Unraveling comp, benefits for expatriates

International survey investigates compensation and benefits policies for workers in foreign countries
By Margaret Sim and Liam Dixon
|Canadian HR Reporter|Last Updated: 02/07/2008

Effective international assignment policies lay the groundwork for success when sending workers to a foreign country. The culture and organizational background of a company, and its history of international assignments, can affect the management of international assignment programs.

Companies can either tailor the compensation and benefits of an employee on assignment to a particular region or try to keep all compensation and benefits consistent for employees at home and on assignment.

According to Mercer’s

2005/2006 International Assignments Survey

, which looked at 200 multinational firms, 66 per cent of North American companies surveyed apply one uniform, global corporate policy, regardless of geography or business unit, and make adjustments only to ensure compliance with local or regional legal requirements.

Demystifying compensation and benefits

Because expatriate pay consists of a complex combination of allowances, premiums and adjustments, it can be difficult for an expatriate to compare her compensation and benefits to what she received in her previous position.

Whatever the compensation and benefits package used, the basis for its calculation and review must be clearly communicated to, and understood by, the employee so she doesn’t feel like she’s giving up anything to go on assignment.

An effective way to demystify remuneration is to provide the underlying principles of the approach in a step-by-step illustration (see sidebar), followed by a detailed worksheet calculation.

Employees who are used to having flexible benefits in their domestic plan are generally covered under a traditional plan for expatriates — particularly outside North America. At the onset, the employee may perceive themselves to be “losing,” however, the reality is often expatriate plans do a much more thorough job of managing personal risk as it pertains to life, health and disability. Employees soon realize their benefit needs while on assignment can be significantly different from those provided by their former domestic plans.

Effective international benefit plans focus on providing a higher level of service and access to high-quality medical resources for both routine and non-routine care. The expatriate employee and her family members may find themselves enjoying a considerably better level of medical care than what they had previously.

Expatriates also have access to resources that domestic employees don’t have, including international employee and family assistance plans and personal crisis or risk services (see sidebar, top left).

Repatriation

Repatriation has its own challenges and, regrettably, some employees leave the organization soon after. To make the transition as smooth as possible:

ensure there is a position available at the end of the assignment that will leverage the value of the employee’s experience acquired while on assignment, or provide another overseas position;

time the repatriation to coincide with family needs (such as school terms);

utilize the expatriate’s overseas knowledge and experience;

manage the transition to home-based employment compensation, benefits and employment conditions; and

provide career planning, assignment debriefing and financial counseling.

Margaret Sim and Liam Dixon are principals at Mercer in Montreal. Margaret can be reached at margaret.sim@mercer.com and Liam can be reached at liam.dixon@mercer.com.


Expatriate compensation

A balanced approach to compensation and benefits

An example of the basic steps in the balance-sheet approach to figuring out compensation and benefits for expatriates.

Step 1Base salary
Step 2Calculate and deduct taxes and levies at homeNet pay
Step 3Calculate and deduct typical housing, savings and other costs at home from the net payNet disposable income
Step 4Calculate and add the cost-of-living differential for overseas location using the new disposable income and cost-of-living indexAdjusted disposable income
Step 5Establish and add extras. For example: housing, savings, miscellaneous costs, education costs, vehicle allowancesNet assignment city
Step 6Quality-of-living allowanceTotal net pay
Step 7Add the overseas income tax and levies to be paid by the expatriate Gross package paid to the employee

Source: Mercer Human Resource Consulting


Coverage needs according to assignment

The types of benefits an employee needs depends on how much travelling she does for the company. This table breaks down the minimum levels of benefit coverage based on employee type.

Coverage needsDomestic employees and local nationals Domestic employees who travelExpatriatesEmployees who go from assignment to assignment (global nomad)
Death, disability, health (provided locally)YesYesYesYes
Accidental death and dismemberment, travel assistance and emergency medicalNo Yes YesYes
International health planNoNoYesYes
International death and disability plansNoNoYesYes
International retirement planNoNoNoYes

Source: Mercer Human Resource Consulting


Compensating expatriates

How companies compensate expatriates

Mercer surveyed 200 international companies and asked what compensation model they used for expatriates. The results are broken down by region in which the company is headquartered.

All regions
Home-country or balance-sheet approach65%
Host-country approach16%
Mixed approach (best of home and host)16%
International compensation scale3%

Asia Pacific
Home-country or balance-sheet approach55%
Host-country approach26%
Mixed approach (best of home and host)16%
International compensation scale3%

Europe
Home-country or balance-sheet approach71%
Host-country approach2%
Mixed approach (best of home and host)25%
International compensation scale2%

Latin America
Home-country or balance-sheet approach40%
Host-country approach45%
Mixed approach (best of home and host)10%
International compensation scale5%

North America
Home-country or balance-sheet approach82%
Host-country approach7%
Mixed approach (best of home and host)7%
International compensation scale4%

Source: Mercer Human Resource Consulting

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