expatriate allowances don’t provide a living wage in the new location.
Conversely, mid- to upper-level managers may be paid relatively high salaries and the resulting allowances (based on a very low cost of living in the home location) may be unreasonably high. Also, compensation packages in countries such as India may include significant benefits beyond pure base salary, further complicating allowance calculations.
Deciding the most appropriate compensation method for such employees is more complex than for expatriates from developed countries.
Companies should not automatically select one or another compensation approach simply because they use that approach for moves from developed countries. Once an approach has been selected, it should be tested before implementation to see exactly what compensation level results in, in the assignment location. It should also be reviewed for its potential impact on relocation back to the home country.
International mobility has evolved greatly over the years. But the realities of socio-economic differences between countries, multiple currencies that move in different directions, distance, immigration, competitive practices and other considerations will likely continue to influence the way talent is moved from place to place for the foreseeable future.
Steven Nurney is partner and leader of Mercer’s North America global mobility business in Norwalk, Conn.
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