Editor’s Note: In the July 2015 Global Payroll issue, Rena Pirsos, JD, began this two-part series with a detailed look at “Managing Reward for Global Assignments: Compensation and Taxes,” where she discussed the different types of compensation packages available to employees assigned to work abroad, including incentives and hardship allowances. In the following article, Pirsos explains the benefits of competitive benchmarking for a firm that has employees working abroad.
Competitive benchmarking has multiple benefits. As with other areas of employee reward, it is important for employers to regularly benchmark the level of support provided to employees assigned to work abroad (assignees) against typical market practice. Being well-informed about what competitors are doing in this area is a valuable tool for two main reasons:
- Assignees are likely to discuss their assignment compensation package with other expatriates in the host location and, based on those conversations, form views about whether the level of support they are receiving is competitive. This may affect the assignee’s sense of whether he or she is getting a fair deal from the employer and, if that sense is negative, may significantly influence the overall success of the assignment.
- It enables employers to position benefits competitively and to manage total assignment costs by avoiding paying more than is necessary in the context of the external market.
Global compensation packages should ideally be both as competitive and cost-effective as possible. However, assignee compensation is an area where costs can spiral out of control without careful management.
The financial support an employer provides to its assignees is only one part of a total reward package. Other, nonfinancial aspects of a package influence the success of an assignment as well. Therefore, it is just as important for employers to be aware of the broader package when determining policy for assignee compensation as it is in setting domestic employee reward. An employer will be able to afford to set its assignee compensation package at a less competitive level if it can compensate via other aspects of the overall deal.
For example, if a global professional services company has a core population of recently qualified professionals, this group of employees is likely to be highly motivated by the opportunities for both personal and professional development offered by the opportunity to work abroad. They will not expect to be placed in expensive expatriate housing, or to receive the level of support on arrival in the new location that other, more experienced assignees receive. An assignment package designed to provide important compliance services such as tax and immigration support, plus basic protection against cost-of-living differentials, will help the employer manage its costs while still meeting the assignees’ expectations in these circumstances.
Some employers find it helpful to use a total reward model to break down the overall employment package into its component parts, beyond just the financial incentives. For example, a good model would also take into consideration the motivation employees derive from the working environment, their opportunities for personal development, and the extent to which they view themselves as stakeholders in the employer’s future success.
Payroll Data Accuracy
Having reliable internal data about assignees directly affects the management of a global mobility program. For example, having access to accurate home-country payroll data is essential for determining the appropriate host-location cost-of-living allowance or salary-related elements of the expatriate package. Yet obtaining accurate payroll data can be a challenge for a multinational employer because local payroll information may be stored on different systems, each of which may be characterized by varying levels of detail and quality.
An employer should consider how its global payroll systems are set up when deciding on the best way to manage its expatriate program. If accessing data from multiple international payrolls is a significant problem, it will be more effective for the employer to set a general policy at a global or regional level but deliver expatriate benefits and services locally.
In addition, an employer should be able to easily access data on assignee compensation in order to be able to report on assignment costs. As well as payroll data, it may be necessary for an employer to collect data from third-party providers of expatriate benefits (e.g., if expatriate housing is being managed through an external provider) and from the employer’s own expense reimbursement system. However, getting access to this data in a usable format may not be straightforward.
This is why an employer should consider at the outset what information will be needed for the effective management of its expatriate program and take steps to ensure that the information will be readily available when needed. Sometimes it is more practical for an employer to adapt expatriate management processes to fit the data and data-gathering systems it has available than to try to make significant changes to its existing systems to meet the needs of the global assignee program.
Five Cost Management Tips to Manage Expatriate Benefits
While gathering benchmarking data to ensure that expatriate benefits are not more generous than they need to be is important, costs can be managed in many other ways. The following are some suggestions:
- Eliminate assignments that have no, or minimal, value to the employer’s business.
A robust governance process will help to ensure that only those assignments that meet the employer’s criteria for business and/or developmental value are allowed to proceed. An audit of existing assignments and a policy of either localizing, or ending, low-value assignments also may be necessary.
- Carefully monitor costs of benefits and services delivered through specialist, third-party providers.
As with any outsourced service, make it a practice to ensure that effective provider-management processes are in place. Examples include clear policies and guidelines on the circumstances in which discretion should be applied, management reporting, and regular dialogue with providers.
- Set a policy and stick to it, but at the same time build in a sufficient degree of flexibility to allow the package to be tailored to the circumstances of the assignee and the assignment.
Exceptions can be expensive, both because they require additional administration and because they are likely to be in the form of a supplement to the standard level of support. While no expatriate program will be completely free of exceptions, minimizing them will go a long way toward ensuring that the program as a whole does not exceed the expected cost.
- Budget for the cost of each assignment at the start by forecasting as far out as possible the cost of all the benefits and services that the assignee will receive over the full course of the assignment.
Make sure that this cost projection is part of the assignment approval process, and monitor actual costs against the original forecast. This process will help ensure individual assignments are managed over the full term within budget and provide the framework for a future forecasting process.
- Do not be overly generous with benefits and services when first setting up an assignment program.
It is much easier to increase benefit levels and services if necessary than it is to cut back on those that have already been promised.