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CON T E NTS
14.1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2
14.1.2 International Assignment Policies
. . . . . . . . . . . . . . . . . . . 14-2
14.1.3 The Approach to Assignment Pay
. . . . . . . . . . . . . . . . . . . 14-6
14.1.4 Pay Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-8
14.2
ASSIGNMENT PACKAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-8
14.2.1 Assignment Allowances – Cost Equalisers . . . . . . . . . . . . . . 14-8
14.2.2 Assignment Allowances – Incentives . . . . . . . . . . . . . . . . . 14-13
14.2.3 Other Assignment Allowances
14.2.4 Summary
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. . . . . . . . . . . . . . . . . . . . 14-15
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-17
14.3
EXAMPLE ASSIGNMENT POLICY . . . . . . . . . . . . . . . . . . . . . 14-17
14.4
REFERENCE SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-19
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14.1.1 Assignee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2
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14.1 INTRODUCTION
As companies internationalise their business operations worldwide they increasingly
need talented employees who are willing to be mobile and undertake assignments
anywhere in the world for periods ranging from a few months to a number of years.
The purpose of this chapter is to outline the key challenges companies face in
managing a global workforce. The area of international assignment management is
complex and demands significantly more time and investment from the human
resources function on each assignee when compared to the equivalent spent on a
regular employee in the home country.
14.1.1 Assignee
What is the definition of an international assignee?
There are a myriad of terms used to describe this special group of employees, with
international assignee or expatriate being the most common. Although one can
generalise as to the meaning, it is important to note that each organisation usually has
its own terminology and definitions.
One simple definition could be:
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
‘An international assignee is an employee assigned to work in a country other than his
or her home country for a fixed period of time by the employer.’
14.1.2 International Assignment Policies
To successfully manage international assignments, it is recommended that companies
put in place a policy to achieve consistency and equity amongst assignees. However,
most practitioners will agree that there needs to be some element of flexibility to meet
the needs of both the business and those of the employee and, if applicable, their
family. When an organisation decides to go international one of the first challenges is
how to select and compensate the employees it sends abroad. Typically there will be
no formal policy in place and, as the chart below highlights, policies and systems
generally evolve over time as companies become more global in their international
operations.
Figure 14.1 – Evolution of policies
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Best practice dictates that any policy for international assignees should match the
company’s overall HR strategy, which, in turn, should align with its business strategy.
One mantra often used is, ‘having the right people in the right place at the right time’.
Each organisation has its own strategy for utilising assignees, but typical drivers for
assignments include:
c
transfer of knowledge
c
senior management position
c
management development
c
requirement to resource an overseas project
c
start up in a new overseas location
c
provision of skills not available locally
c
early career/trainee.
Although most organisations have a written policy, a minority will operate without a
formal programme and negotiate packages on an individual basis. This can lead to
significant problems developing in the longer term and may result in employee
relations issues over inequitable treatment. There is a wide variation in the type of
policies; some companies will have a brief policy statement others will have a detailed
policy posted on an intranet site with access for HR, line management and assignees
and, if applicable, their families.
There is usually a significant difference between those companies who are embarking
on international growth and those, eg Shell, BP and Philips who have very large
assignee populations and have been using assignees for decades; their assignment
policies and practices will reflect this experience.
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How do companies determine and develop their assignment policies?
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One important consideration is identifying policy stakeholders and customers; these
will typically include the assignment management team, business line managers, and
the assignees. Some companies make the policy available to all employees in an effort
to achieve transparency and encourage interest in an international transfer; others take
the view that the policy should only be made available to those who need to access it.
The key issue for any company embarking on international transfers for the first time
is to decide on the type of policy they want to put in place and prepare an appropriate
policy statement.
What is included in an assignment policy?
