Employees taking on relocation assignments do need remuneration that reflects increased responsibilities and cost-of-living concerns, but HR may find itself pouring cold water on unrealistic salary expectations.
Expatriate assignments are challenging times for employees and their families — so expatriates expect to be compensated well.
In addition, the experiences of other expatriates (who may have bought a large house or a nice cottage upon return from a foreign assignment) raise expectations. These expectations can run very high. One senior technician, who was going on a six-month assignment to Mexico, hoped that he could take early retirement upon his return.
In many cases, managing such expectations is the responsibility of human resources professionals. They need to balance the genuine need for good salary and benefits for individuals (very few people want to go abroad just for the experience, so some form of financial incentive is generally required) with the financial needs of a corporation. HR practitioners also need to set up expatriate assignments so that they can become win-win situations for both the company and the individual, both short term and long term.
Direct compensation
Salary increases take into consideration two factors at the same time: changes in the cost of living and increases due to changes in experience or responsibilities. In the case of expatriate assignments, both changes can be drastic.
Foreign assignments often include a significant increase in responsibility. For example, managing a company’s Mexican plant is a significantly greater responsibility than managing one of several Canadian plants, because of the more restricted access to corporate support and of the cultural challenges.
Living in Tokyo is approximately three times more expensive than living in Calgary, while the cost of living in Bangalore, India is 30 per cent lower than in Toronto.
An equitable compensation scheme takes both cost of living and responsibilities into consideration. Contrary to the situation at home, where both increases are lumped into one figure, expatriates should be given two separate figures, one for the change in cost of living and one for the change in responsibilities.
This simplifies expatriate package negotiations in several respects:
•It improves consistency when a corporation sends people to different countries with widely different costs of living, and helps prevent comments like: “Jane went to Tokyo two years ago and her salary was doubled. Why is mine increasing by only 20 per cent?”
•It helps prepare expatriates for their return to Canada. It is much easier to remove the adjustment made for the change in cost of living if it is explicitly separated from the salary than if it is part of one’s base salary. This helps prevent expatriates from feeling demoted upon their return from expensive locations because their salary was decreased significantly.
Note that cost of living adjustments should be based on the expatriate lifestyles rather than the lifestyle of locals. For example, expatriates living in some developing countries find that food and lodging is relatively inexpensive, while international telephone charges are very high. Given the amount of money that most expatriates spend on telephone calls, this may make a location less affordable after all.
So tell a prospective expatriate going to Japan that she will receive a 20 per cent increase in base salary for her additional responsibilities, and a cost-of-living bonus equivalent to 80 per cent of her salary, effectively doubling her salary. She will better understand the change in income when she later goes to Bangalore or back to Canada.
Benefits
Because of their very different situations and needs, the benefits offered to expatriates generally go beyond the benefits offered to all employees. A survey by the Canadian Employee Relocation Council (CERC), Survey of Transfer Policy: Cross-border and International Relocations, found the vast majority of Canadian organizations offer benefits in the areas of taxation, moving, accommodations, visa, immigration and language training.
Other benefits that are less commonly offered can significantly ease expatriate package negotiations as well as improve chances for successful completion of the assignment. These include:
•Cross-cultural training. This training helps manage expatriates’ expectations. By learning more about their future lives, they can understand better what will be important to them in their assigned destination. They can also calibrate their expectations versus the experience of other expatriates in that destination. For example, some expatriates are asking to live in very large houses in cities where such accommodations simply do not exist.
On the professional side, they may expect to achieve objectives that may be essentially unrealistic in their new context; in this case, they may expect rewards that may never come.
•Family benefits. It is critical to keep in mind the fact that the whole family is affected, and particularly the spouse. Family adjustment and lifestyle issues are the leading causes of early return. Support and financial help in finding adequate schooling for the expatriate’s children is often a prerequisite for the family to accept the assignment.
In the case of dual-career families, recognition for the spouse’s efforts can come in several forms:
•help the spouse obtain a work visa and a job, when possible;
•help him find suitable unpaid activities (studies, volunteer work or hobbies) when local immigration laws prevent him from receiving a salary.
