Equity among assignees is one of the holy grails of international HR. Just as with an organisation’s management style, there is no one-size-fits-all approach available in the realm of expatriate remuneration. Whichever approach a company decides to use to compensate and incentivise its expatriates will not necessarily be suitable for another company, even if they are in the same industry and operate in the same countries.
So what remuneration approach(es) should an organisation adopt to make their assignment packages attractive? The answer really lies behind what type of equity management would like to achieve. Do they wish to keep assignees anchored to their home country structure and lifestyle, or do they wish to create equity between assignees and local peers in the host country? What about companies that source talent from many different countries, or those that have ‘global nomads’ as assignees who are expected to be continuously mobile? How can they best attract and retain this hugely valuable, and potentially small, pool of talent?
Various remuneration approaches exist that will help an organisation achieve different types of equity. The home-based and host-based (or local-plus) approaches are most commonly used by organisations worldwide but both have their advantages and pitfalls. Can talent gaps be filled by using both methods instead of just one? What about other methods such as the hybrid approach, or setting-up an international salary spine?
Essentially, there is no right or wrong methodology, but one (or more) may best suit a company’s ethos, the reasons it sends employees abroad in the first place, and the locations it sends them to (and from) – while also ensuring better control of costs.
With a better understanding of who is being sent where and why, organisations can assess how they can best incentivise assignees to work abroad and keep their talent from being poached by other organisations. Equity is crucial to this task and in this article we will go through four different ways to achieve it.
Bearing in mind that in most cases assignees are expected to return home at the end of their assignment, it stands to reason that many companies will want to ensure that a link with the home country is retained.
It is no surprise therefore that the home-based (or build-up or balance-sheet) approach is the most widely adopted remuneration method for fixed-term assignments. It not only maintains the link to the compensation structure but also ensures fairness in that an assignee’s home purchasing power is protected for differences in living costs in the host country. As such, all employees from the same home country are treated the same way on assignment.
This approach promotes mobility by ensuring the assignee earns no less at net level than they would have done at home and therefore prevents having ‘good’ and ‘bad’ assignment locations. Moreover, the link with the home country will make it easier for assignees to be re-integrated into their home country pay structure when they return.
Making sure that all assignees from the same home country are treated the same can mean, however, disparity with both expatriate peers from other home countries and local staff in the host country.
This is where the host-based approach comes into play, whereby the market rate commensurate to the assignee’s job grade in the host country is used to determine the salary on offer. This could mean either the salary that local employees receive (local rate), or it could be based on the salary that other expatriates in that country receive (expatriate market rate).
Simply providing a local salary does not always work. For example, an assignee coming from a high-salary country going to a low-salary one is unlikely to accept an offer of a local salary as it would mean a pay cut. The seniority of the assignee will also have an impact on the local salary differentials between countries, as will the relative rates of tax and social security, buying power and housing costs.
Should the local salary not be sufficient to incentivise the move, companies may add a ‘plus’, providing additional benefits and allowances to cover costs expatriates have to bear which local employees do not (international school costs, ongoing home-country housing costs etc).
Alternatively, a company could offer an expatriate market rate instead – what other expatriates of the same job grade earn in the host country. This may be higher than that of a local employee and therefore incentivising enough for the assignee to accept the move. It could therefore be a cheaper alternative to the home-based approach, yet competitive enough to prevent the assignee from being poached by other companies operating in the host country.
Achieving host equity can be a big advantage, with local employees and assignees earning the same salaries according to their job grades. It avoids the scenario whereby two employees of similar seniority and experience, doing the same job in the same location, earn different salaries purely because of where they come from. It can also be particularly useful for junior employees going on career development programmes or self-initiated assignments where the experience of the assignment itself acts as a sufficient incentive to accept the move.
Home and host equity
Is it possible to maintain a link with the home country whilst making sure the assignee earns a salary equal to that of peers in the host?
The much-less-used hybrid approach theoretically achieves this, by separating the remuneration into home and host elements, and is mainly used for low-to-high salary country moves – whereby the home-based approach may generate too low an assignment net salary (sometimes too low to even qualify for a work permit) and the host-based approach may generate an unnecessarily high net salary that may mean the assignee has no desire to return home.
For low to high salary country moves therefore, the former approach could disincentivise the assignee to go and the latter to return or move on to another assignment – so for organisations who wish to promote mobility, the hybrid approach could offer a happy medium.
For some organisations, the remuneration approaches above will not be suitable for some of their assignee population, notably their ‘career expats’ or ‘global nomads’ – assignees that have no intention of returning to their home country and for whom the link with the home country is therefore irrelevant. These types of assignments are mostly found in the oil/gas, non-profit or construction industries, and can often involve assignees operating on off-shore platforms or aboard vessels.
Not only would the home-based approach not be suitable for them, and the hybrid too complex to administer, but aligning them to host-country salary levels may inhibit mobility. Were they to earn a lucrative local or expatriate salary relative to salaries on offer elsewhere, this could disincentivise them from moving to another country that has a lower local salary.
This is where the international salary spine and select-country approaches come in as possible solutions to promote mobility amongst highly-valued assignees. The pool from which to source top talent and highly-skilled workers may be small and could necessitate recruiting from many different countries. An international salary spine ensures all assignees at the same level are paid the same according to a set international standard, while a select-country approach uses a single appropriate country’s local-salary structure to reference all assignee salaries. These two approaches smooth the way for top talent to be mobile, and the resulting high salaries will help retain them, while ensuring they are all treated the same in terms of remuneration.
The world of global mobility can be a highly complex one, with a range of variables influencing a potential assignment. Each organisation will have its own agenda and circumstances.
Different remuneration methods can help employers achieve different goals, so it is vital that an organisation chooses appropriate ones, assesses them regularly, and makes sure the policies they have in place are fit for the future in a world that is constantly moving.
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