Putting Together the Right International Compensation Package

January 17, 2012:

The development of your global mobility policy will build on the information you gleaned when you conducted your environmental assessment and what our compensation, immigration and tax experts have shared about compliance for shorter-term and longer-term global mobility options. Developing the compensation package or packages should be done prior to considering which relocation benefits should be offered.

A complete international compensation package includes base salary, benefits and may include other compensation elements such as assignment incentives, housing allowances, good and services allowances, hardship or location allowances, utility allowances and automobile allowances to name the most common.

Permanently relocating an individual to a new country is relatively simple from a compensation standpoint, particularly if the individual is a new hire with no existing ties to such things as a company pension plan or medical plan. If the individual is an existing employee you may need to consider some elements to assist with the transition from the current country compensation and benefit package to the new country compensation package. The more similar the packages in the two locations the fewer transition elements are likely to be required.

Creating an assignment compensation package is more complex and the complexity increases as the number of variables in your global operation increase. Designing the compensation package becomes more complex when there are more locations, greater variations in compensation between the countries, varying demographics of employees, and greater disparity between the economies of the locations you are moving employees to and from.

Add to this the basic compensation principles of developing a package that is:

  • Competitive enough to attract and retain the best employees
  • Internally equitable for all employees
  • Cost effective so that costs are neither too high nor too low
  • Legally compliant in all of the jurisdictions you are operating within

You will also need to consider the additional challenges of:

  • currency fluctuations
  • differing inflation rates
  • differences between emerging markets and established markets
  • differences in assignees home country situations

Your environmental assessment will provide you with the information you require to understand the variables that make up your global mobility program; and like snowflakes no two companies programs will be exactly alike. It will tell you:

  • how many host and home locations you have
  • what country to country combinations you have now and in the foreseeable future
  • if you have employees from many different home country locations going into the same host location
  • if you are dealing with a range of lower to higher cost of living home locations into the same host location
  • if you have many different employees from one home location going into a variety of differing host locations
  • if you are relocating individuals permanently into a new international location
  • what length of the assignments are generally required
  • if you have or will need to have employees that don`t return to a home location, but rather move from one international assignment to the next (global nomads)
  • if you operate with different compensation packages for each country you are operating in or if you have the same compensation package

Understanding the variables in your program is the easy part. Putting it all together is a mammoth task. Getting the right solution to build an effective compensation package is considerably more challenging. It requires international compensation and taxation input. If this assistance isn`t available to you in house be sure to contact qualified professional to assist you with building a compensation package that is legally compliant, right sized for effectiveness and administratively set up for success.

Guidance from international compensation and tax experts will assist you with key compensation decisions such as:

  • Will the base salary be home, host or expatriate based compensation and what impact will this have on currency exchange protection?
  • Will employees on assignment be kept on home benefit plans or put on host benefit plans?
  • Is there a need to offer an assignment incentive and if so, when and how would it be calculated?
  • Is a housing allowance to be offered? If so, how will the allowance be calculated and will there be a housing norm deduction?
  • If you are providing a goods and services allowance, how will it be calculated, how frequently will it be updated and what will be the exchange rate impact.
  • What other allowances will be required: hardship allowance; utility allowance; transportation allowance?
  • What adjustments to existing leave packages or what additional leave, such as home leave, is required?

Deciding what the compensation package will include is only part of the journey. To complete the process you will need also to determine how this will be administered. Stay tuned as we explore in the next article in our series the administration of international compensation such as, place of pay, totalization agreements, administering cost of living adjustments and exchange rate fluctuations.

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