•provide some assistance for the spouse in preparing for the change in family roles — in some cases the assignment means the spouse needs to take a break in their career adn become the caretaker parent which can significantly change perceptions of themselves and their daily activities; and
•compensate the spouse for loss of income.
•Career counselling. In many cases, expatriates negotiating packages will be looking to combine long-term career prospects with immediate financial gains. Providing career coaching and mentoring to them throughout assignments, and particularly during the first and last six months of an assignment, helps ensure that both they and the organization reap the benefits of the newly acquired experience.
It also helps manage expectations for subsequent assignments — some expatriates come back to Canada hoping that they will hold more senior positions than they can realistically hope for — as well as remind the corporation to think about a reasonable and challenging assignment that utilizes the experiences of the returning employee.
One size does not fit all expatriate packages. A young, single engineer who is going to work on an oil extraction platform in Indonesia has very different expectations and needs compared with a senior, married-with-teenage-children senior manager who is going to start and lead the construction and startup of a new plant in Mexico.
A significant degree of flexibility should be provided to allow the design of packages that suit specific needs within a given budget — just like flexible health-benefit plans.
Seeking external advice
An important feature of expatriate package negotiations is that they are quite infrequent in all but the largest of Canadian companies.
Indeed, 50 per cent of CERC survey respondents indicated they have less than five international transfers per year, and less than 40 per cent have written relocation policies for such transfers. As a result, many expatriate packages are handled through case-by-case negotiations between the prospective expatriate and the HR manager responsible for relocations.
In many cases, neither the expatriate nor the HR manager has gone through an expatriate assignment themselves.
As a result, they may not come close to understanding what the expatriate and his family will need in the assigned destination. Seeking informal advice from other expatriates or obtaining formal advice from consulting firms specialized in setting up expatriate package may help ensure that the most important needs of prospective expatriates are addressed.
Lionel Laroche is president of ITAP Canada, a cross-cultural training and consulting organization located in Toronto. He may be contacted at (416) 248-4064 or [email protected].
In addition, the experiences of other expatriates (who may have bought a large house or a nice cottage upon return from a foreign assignment) raise expectations. These expectations can run very high. One senior technician, who was going on a six-month assignment to Mexico, hoped that he could take early retirement upon his return.
In many cases, managing such expectations is the responsibility of human resources professionals. They need to balance the genuine need for good salary and benefits for individuals (very few people want to go abroad just for the experience, so some form of financial incentive is generally required) with the financial needs of a corporation. HR practitioners also need to set up expatriate assignments so that they can become win-win situations for both the company and the individual, both short term and long term.
Direct compensation
Salary increases take into consideration two factors at the same time: changes in the cost of living and increases due to changes in experience or responsibilities. In the case of expatriate assignments, both changes can be drastic.
Foreign assignments often include a significant increase in responsibility. For example, managing a company’s Mexican plant is a significantly greater responsibility than managing one of several Canadian plants, because of the more restricted access to corporate support and of the cultural challenges.
Living in Tokyo is approximately three times more expensive than living in Calgary, while the cost of living in Bangalore, India is 30 per cent lower than in Toronto.
An equitable compensation scheme takes both cost of living and responsibilities into consideration. Contrary to the situation at home, where both increases are lumped into one figure, expatriates should be given two separate figures, one for the change in cost of living and one for the change in responsibilities.
This simplifies expatriate package negotiations in several respects:
•It improves consistency when a corporation sends people to different countries with widely different costs of living, and helps prevent comments like: “Jane went to Tokyo two years ago and her salary was doubled. Why is mine increasing by only 20 per cent?”
•It helps prepare expatriates for their return to Canada. It is much easier to remove the adjustment made for the change in cost of living if it is explicitly separated from the salary than if it is part of one’s base salary. This helps prevent expatriates from feeling demoted upon their return from expensive locations because their salary was decreased significantly.
