Diverse Expatriate Populations - Alternative Remuneration Packages
The number of both home and host locations has expanded, and as a result, the global mobility landscape has changed and the expatriate population has become more diverse.
Diversity in types of expatriate assignments, policies, and compensation packages is also increasing and there is a strong trend toward companies having more than one or two expat policies to meet their business and global mobility needs.
The results of AIRINC's Mobility Outlook Survey show an additional challenge that companies are currently facing: while 83 percent of companies expect their expatriate populations to stay the same or increase, companies are nevertheless under pressure to cut costs in various ways.
AIRINC's research confirms the growth of alternative expatriate compensation packages, including the reduced balance sheet package, the headquarters-based system, the proxy-based system, equalised host spending, the safety net, the host salary, the greater of home or host, and the international salary.
In any expatriate compensation programme, equity is the driving force. Theoretically, the perfect system considers equity in comparison to the home location, equity among expatriate peers from different origins, and equity in relation to local host peers. In reality, it is not possible to maximise all three types of equity, and companies end up making trade-offs that emphasise some needs over others.
It is common nowadays to see multinational companies use a mixed strategy for expatriate compensation, due to the variety of business reasons driving international mobility. When determining the best practice for paying expatriates from diverse non-HQ countries, the compensation system should enable the company to recruit, retain, and possibly repatriate employees as simply and efficiently as possible. It must also be considered in the context of the company culture, the competitive environment, and the in-house resources available to administer the policy. No two companies are alike.
A diverse expatriate population
The more variety a company has in its expat demographics, the more challenges it will face when designing an expatriate pay programme. Do 95 percent of the expats come from the headquarters location, or are expats sent from and to diverse locations? Are these consistently like to like transfers, i.e., low to low and high to high wage locations, or is there a mixture? In addition, what types of employees are recruited and repatriated? Are they mostly junior employees who are looking to enhance their careers, or more senior employees who have a critical skill set? Furthermore, are most transfers within regions or between regions?
The home-based or balance sheet system is still the most commonly used pay method. It has stood the test of time because it works very well when protecting home country living standards. It facilitates mobility and is easy to explain and defend to expatriates, as "home" allows a tangible comparison. It can accommodate diverse sending and receiving countries, as well as diverse transferee wage levels.
The home-based system, as the name reveals, is based on the notion that there is a "home." If an employee has been away from home for a long time, or is not expecting to return or retire there, the home-based system may not make sense. In addition, for a company that recruits people from countries where it has no office presence and therefore no payroll mechanism, it may be administratively difficult to put such employees on a home-based system. Moreover, when a company has many different home and host locations, thus many home-host combinations, managing a balance-sheet programme becomes more complex.
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