Managing pay in the changing world of international mobility
Barry Rodin
ECA International
Managing pay in the changing world of international mobility

Latest trends in international mobility

Salary systems – trends

Elements of pay – allowances and benefits

Reviewing salary calculations

Administrative processes
2
Managing pay in the changing world of international mobility
16 November 2011
2011 Expatriate Salary Management Survey- sample composition
Sample size = 269
Location of headquarters
Other
6%
Australasia
5%
North
America
16%
Europe
43%
Industry group
Chemicals
5%
Technology etc
Professional
14%
Other
5%
3%
Logistics
5%
Construction
Manufacturing
5%
13%
Engineering
9%
Services
11%
Asia
30%
3
Managing pay in the changing world of international mobility
Oil and gas etc
9%
Food/retail
10%
Finance
11%
16 November 2011
Trends in sizes of long term assignee workforces
(reported changes by international employers)
2%
20%
Increase
4
16%
12%
16%
5%
62%
67%
2009/11
Forecast 2012/13
Decrease
Managing pay in the changing world of international mobility
No change
Do not know
16 November 2011
The ‘war for talent’ and the new expatriating countries
56% now employ 6 or more different assignee nationalities
‘Diversity is one of our values. We do not restrict the opportunity for
assignments to one nationality. We need talent from anywhere.’
5
Managing pay in the changing world of international mobility
16 November 2011
The most common pattern of assignments for individual assignees
Currently
Future
46%
27%
17%
16%
27%
46%
12%
One expatriate assignment during an assignee's career
Several consecutive expatriate assignments
Several expatriate assignments in assignee's career
Majority of career on expatriate assignments
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Managing pay in the changing world of international mobility
10%
16 November 2011
Managing pay in the changing world of international mobility

Latest trends in international mobility

Salary systems – trends

Elements of pay – allowances and benefits

Reviewing salary calculations

Administrative processes
7
Managing pay in the changing world of international mobility
16 November 2011
Key issue : variation in living standards, taxation, and cost of living
between locations
£Sterling
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2011 National salary comparison for middle management position
(reference: Towers Watson/ECA)
Gross pay
8
Net pay
Managing pay in the changing world of international mobility
Relative buying power
16 November 2011
Pay method for international assignees - issues to consider

Economic influences

Cost of living differences between locations

Different levels of taxation and social security

Variation in living standards

Variation in living conditions

Business reasons for assignments

Strategic or tactical?

Demand on mobility

Composition of assignee workforce

Numbers

Range of nationalities
9
Managing pay in the changing world of international mobility
16 November 2011
Objectives and pay systems in use
Reasons for choosing pay method (ranked in top 3)
Equity with home country peers
48%
Facilitate repatriation/onward move
38%
Motivate employees
33%
Transparency
10
29%
Equity with host country peers
23%
Assist administration
22%
International assignee market rate
16%
Assist revising pay
16%
Control costs
15%
Managing pay in the changing world of international mobility
16 November 2011
Pay methods for international assignments in use
2011
54%
Home country based
Dual (higher of home or host)
Select country based
11
Managing pay in the changing world of international mobility
11%
7% 5% 6%
17%
Host country based
Hybrid
More than one approach
16 November 2011
Application of home country based build-up- UK base
All pay elements are net amounts in £ sterling for same middle management position
(reference: Towers Watson for salary data/ECA for COL data)
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Australian
Briton to
British national Briton to China
Chinese
national pay
Australia
in UK
national pay
Local national net income
Spendable income
Location or hardship allowance
12
Managing pay in the changing world of international mobility
Housing/savings
International mobility allowance
16 November 2011
Different levels of pay for different nationalities on the same grade
All pay elements are net amounts in £ sterling for same middle management position
70000
(reference: Towers Watson for salary data/ECA for COL data)
60000
50000
40000
30000
20000
10000
0
Australian national pay
13
Italian to Australia
Briton to Australia
Local national net income
Housing/savings
Spendable income
International mobility allowance
Managing pay in the changing world of international mobility
16 November 2011
Managing pay in the changing world of international mobility

Latest trends in international mobility

Salary systems – trends

Elements of pay – allowances and benefits

Reviewing salary calculations

Administrative processes
14
Managing pay in the changing world of international mobility
16 November 2011
Elements of pay- Home country based approach
Assignment pay
Trends in provision
Tax,
social security
Tax equalisation
Host housing
‘Free’ (63%), subsidised etc (32%)
Notional home pay
(70% base NHP on
responsibility abroad)
Location allowance
(0% to 30%)
Tax,
social security
Assignment allowance
(10% or 15%)
Discretionary
(e.g. housing/
savings)
Discretionary
COLA (±)
Spendable
income
83%
77%
61%
Index < 100
36%
Standard home-based
47%
Cost-effective
53%
(64% use tables)
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Managing pay in the changing world of international mobility
16 November 2011
When a place-to-place index is less than 100!
160
140
120
100
WINDFALL?
80
60
40
20
0
India
16
Managing pay in the changing world of international mobility
UK
Brazil
16 November 2011
Benefits provision – home country based approach
Medical insurance
93%
School fees
63%
Pension
59%
Utilities
55%
Car
Club membership
31%
8%
Yes, always
26%
14%
14%
11%
27%
31%
53%
36%
Domestic staff 4% 18%
17
6% 1%
16%
56%
78%
Yes, on a discretionary basis
Managing pay in the changing world of international mobility
No
16 November 2011
Host country based approach - elements of pay