There are three key phases in the life of an assignment – pre-assignment, on
assignment, and post-assignment. The policy should outline the events and actions
required during each phase (14.3 offers a checklist of items that could be included in
an assignment policy). The policy should include all the different elements offered in
the reward package for the assignment: base pay, cost of living, housing, foreign
service incentives, healthcare, as well as the following:
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
c
selection
c
pay delivery during the assignment
c
managing performance and development
c
taxation and social security
c
holidays and home leave
c
provision of spouse/partner support
c
employment status of the assignee
c
relocation/destination services support
c
childrens’ education
c
overall cost management
c
termination/repatriation
c
emergency leave
c
localisation.
Although this list appears exhaustive, it barely scratches the surface! In addition to the
terms and conditions applicable to assignees, the policy should also be a reference
point for outlining the complex process involved in assigning an employee overseas
and roles and responsibilities for all who are involved at each stage of the assignment.
Questions that need to be addressed include:
c
How is an assignment to be initiated?
c
Who will authorise the assignment, eg Business/Line Manager/HR?
c
Who will be responsible for notifying the key stakeholders in both the home and host
countries?
Since an important aspect of any assignment is cost management, the policy must
state clearly who bears the costs of an assignment, together with any exceptions that
may apply for tax reasons, for example. The process of accounting for costs and
invoice payment should also be outlined to ensure a streamlined system.
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It is also important to decide how the company will manage assignments, eg:
c
centrally
c
centralised with regional hubs
c
decentralised
c
decentralised by business unit.
Many companies with a large expatriate population will establish a ‘centre of
expertise’ to manage assignments. Outsourcing has become more popular but most
companies tend to co-source, eg they outsource relocation, immigration, tax, etc
rather than outsourcing the complete assignment programme.
Types of Assignment
There are three main types of assignment: Within these types, there can be different
categories such as Commuters, Regional and International Cadre, etc.
It is important that each category is clearly defined in the assignment policy and the
related terms and conditions.
Table 14.1
Type
Extended business trip
Short-term
Long-term
Duration
Business trip lasting up to three months.
3-12 months.
2-5 years (with 3 years being typical).
The policy should also identify conditions provided to each type. Many companies set
this up in a matrix or quick reference guide. (Companies often include in the policy
documentation (for practitioner purposes) a template of each type of assignment
contract to be used as appropriate.) Some of the key differences in policy revolve
around the extent to which assignees suffer any increase in costs and whether their
family at the host location accompanies them. For example, since an assignee on a
short-term assignment is unlikely to be accompanied by spouse and family, the
company does not need to take into account a dual career situation or fund education
in the host location. On the other hand, because the family will remain in the family
house in the home country the company will typically meet all housing costs in the
host location to avoid the assignee being burdened with double housing costs.
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Organisations usually devote a section of the policy to defining types of assignments
that are applicable to their expatriate population. Assignments take many forms and,
once again, each organisation has its own method of categorising international
assignees and the terms it uses to describe the different types within its expatriate
population. Some of the more interesting terms include ‘Global Nomads’, ‘Soldiers
of Fortune’, ‘International Cadre’, ‘Commuters’, ‘Virtual Assignees’, ‘Project
Workers’, etc. Although it would be easy to devote the rest of the chapter to the
different categories of assignee, the focus will instead be on the more common types
of assignment taking the view that many of the other types are variations on a theme
and not commonly used in all companies.
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Other Types of Policies and Guidelines
Organisations tend to implement policies that cover only the generic assignment types
and these do not always deal effectively with the ad hoc situations that can arise. As a
result, it is common for assignees to strike individual deals that would otherwise not
be supported. For this reason it is prudent for organisations to develop other policies
or guidelines that deal with some of the more non-standard elements that arise.
One example is a split family situation: if such circumstances are not handled
correctly it can result in high costs for the organisation as it incurs costs in both the
home and host location. Having guidelines sitting alongside the main policy makes it
much easier for administrators to take decisions and dramatically decrease the number
of exceptions or individual deals that occur.
Other examples include stricter rules on how long an assignment should last. If the
date is exceeded, then there are only three options, repatriation, reassignment or
localisation. In the case of localisation, a formal policy or guidelines will make it easier
for the organisation to have a conversation with the assignee and to force the career
management issue. It will also provide strict rules as to the period certain items, such
as host housing, schooling and cost of living allowances, will be provided.
