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Mobility Basics – The dual approach

When calculating expatriate salaries, are there any alternatives to the home- and host-based approaches? 

Although these are the more commonly used methodologies, there are other approaches adopting aspects of both that are used by companies with different objectives.

In this post, we look at the dual approach, which is used by 5% of the respondents to ECA’s Expatriate Salary Management Survey.
 

What is the dual approach?

The dual approach is essentially a comparison of the salaries resulting from use of the home- and host-based approaches, with the higher salary being applied. To effectively compare the salaries, companies will need to know the value or grade of the relevant job position to determine the gross salaries in the home and host countries which the calculations are based on.

In the scenario below, we are comparing the home gross salary in the UK with the local market rate of that position in Switzerland. As you can see, the gross salary in Switzerland is almost double that of the gross salary in the UK.

We deduct the tax and social security in both countries to arrive at the net salaries. At this point, the salary offer in Switzerland is still higher than the UK one. 

Once a cost of living adjustment of CHF 21 359 is taken into consideration for the home-based approach, the difference between the salaries decreases, but the Swiss salary offer remains considerably higher. Based on the principle of applying the higher of the two salaries, the company would offer the local (host-based) salary rather than the assignment salary calculated using the home-based approach.

Exchange rate: 
GBP 1 = CHF 1.279

Home-based approach

UK to Switzerland

Cost-effective home-based index: 165.6

Host-based approach

Local market rate in Switzerland

Single, no children GBP CHF CHF
Gross salary 66 300 84 798 158 657
Net salary 46 234 59 133 117 270
       
COLA 16 695 21 359 n/a
       
Net assignment salary  62 929 80 492 117 270


Why use the dual approach?

Promote mobility

Offering the higher of the net assignment salaries, resulting from the home- and host-based approaches, will promote mobility as the employee will never be worse off. They will either be kept whole with regard to their standard of living or be better off.

A disadvantage of this approach is that by always paying the higher of the two salaries, the company is losing out on the potential for cost savings. However, an alternative way of looking at it is that comparing the two salaries can help companies to determine the lowest salary they can offer without making the employee worse off.
 

When should you use the dual approach?

From low-salary to high-salary countries

When moving assignees from low- to high-salary countries, the assignment net salary calculated using the home-based approach may not be sufficient. Using the dual approach makes it easy to compare the home and host approaches side by side and can ensure that minimum salary requirements for visas are met. 
 

Summary of the dual approach

Using the dual approach makes it easy for companies to promote mobility as it helps them determine whether using the home- or host-based approach will result in a more attractive salary offer. Depending on the salary that is offered, the advantages and disadvantages will be the same as those for the home- and host-based approach.

  FIND OUT MORE

If you are interested in buying a Net-to-Net calculation, adding the Net-to-Net Calculator to your subscription, or need advice on expatriate pay models, salary benchmarking or anything else mentioned in this post, then please get in touch!

  Please contact us to speak to a member of our team directly.

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