Exceptions are unexpected allowances and benefits provided to an international assignee that sit outside of the scope of an international assignment policy. Often managers sign off on exceptions, looking only at the direct cost and not realising there can be large associated tax costs.
Besides cost issues, policy exceptions can create compliance risks, policy implications, and a lot of administration to track the exceptions, all of which could lead to significant budget overspend.
One of the first steps in planning a successful international assignment is to establish a budget. Companies will often need to make exceptions to policy from time to time, to accommodate the varied needs of individual assignees. Hence, most companies set aside a contingency budget to cover unexpected costs relating to an assignment. Most companies use a rate of 5%-10% from the total budget to determine contingency.
Policy exceptions tend to fall into three categories:
1. Many ‘under-the-radar’ policy exceptions tend to occur during the initial salary package negotiations between a line manager and an employee. These negotiations may tend to go unreported as they are not tracked by the international mobility team even though these types of costs are a common cause of budget creep.
2. Exception requests commonly arise prior to a relocation typically after an employee’s look-see visit to the assignment location. Accommodating an employee’s request for an extra guest room may seem reasonable, but what might seem like a small exception to an assignment policy can result in a big cost to the company.
3. Assignees are notorious for comparing packages, and if an exception is made for one, it often becomes typical practice as subsequent assignees expect similar provision to be made for them.
Genuine exceptions may arise beyond the control of the assignee or the company such as extended stays in temporary accommodation due to shipping delays in household goods or extra education costs due to the limited availability of schooling choices.
Process for authorising exceptions
To keep costs down, a company will need to implement a well-defined process for managing and authorising policy exceptions to realise cost savings in programme administration.
1. Once the business case for an assignment has been approved the company should run a cost projection. Cost projections can also help to identify anomalies more quickly and make necessary changes to an assignment package before there’s a significant cost overrun.
2. Assignees should be required to request exceptions in writing, inclusive of the cost of the exception and their rationale for requesting it. This formal, written process often puts assignees off requesting exceptions that are anything but legitimate.
3. Line managers should inform or consult with the international mobility team before agreeing to any policy exceptions during the salary negotiation process. A documented repository can then be kept of any such exceptions granted.
4. If an outsource provider is permitted to authorise exception requests, there needs to be a clear process as to what exceptions they can authorise and what ones need to be referred to the company. This means it is harder for exceptions to be granted under the radar.
5. Make sure that all policy exceptions are signed-off by someone with sufficient stature in the company. This might make the assignee have second thoughts about trying to negotiate an exception in the first instance unless there is real need.
Big data analysis
While it might be obvious to most that poor exception management results in unwelcome business costs, it does provide an indicator of where policy improvement is needed. However, many companies do not have the facility to track and report on exceptions in multiple locations and across a variety of cost centres. This has left companies looking to their technology provider for an answer to identify and manage exception requests.
ECA International’s assignment management software tool, ECAEnterprise, uses technology to identify, track and report international assignment exceptions in a meaningful, tailored way to clients. By moving away from manually tracking exceptions through Excel spreadsheets, companies can use technology to effortlessly generate reports which can segment exceptions by assignee, location, cost centre, policy type or however the company needs it sliced and diced to make it meaningful.
Armed with data on exceptions, mobility teams can identify if policy exceptions are frequently being experienced in the same areas and whether this indicates where a policy is failing to support a certain category of employee, such as single parents. This type of data may provide mobility teams with the justifications needed to make policy changes.
By developing a structured process for managing and authorising policy exceptions and using big data analytics to identify, track and report exceptions, mobility teams can make cost-saving improvements to their mobility programmes.
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