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
Additional polices and guidelines will remove some of the subjectivity and
inconsistencies that can occur when an assignee does not fall under a straight forward
situation.
Figure 14.2 – Preferred Compensation Approach for Assignees
Source: ORC’s 2004 Worldwide Survey of International Assignment Policies
and Practices
14.1.3 The Approach to Assignment Pay
How assignees are remunerated is arguably the most fundamental aspect of
assignment management, as most other areas will flow from this. Although the two
obvious approaches to assignment pay are the home versus host country approach,
other hybrid methods are feasible in certain situations.
Home country approach
The home country approach is also known as the ‘balance sheet method’ approach.
The assignment package is derived from the assignee’s home base salary with
allowances calculated to maintain the employee’s purchasing power in the host
country at the equivalent level enjoyed in the home country. The method is also
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expressed as an attempt to keep assignees ‘whole’, so they are no better nor worse off
as a result of going on assignment. Tax equalisation is therefore an inherent element
in the home country approach (see 14.2.1 Tax equalisation section).
The home based compensation approach remains the most popular; the ORC
Worldwide’s 2006 Survey of International Assignment Policies and Practices reported
that over 73% of respondents worldwide used this method. Usage among companies
in North America and Europe is slightly higher than in Japan and Asia.
The main benefits of using the home based approach are that it facilitates both
mobility and repatriation back into home country. Its main disadvantage is that it can
create questions of equity among employees of different nationalities working in one
location. There may also be difficulties in transferring assignees from less developed
countries to developed locations with higher salary levels. For example, an assignee
going from Mumbai to London would not be able to survive on a pure balance sheet
approach, and appropriate adjustments would have to be made to assignment
allowances.
Host country approach
The host country approach is intended to assimilate the assignee into the host country
market structure as pay is based on salary levels set within the local peer group. Due to
the wide variations between gross and net salaries between different locations, it is not
always possible to apply this approach rigidly. In many cases, certain additional
allowances are usually provided, eg housing, education, and this is known as ‘host
plus’ or ‘destination pay’. Companies may adopt these systems for specific host
countries, eg the UK, US, where salary levels are sufficiently high to facilitate these
approaches, and will follow the balance sheet method for other locations. The host
country system is more widely used in Europe than in North America, and works best
if the assignment is likely to become a permanent transfer.
One of the major barriers to using a host approach is the complex area of benefits,
particularly related to pensions and retirement arrangements. For this reason many
companies decide not to use a host approach. Also if the assignee moves from a low
to a high pay country there could be an issue down the line with repatriation.
Hybrid approaches
Some organisations may use a dual approach often known as the ‘higher of home or
host’, eg applying the highest result from a home versus host country method. As a
more radical alternative, but practiced by very few organisations, a generic
international pay line approach where assignees are placed on the same compensation
scale regardless of home location can be used. However, these systems can be more
costly, as the benchmark is frequently based on a country with a high salary scale. Such
an approach may be appropriate for an ‘international cadre’ programme where
executives are encouraged to think of themselves as global employees rather than
having any specific connection to a particular home country.
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SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
There are several reasons for this: first, because companies typically transfer assignees
on a one-time assignment of up to five years duration with planned repatriation.
Secondly, it is not always easy to determine appropriate salaries and benefits in the
host country and there is the added problem of moving from high to low wage
countries and low to high.
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Regional approaches to expatriate compensation continue to generate interest. The
premise being that an intra-regional transfer should be more cost effective and less of
a burden on the bottom line as inter-regional approaches. However, in practice, it
means trimming down or removing premiums, using a more cost effective approach
to living costs, possibly the use of ‘peer housing’.
In a perfect world it would be preferable to have parity amongst all assignees, the
differences in tax regimes, salary levels, and cost of living/spending habits in each
location means that this notion remains an aspiration for most organisations.