Note that cost of living adjustments should be based on the expatriate lifestyles rather than the lifestyle of locals. For example, expatriates living in some developing countries find that food and lodging is relatively inexpensive, while international telephone charges are very high. Given the amount of money that most expatriates spend on telephone calls, this may make a location less affordable after all.
So tell a prospective expatriate going to Japan that she will receive a 20 per cent increase in base salary for her additional responsibilities, and a cost-of-living bonus equivalent to 80 per cent of her salary, effectively doubling her salary. She will better understand the change in income when she later goes to Bangalore or back to Canada.
Benefits
Because of their very different situations and needs, the benefits offered to expatriates generally go beyond the benefits offered to all employees. A survey by the Canadian Employee Relocation Council (CERC), Survey of Transfer Policy: Cross-border and International Relocations, found the vast majority of Canadian organizations offer benefits in the areas of taxation, moving, accommodations, visa, immigration and language training.
Other benefits that are less commonly offered can significantly ease expatriate package negotiations as well as improve chances for successful completion of the assignment. These include:
•Cross-cultural training. This training helps manage expatriates’ expectations. By learning more about their future lives, they can understand better what will be important to them in their assigned destination. They can also calibrate their expectations versus the experience of other expatriates in that destination. For example, some expatriates are asking to live in very large houses in cities where such accommodations simply do not exist.
On the professional side, they may expect to achieve objectives that may be essentially unrealistic in their new context; in this case, they may expect rewards that may never come.
•Family benefits. It is critical to keep in mind the fact that the whole family is affected, and particularly the spouse. Family adjustment and lifestyle issues are the leading causes of early return. Support and financial help in finding adequate schooling for the expatriate’s children is often a prerequisite for the family to accept the assignment.
In the case of dual-career families, recognition for the spouse’s efforts can come in several forms:
•help the spouse obtain a work visa and a job, when possible;
•help him find suitable unpaid activities (studies, volunteer work or hobbies) when local immigration laws prevent him from receiving a salary.
•provide some assistance for the spouse in preparing for the change in family roles — in some cases the assignment means the spouse needs to take a break in their career adn become the caretaker parent which can significantly change perceptions of themselves and their daily activities; and
•compensate the spouse for loss of income.
•Career counselling. In many cases, expatriates negotiating packages will be looking to combine long-term career prospects with immediate financial gains. Providing career coaching and mentoring to them throughout assignments, and particularly during the first and last six months of an assignment, helps ensure that both they and the organization reap the benefits of the newly acquired experience.
It also helps manage expectations for subsequent assignments — some expatriates come back to Canada hoping that they will hold more senior positions than they can realistically hope for — as well as remind the corporation to think about a reasonable and challenging assignment that utilizes the experiences of the returning employee.
One size does not fit all expatriate packages. A young, single engineer who is going to work on an oil extraction platform in Indonesia has very different expectations and needs compared with a senior, married-with-teenage-children senior manager who is going to start and lead the construction and startup of a new plant in Mexico.
A significant degree of flexibility should be provided to allow the design of packages that suit specific needs within a given budget — just like flexible health-benefit plans.
Seeking external advice
An important feature of expatriate package negotiations is that they are quite infrequent in all but the largest of Canadian companies.
Indeed, 50 per cent of CERC survey respondents indicated they have less than five international transfers per year, and less than 40 per cent have written relocation policies for such transfers. As a result, many expatriate packages are handled through case-by-case negotiations between the prospective expatriate and the HR manager responsible for relocations.
In many cases, neither the expatriate nor the HR manager has gone through an expatriate assignment themselves.
As a result, they may not come close to understanding what the expatriate and his family will need in the assigned destination. Seeking informal advice from other expatriates or obtaining formal advice from consulting firms specialized in setting up expatriate package may help ensure that the most important needs of prospective expatriates are addressed.
Lionel Laroche is president of ITAP Canada, a cross-cultural training and consulting organization located in Toronto. He may be contacted at (416) 248-4064 or [email protected].