Sources of information:
• Local national or expatriate pay
structure
• Expatriate or local national
surveys


18
One third apply job evaluation
system
Only 35% of those who apply host
country based approach pay no
additional allowances/
benefits
Managing pay in the changing world of international mobility
Extra allowances or benefits
provided on top of market rate
Housing
assistance
Location
allowance
Mobility
allowance
Settling in
allowance
Home
leave fares
93%
43%
36%
69%
59%
16 November 2011
19
Managing pay in the changing world of international mobility
16 November 2011
Managing pay in the changing world of international mobility

Latest trends in international mobility

Salary systems – trends

Elements of pay – allowances and benefits

Reviewing salary calculations

Administrative processes
20
Managing pay in the changing world of international mobility
16 November 2011
Key considerations when reviewing assignment pay
Items to take into account
Host-based
salary system
Home-based
salary system
Home country pay reviews
?
Host country pay reviews/market trends
Exchange rates
Host tax/social security
Home tax/social security
Home inflation
Host inflation
21
Managing pay in the changing world of international mobility
?
16 November 2011
Challenges –exchange rate fluctuations
% change in the value of £ Sterling versus various currencies
(January 2009=100)
130
120
110
100
90
80
70
BRL
22
JPY
Managing pay in the changing world of international mobility
EUR
USD
16 November 2011
Falling Indices and cost of living allowances (COLA)
(UK to Hong Kong)
Year 2
Year 1
Home
spendable
£35000
23
Index = 143
£1 = HK$ 11.84
Index = 134
£1 = HK$ 12.60
COLA
£15050
COLA
£12495
Host
spendable
HK$ 592592
£35000
Managing pay in the changing world of international mobility
Host
spendable
HK$ 620487
(+5%)
£36750
Home
spendable
£36750
(+5%)
16 November 2011
Managing fluctuating exchange rates/ price inflation
Home country expenses/needs?
Host country expenses/needs?
Pay in home country currency?
Pay in host country currency?
Split pay?
24
Managing pay in the changing world of international mobility
16 November 2011
Managing pay in the changing world of international mobility

Latest trends in international mobility

Salary systems – trends

Elements of pay – allowances and benefits

Reviewing salary calculations

Administrative processes
25
Managing pay in the changing world of international mobility
16 November 2011
How is responsibility for specific administrative tasks
managed/allocated?
Compensation calculation
Payroll
Tax advice/calculations
Travel arrangements
Work permit
Shipping
Host country housing
Education for children
0%
25%
50%
75%
100%
Centralised
Decentralised
Internal shared service centre
Organised in-house; outsourcer delivers (expatriate not involved)
Expatriate organises; outsourcer delivers (employer not involved)
26
Managing pay in the changing world of international mobility
16 November 2011
125%
Allocation of tasks on assignment
Managing policy exceptions
Communication on contract
Answering assignees' questions
Welfare - security and health issues
Planning new position post assignment
Monitoring assignee performance
0%
Centralised IHR
Host country HR
Host country line management
Outsourced
27
Managing pay in the changing world of international mobility
50%
100%
150%
200%
Home country HR
Home country line management
Shared service centre
16 November 2011
Overall perceptions versus administration style
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
28
Managing pay in the changing world of international mobility
1 Extremely dissatisfied
2
3
4
5 Extremely satisfied
16 November 2011
Recent and future change –the key drivers
Rank


29
Key drivers
1
Need for transparency/consistency (eg managing greater variety)
2
Cost containment
3
Increase competitiveness/motivation
4
Attracting/retaining talent
5
More effective communication of policy/improve administration
6
Facilitate transfers/repatriation
7
To manage more effectively pay reviews
8
Manage assignees from emerging countries
38% have made some changes to assignment pay methods in the past 3 years
32% will make changes in the next three years
Managing pay in the changing world of international mobility
16 November 2011
The future and conclusions

Managing increasing variety (eg different nationalities):
- one pay method (e.g. home country or select or regional base), or
- different methods for different regions, business reasons etc.

Increasing use of IT and software tools to enhance communication, knowledge
transfer and consistent application
- tracking assignees
- cost of assignment calculators etc.
- self help tools for assignee and dependants

IHR’s involvement in the assignment cycle
- policy development
- recruitment and preparation
- monitoring/controlling costs
- on assignment support and repatriation (including talent management)
30
Managing pay in the changing world of international mobility
16 November 2011
Expatriate pay is an art as much as a science
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Managing pay in the changing world of international mobility
16 November 2011
Managing pay in the changing world of international mobility
We shall be happy to answer any further questions on either the
presentation or ECA’s services
Barry Rodin barry.rodin@eca-international.com
Mira Pathak mira.pathak@eca-international.com
London +44 (0)20 7351 5000
New York +1 212 582 2333
Hong Kong +852 2121 2388
Sydney +61 (0)2 8923 5400
www.eca-international.com
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Managing pay in the changing world of international mobility
16 November 2011