14.1.4 Pay Delivery
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
An important part of the policy design involves determining how pay and assignment
allowances are delivered. This will very often reflect the pay approach chosen. Many
assignees are paid under a home country approach and will continue to receive salary
and cash-based allowances through the home country payroll with other allowances
(eg cost of living, housing, education, etc) delivered in the host location. However,
there are potential pitfalls of this approach depending on the host location, which
may require that a certain percentage of compensation be delivered locally. Also, in
order to ensure local payroll compliance, adjustments may be necessary to the local
payroll system. For this reason, some organisations choose to deliver pay locally to
ensure tax withholding.
Finally, some organisations deliver pay in both the home and host locations, following
what is called the ‘split-pay approach’, which delivers pay to the assignee in both the
home country to meet ongoing expenses, eg mortgages, etc and in the host country to
cover living expenses. The split pay approach has advantages in that the assignee is
protected against any exchange rate movement.
14.2 ASSIGNMENT PACKAGE
The chosen approach to designing the assignment package dictates the requirement
and extent to which separate assignment allowances will be necessary. The focus of
this section will be to outline the typical elements included in the long-term
assignment package, while 14.1.3 above discusses the relative merits of using the
home versus host country approach.
Assignment allowances fall into two categories – cost equalizers and incentives – see
Table 14.2.
Table 14.2
Cost Equalisers
Hypothetical tax deduction
Home housing deduction
Goods and services spendable income
Car/education norms
Incentives
Foreign service premiums
Mobility allowance
Hardship/location allowance
Relocation allowance
14.2.1 Assignment Allowances – Cost Equalisers
Cost of living allowance (COLA)
The COLA is one of the key elements of the assignment package and often
represents one of the more sensitive areas. For companies that use a home based
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approach the objective of the COLA is to compensate the assignee for any increase in
living costs by maintaining as far as possible the same level of purchasing power as
enjoyed at home. A number of companies use external data suppliers, eg ORC
Worldwide, who provide data on living costs in different cities around the world using
a market basket of goods and services typically purchased by expatriates. The data
suppliers convert the cost of living data using a prevalent exchange rate to determine
the difference in living costs against the home country. The home country is typically
set at a base of 100 and, for a location where costs are 25% higher, the index is 125.
The cost of living index is usually applied to the home country goods and services
spendable income – ie the amount an assignee at a certain salary level and family size
spends on goods and services in the home country. The amount of income required
in the host country to maintain the same level of consumption is called the host
country spendable income, which is the sum of the home country spendable income
plus the cost of living differential, ie the amount needed to bridge the gap between
home and host country prices. The example in the table below illustrates the
calculation, based on a UK assignee from London with a total family size of four at a
base salary of £45,000. See Table 14.3 for an example.
Table 14.3
Vienna, Austria
£23,489
111.4479
£2,689
€39,036
The cost of living indices should be reviewed regularly to reflect changes in price
levels and foreign exchange rates between the home and the host country. The review
frequency depends on the host location and how economically stable it is. Although a
company may decide to review COLAs every six months, more frequent reviews are
advisable for locations experiencing significant economic turmoil.
An interesting feature of cost of living indexes is that they may not always be positive.
Assignees sourced out of London, for example, may face a negative cost of living
index for an assignment to the host location to which they are assigned, given the high
cost of living in London. In this case, companies could decide to deduct what is
known as a negative cost of living differential. In reality, many companies do not
apply the negative COLA because of the difficulties in explaining this concept to
assignees.
In recent years companies have started to use one of the more cost effective index
options that have become available such as ‘Efficient Purchaser’, ‘Modified Indices’,
or even a company designed index.
