EXPATRIATES:COMPENSATION

AND BENEFIT PRACTICES

There is no one-size-fits all approach to
expatriate compensation strategy.
Appropriate compensation structure must
be designed to fit the specific needs and
requirements of the individual company.

-Corporate Leadership Council

Expatriate Benefits Philosophy
(March 2002)
CONTENTS

• Why expatriate compensation?

• What comprises a expatriate benefit program?
• What are the ways to retain expats?
• Ways to reduce expat cost?
• What are the tax issues related to expats?
• Surveys
WHY EXPAT COMPENSATION
• Globalization
• Increased international work assignments.
• To retain valuable employees from job-hopping.
• Goals:
▫ Encourage employees to accept and return from foreign
assignment.
▫ Compensate employees for hardship locations.
▫ Remain competitive with industry competitors’
compensation packages.
▫ Comply with laws and practices of the foreign country
involved.
EXPATRIATE BENEFIT PROGRAM
• Methods of expats benefit design

• Customization of benefit models

• Expats support benefits.

METHODS OF EXPATS COMPENSATION AND BENEFIT DESIGN

• Home country: home country salary , benefit plan+

additional expenses
• Host country: salary , benefit according to the
country of assignment
• Headquarters method: determined using the scale
as per an equivalent job at company headquarters+
adjustment in tax
• Shadow method: (LDC)benefits parallel what the
expatriate would be receiving if they were still
working from the home country office
• Flexpatriate approach: done under a traditional
balance sheet approach + allowances are
calculated depending upon employer.

• Hybrid approach: salary is a better of either

home country based standard or host country
based standard.

• Balanced sheet approach: employer sustain the

employee SOL so that there is no loss or gain due
to relocation. It compensates expatriate
employees for cost differences between
countries.
Customization of benefit model
DEUTCHE BANK
• Employee: Asia-Pacific
Marketing Manager Employee: Financial Control
• Assignment: Sydney to Tokyo Analyst
• Situation: Employee is married Assignment: Sydney to
with three young children; Tokyo
concerned about impact of Situation: Employee is
assignment on his family unmarried with no dependents,
• Benefits: and eager for international
1. Allowances for food, social experience
activities, car and furniture
Benefits:
2. International school tuition
1. Salary three times higher
for children
than in home country
3. Four-bedroom apartment
2. No other benefits offered
(Cost: $183,000 per year)
4. Membership fees at the
Tokyo-American Club
WAYS TO RETAIN EXPATRIATES
• structure of compensation
• Components of compensation
▫ Establish base salary
▫ Bonus and premium
▫ Cost of living adjustment.
▫ Hardship and danger allowances
• Components of benefits:
▫ Housing
▫ Medical insurance
▫ Education allowances
▫ Rest and recuperation
▫ Chauffeured car
▫ Innovative adjustment benefits
• Spousal benefits.
SUCCESS FACTORS FOR EXPAT
RETENTION
• Focus on expat career development.

• Clear communication of compensation and

benefit policy.

• Recognition of cultural impact.

WAYS TO REDUCE COSTS

3% 3%
6% 3% Smaller Housing

Increased Public Transportation

6%
Hiring more Locals

23%
8% More Tax Planning

Reducing Goods &Services Al-

lowances

Reducing Incentives
8%
Less Expensive Cars

Shorter Assignments

11% Suburbs vs. City

17%
Fewer Cars

12% Fewer DomesticServants

EXPATS SUPPORT BENEFITS
• Perceived Organizational Support (POS) is crucial
to the success of international assignments.
• There is a positive correlation between POS and
organizational commitment, attendance rates and
job performance.
• FIVE C’S OF EXPATRIATE SUPPORT
BENEFITS:
▫ Culture, compensation, coordination,
communication, career.
TAX BENEFITS
• Popular employer approaches to tax matters are
the following:
Laissez-faire :Staying out of employee tax affairs
Tax Equalization :Ensuring that employees pay no
more or less than they have at home
Tax Protection :Ensuring that employees pay no
more than at home, but allowing employees to
keep any tax savings if they have transferred to a
lower-taxed jurisdiction
TAX PROBLEM AND
SOLUTION
• Tax problem
▫ Double taxation
• Tax solution
▫ Address questions and concerns through
discussions with expatriates and their partners
prior to transitioning to the assignment
▫ Enlist the services of an accounting firm to
provide details on tax processes
▫ Clearly spell out tax procedures in the terms and
conditions of assignment manual
SURVEYS:
• HR’s estimate that the expats population may shoot up
to 73% in the next 5 years.
• 83% companies in N.America follow balanced sheet or
home country approach
• PricewaterhouseCoopers revealed -50% of the
companies in Europe maintain home country approach.
• International Assignments Survey, 67 percent of
companies use the home country approach adjusted by
cost of living and hardship for expatriate compensation.
• A 2002 ORC survey of 781 companies yielded
the following findings:
▫ 94 % pay cost-of-living allowances on a
continual basis
▫ 76 % have retained similar pay structures
between 2000 and 2002
▫ 65% offer expatriates the same bonus
opportunities as home-based staff
▫ 50 % divide pay between the host country
and the home country
• Thank you!!!

• A group E presentation
◦ Manisha Das
◦ Pooja Patnaik
◦ Shiba Behera
◦ Yasmin Akhter