Housing allowance
Along with COLA, the other emotive issue for expatriates is housing. It is emotive,
not only because it represents a significant element of the total package but also
because it affects the assignee, their family and their lifestyle. A housing allowance
usually covers all or part of the accommodation cost in the host country and may be
delivered either by direct reimbursement of costs or payment of a fixed allowance. In
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Assignment Location
Home country spendable income
Cost of living index
COLA
Host country spendable income
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some host locations, tax implications arise from the way in which accommodation is
delivered. For example, at the time of publication, the tax liability in Hong Kong that
arises on accommodation is lower if the company assumes the lease and remits rent
directly to the landlord rather than the assignee receiving a fixed allowance. A
company may use data from an external supplier to set housing allowances or base
rents on information provided by local management in the host location.
Many companies provide a pre-assignment trip as part of its pre-assignment
preparation policy. One of the main objectives of this is to start the process of
looking at suitable accommodation. Key selection criteria include:
c
cost
c
proximity to the office or worksite
c
availability of international schools
c
closeness to other expatriates.
When assignees first arrive in the host location, companies usually provide temporary
accommodation in a hotel or service apartment if the selected residence is not
immediately available.
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
The typical length of time spent in temporary accommodation is thirty days with the
costs of housing and day to day living costs being met by the company.
The housing norm
Since employees usually spend a portion of their income on housing costs in the
home country many companies expect the employee to contribute towards home
housing costs during the assignment to offset the high cost of host housing
allowances, US companies using the balance sheet approach particularly favour this.
European companies perhaps favour it less. The home country housing is a deduction
which represents what a typical family would spend for housing and utilities based on
a particular salary level and family size.
Companies who take a home housing deduction will generally calculate the housing
norm using data provided by external consultants. An alternative method of
calculation used by some companies is to take the assignee’s actual home housing
costs. Notwithstanding the administrative burden of adopting this approach,
particularly for a company with a sizeable assignee population, the inevitable detailed
analysis of an employee’s home housing costs can be somewhat burdensome.
Many companies elect not to take a home housing deduction because if they do it
places an obligation on them to provide ‘home management support’ to the assignee
in the home country. Providing home management support can be costly and very
time consuming. As companies employ more expatriates from differing home
countries, there is a slight trend away from taking a deduction.
In Europe and Asia the large majority of companies provide free foreign housing and
do not deduct a housing norm whereas in Japan and North America they are more
likely to. ORC’s survey indicates the following:
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c
30% Europe
c
27% Asia
c
58% North America
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69% Japan.
Figure 14.3 – Deduction of a Home Housing Norm
The policy should also address other areas related to housing, such as utilities, home
management assistance, storage costs in the home country, etc. It is also important
that the housing policy is sufficiently flexible to allow for special circumstances.
Tax equalisation
The assignee’s individual tax and social security liability is probably the most difficult
area to manage and one that represents serious financial risks should the company or
the assignee be found not to be compatible with local laws and regulations. The main
challenges are the following:
c
Taxes may be higher in the host country, and the assignee expects to be
compensated for the differential.
c
Taxes could be lower, and the assignee becomes accustomed to a lower tax regime.
c
Foreign tax regimes may tax income elements differently or have a different tax
point, notwithstanding variations in fiscal years.
c
The assignee may establish a tax residence in two or more jurisdictions, and the
question arises as to how double taxation can be mitigated.
c
There is a risk of nondisclosure in certain regimes by assignees trying to reduce the
level of their foreign tax.
There are three main approaches to managing tax issues – see Table 14.4.
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The advantage of using a housing norm means that the assignee will not be in a
windfall position in terms of his/her home housing costs. The reason for this is that,
while assignees are discouraged from selling their principal residence in the home
country they very often need to maintain a foothold in the housing market. Many
expatriates will rent out their property and will benefit from rental income to cover
their costs. However, some employees do not wish to rent their principal residence at
home because it may continue to be occupied by dependents, an increasingly common
issue as children attend university or college locally or elderly relatives may live in the
home.
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Table 14.4
Tax equalisation
Tax protection
Laissez-faire
Assignees are no better or worse off than
they would have been under the home
country tax system.
The employer reimburses any
incremental tax liability arising while on
assignment, with no adjustment should
the reverse be true.
Assignees are left to deal with their own
tax affairs.
Although the laissez-faire approach obviously removes the burden from the employer
to make adjustments to a tax situation, it could bring problems to the company for
non-compliance if assignees are left to deal with their own tax affairs in the host
country. Tax protection is more burdensome on the employer, although the onus is
placed on the assignee to substantiate any increases in tax. The main disadvantage is
that the employer is in a no-win situation. The assignee always receives the windfall in
moving to a lower tax regime, but the employer picks up the tab when the assignment
is to a higher tax regime.
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
It is for these reasons that tax equalisation has become the most preferred approach
used by multinational companies. Over 81% indicated that they use this approach in
ORC’s Worldwide Survey. Although not without disadvantages, particularly in relation
to administration, the key advantages include:
c
It represents a fairer system in that all assignees are treated in the same manner;
they pay the same level of tax they would have paid in the home country.
c
The company can gain or lose from a tax perspective, so that any benefit it receives
can offset other assignment costs.
c
The employer has greater control over tax compliance.
c
It encourages mobility in that, as assignees are in a tax neutral position, they should
not be discouraged to move to any particular location because of differences in the
tax regime and, in theory, they should devote less energy to their tax affairs (although
this is not always true!).
The basic application of tax equalisation is to withhold a hypothetical tax, equivalent
to the ‘at home’ costs, from the assignee’s compensation, with the employer paying
any incremental costs on host country compensation plus any tax costs that may arise
in the home country on expatriate allowances, so that:
c
During the tax year, the company withholds hypothetical tax, and the employee
funds actual taxes.
c
At the end of the tax year, there is a reconciliation to confirm whether the withheld
tax is equal to the tax liability for which the employee should bear the cost.
A result of tax equalisation is that companies tend to outsource the expatriate tax
compliance function to a tax provider to manage the process. Although external tax
assistance is usually costly, its main advantages include ensuring accurate compliance
by experts managing the process and identifying tax planning opportunities, along
with key changes or developments in tax legislation.
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Data on tax equalisation
As with housing, the tax policy of an assignment programme may be quite detailed
and complex. However, it is necessary to address the issues that may arise and keep
the policy under constant review to take into account any key legislative changes that
may occur. For example, a recent change in US taxation regarding the treatment of
the sale of a principal residence means that assignees may be at a disadvantage if they
are on assignment longer than three years. Many companies have been reviewing their
policies to take this factor into account.
Social Security and Pensions
Similarly, it may be possible for the assignee to remain covered under the home
country supplementary pension plan; again, this point may depend on how the
assignment has been structured. The home country pension plan would be the
normal starting point, although that is not to say that pension issues may arise in the
host country. For example, an employer’s contributions into the home country plan
may trigger a benefit in kind in the host location, which may be mitigated by obtaining
corresponding approval for the home country plan if local legislation permits. Some
double tax treaties may also provide protection from this situation. The recently
revised US – UK double tax treaty now allows continued membership in the home
country plan without any adverse tax consequences if certain requirements are met.
On the other hand, being in a host country may activate membership in a host country
plan. In certain jurisdictions, non-discrimination provisions mean that an employee is
obliged to join a particular pension plan, despite continuing membership in the home
country plan, which clearly has adverse tax consequences for the employer and
possibly the employee. The key challenge for employers is to continue to provide a
pension while at the same time mitigating any doubling-up in benefit entitlement and,
thus, cost.
Not surprisingly, due to the complexities involved in pensions as well as the
interaction with the social security regime, a number of companies design an
expatriate pension policy to manage the situation. Some companies establish
international pension arrangements as part of their policy, particularly relevant where
the assignee population contains a significant number of internationally mobile
employees or an ‘international cadre’.
14.2.2 Assignment Allowances – Incentives
Mobility or Foreign Service premiums
In addition to compensating assignees for the higher cost of living during an
assignment, many companies provide an inducement in the form of a Foreign Service
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Most companies that follow a policy of tax equalisation usually also include social
security in the scope of the policy. The issue of social security is not as clear cut as tax:
the objective with tax is to minimise costs in a legal manner, while payment of social
security is usually for the purpose of securing a future benefit. Because of the
existence of bilateral and reciprocal agreements between EU member states, it is
usually possible for assignees to remain covered by their home country system.
Although such coverage is preferable to prevent fragmentation of future benefits, the
assignment must be structured properly to ensure this result. It is usually necessary for
the employee to remain in home country employment and be seconded for a definite
period; the paperwork must substantiate this fact.
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or mobility premium, to encourage acceptance of an assignment. In recent years, this
practice has started to change and many companies have lowered or eliminated such
incentives and have focused more on the benefits of career development from an
assignment. The mobility premium is usually paid as a lump sum before the
assignment and sometimes post assignment or as an on-going payment monthly with
salary.
Both are calculated as a fixed percentage of base salary paid net of tax. Allowances
typically vary between 5% to 15% of base pay, with some organisations capping
allowance for higher income earners.
A number of organisations pay premiums based on whether the move is within a
region or between regions. Many European firms do not grant a mobility premium
between European countries but do so for transfers to other continents.
Hardship/location allowance
In recognition of difficult living and working conditions, most companies pay a
hardship or location allowance for such locations. External data providers conduct
surveys to determine the level of hardship of cities around the world using a number
of criteria including:
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
c
climate
c
transportation infrastructure
c
crime
c
political and economic stability
c
education
c
medical care.
Each location is ranked according to the level of hardship/difficulty in the host city.
The hardship allowance is normally expressed as a percentage of home country base
salary and delivered net of tax. Most companies calculate the allowances on a range
from 5% up to 30%, although in some countries it may be higher.
Employers may combine the mobility premium and hardship allowances and pay
them together as a location allowance.
In some locations an additional payment may be made in recognition of dangerous
conditions, for example companies with expatriates in Iraq are paying significant
premiums in view of the very difficult security and challenging living conditions.
Companies may also provide rest and recreation leave to assignees living in remote or
difficult locations. Typically they will provide two trips per year to a nearby location
and pay for hotel and day to day living costs.
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Figure 14.4 – Assignment Related Pay Incentives
14.2.3 Other Assignment Allowances
An employer may include a variety of other allowances and areas of support in the
assignment policy, as illustrated in 14.3. Some of these other key allowances,
relocation, education and spousal support, are outlined below.
The main objective of the approach to relocation should be to minimise the time
required for the move, as well as the inevitable disruption. Typical elements of the
relocation support include the following:
c
pre-assignment visit
c
relocation allowance to cover incidental expenses, eg purchase compatible electrical
items
c
shipment of goods and personal effects
c
home country storage costs
c
travel for the assignee and family to the host location
c
payment of temporary living costs from the period of vacating the family home to
moving into foreign housing
c
time off for effecting the transfer.
All of these elements are typically paid subject to set limits in an attempt to ensure
that the costs incurred are reasonable levels. Limits are usually set on:
c
shipment allowances
c
the amount of goods and personal effects stored in the home country
c
the class of passenger travel
c
the duration of temporary accommodation.
Here, companies are again dependent on third party vendors who supply these
services. The challenge is to obtain a good level of service at a reasonable cost, and
the policy is often fairly prescriptive to ensure this outcome. For example, many
organisations require assignees to obtain at least two quotes on the shipment of
goods to justify costs.
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Relocation
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Education
Education is clearly a key priority for assignees with dependent children
accompanying them abroad. The main issue is whether there will be suitable facilities
in the host country system or whether an international school is necessary. In some
cases, if no suitable facilities are available, companies may reimburse boarding school
fees. However, there is always the concern of the family settling into the host location,
as bad experiences with the education system in the host country are often cited as the
primary reason for assignment failure. Most organisations only provide for
accommodation up to the secondary school level.
Figure 14.5 – Contribution to Education Costs
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Spousal support
One of the major barriers to assignment take up and frequently the main reason given
for assignment failure is family issues, particularly those relating to spousal support.
With the possibility of the family being unable to settle in the host location,
organisations try to minimise this risk by including certain ‘family friendly’ elements
into the policy. The issue of spousal support is yet another emotive area. What used to
be termed the problem of the ‘trailing spouse’ has now been replaced by the
‘dual-career couple’ issue. Assignees today are far more likely to have partners with
their own careers, which need to be addressed. Although few if any companies
provide full compensation for the loss of spousal earnings, the majority of companies
now have a formal spousal support policy and will typically provide the following
types of support:
c
career counselling
c
outplacement support / cv preparation
c
work permit and immigration assistance
c
one-off allowance to assist with job search or further education fees
c
communication forums, perhaps web-based
c
pension funding allowance (particularly for Scandinavian sourced assignees).
The majority of companies make no distinction between spouse or partner in terms
of their entitlement to support and will typically provide support to all spouses, eg
whether they were employed prior to the assignment or not. A number of spouse
networks have been established by companies aimed at providing assistance with
employment, work permits, etc. Recommended sites are:
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www.partnerjob.com
c
www.permitsfoundation.com
c
www.focus-info.org.
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14.2.4 Summary
Managing an international assignee population presents many ongoing challenges to
expatriate practitioners. It is important for the organisation to devote sufficient
resources to the management of this category of employees relative to the size of the
assignee group. More often than not, it is the more senior members of the
organisation who become assignees, which tends to significantly raise the profile of
the assignee HR function.
Keeping a watchful eye on changes to the legislation and regulations in all relevant
countries, as well as regularly reviewing trends in the industry, are vital to maintaining
a responsible and effective approach. Getting the policy and process right is critical to
ensuring both the internal and external reputation of the assignment programme and
contributing towards the success of an organisation’s assignment strategy.
(Assumes assignment is accompanied by family and is of typical length,
eg 2 to 3 years)
PRE-ASSIGNMENT
c
Pre-assignment trip to host country
c
Physical examinations
c
Cross-cultural training
c
Language lessons
c
Pre-assignment tax orientation
c
Visa/work permit application
RELOCATION ASSISTANCE
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c
Travel to host location
c
Shipment of goods and personal effects
c
Air freight
c
Insurance
c
Storage of goods and personal effects in home country, if applicable
c
Resources allocated for assistance with relocation
c
Time off for moving
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14.3 EXAMPLE ASSIGNMENT POLICY
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Relocation allowance
c
HOUSING
c
Lease breaking/home sale
c
Temporary living expenses
c
Housing and utilities allowance
c
Housing norm
REGULAR COMPENSATION
c
Base salary (home or host basis?)
c
Bonus/variable compensation
ASSIGNMENT ALLOWANCES
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c
Cost of living allowance
c
Quality of living/hardship allowance
c
Foreign service premium
c
Company cars (usually provided if host country practice)
c
Education
c
Compensation for loss of spousal/partner earnings (often, assistance with
costs of job search, career counselling, local network/internet, further
education – not many fully compensate for loss of such earnings)
c
Employee benefits
➤
Retirement
➤
Medical
➤
Long-term disability
➤
Accidental death and dismemberment
➤
Travel insurance
c
Club memberships
HOLIDAYS AND HOME LEAVE
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c
Home leave (1 return trip (economy) each year to the home location)
c
Holidays/leave/vacation
c
Hardship leave (additional leave for assignees in qualifying countries)
c
Compassionate leave
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TAXATION & SOCIAL SECURITY
c
Tax equalisation
c
Social security and totalisation
➤
Home country system if reciprocal agreement in force
➤
Application process
c
Tax return preparation (specify host and/or home country returns)
c
Exit and entry meetings
14.4 REFERENCE SOURCES
ORC WORLDWIDE. (2006) Worldwide survey of international assignment policies and
practices. London: ORC Worldwide.
Websites
c
www.cipd.co.uk
c
www.peoplemanagement.co.uk
SPECIALIST AREAS ➲ INTERNATIONAL ASSIGNMENTS
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