International reward: Employers reconsider overseas assignments

If you read nothing else, read this…

• In the current economic climate, employers are seeking to control relocation costs.
• Typical relocation packages include benefits such as help in finding accommodation, a cost-of-living allowance, a housing allowance, moving costs, trips home and a relocation allowance.
• Healthcare cover will also be a priority for employees and their families when relocating overseas.

 

Case study: Toyota fine-tunes expatriates’ needs

In common with many other employers, Toyota GB is making expatriate arrangements fit in with its cost-conscious policies.

Francesco Mereu, director of HR, corporate planning and CSR, says: “Due to the economic crisis, there has definitely been a decrease in expatriates. The benefit of such an assignment is analysed more rigorously before committing. International assignments with the sole purpose of developing people without a business need have also been curtailed.”

The Epsom-based carmaker, which has 330 employees, covers the cost of the move itself and gives a settling-in allowance to help with purchases such as curtains. This is on top of an allowance of 10% of gross salary and housing allowance.

To make sure the changeover is a success, employers should consider a range of factors, says Mereu.

“The cost of expatriate assignments, and failure, is very high. Only relocate managers after a good analysis of cultural fit and true added value as opposed to recruiting locally. Only send managers with a clear career path for after repatriation, especially if people are sent to develop their career potential.”

 

The economic downturn has forced many employers to re-evaluate their budget for rewarding employees sent on overseas assignments, says Jenny Keefe

Almost three-quarters of Britons considered leaving Blighty last year, according to a May 2010 survey by broker Currency UK. But employees may have to put their dreams of cocktails and safaris on ice. The recession, it seems, means they will be lucky if they make it as far as Heathrow.

Andrew Hopgood, client development manager at international relocation firm Icon, says: “Given the economic conditions, companies are seeking to control relocation costs. Employers are spending more time determining the need and objectives of proposed international assignments, to decide whether they are truly necessary and for what duration. As a result, there has been an increase in the number of short-term assignments, typically three to 12 months.”

Hopgood’s view is confirmed by Mercer’s September 2010 International Assignments Report. Of the 220 multinationals polled, 60% cited cost as the main obstacle to international assignments, and half said they had hired, or planned to hire, more expatriates locally. Also, nearly nine out of 10 employers have revised, or plan to revise, expatriate benefits to save cash.

Olivier Meier, a consultant on expat issues at consultancy Mercer, says: “Following the financial crisis, employers face a dilemma. How can they contain expatriation costs and still send a substantial number of people overseas? A growing number of companies address this by segmenting expatriate policies and differentiating between types of assignees or types of assignments. They offer a full expatriate package to key employees, but reduce allowances for junior employees or less critical assignments.”

Huge rewards for executives

Top executives may continue to pocket huge rewards for relocation. For example, last year HSBC chief executive Michael Geoghegan enjoyed a £300,000 living cost allowance when he decamped to Hong Kong – but perks are curtailed for junior employees.

So what does the typical expat package look like now? Most employers help staff find a home, choose a school and ship their belongings. Other common perks include tax equalisation, housing costs, a cost-of-living allowance, private healthcare, school fees and trips home. Icon’s Hopgood says: “The ultimate aim is to ensure the assignee is no worse off on assignment than if they had stayed in their home country.”

Organisations traditionally blow a large chunk of this budget on housing, but fewer employees are going to be sipping gin and tonic in a sprawling mansion. Hopgood says: “Housing budgets were often seen as a starting point for negotiation, but some firms now need exceptions to be signed off at board level. This level of scrutiny discourages people from requesting an extra budget.”

He cites the example of London, where some employers are encouraging expats to swap prime Kensington and Chelsea pads for nooks in Chiswick and Clapham.

Another issue is healthcare, which is a concern not just for employees, but also for their accompanying family. Andrew Morris, business development director at NorthgateArinso Reward, says: “An employee moving from the UK to the USA, for example, will need to be aware of the very high cost of [medical treatment], despite [US president] Barack Obama’s best intentions. In cases like this, communicating benefits packages’ values in each jurisdiction is essential.”

Pension considerations

There are also pension considerations for employees on a stint abroad, says Morris. “International pension schemes are starting to gain some traction. While local provisions take account of local tax efficiencies, international schemes have the scale to reduce administration costs, which may, in certain circumstances, outweigh tax breaks.

“There is also more noise about pan-European pensions. This is mainly driven by providers that have the scale to supply such a market. The concept is talked about more than delivered, but it is clear that global companies are looking to drive efficiency and control governance across their jurisdictions.”

Organisations must also recognise that workers’ willingness to uproot can depend on family. The most likely reason expats would want to return home is family pressure (26%), according to an October 2010 survey by Lloyds TSB of 412 Britons living abroad. Morris says: “The family’s needs will be at the forefront of the employee’s mind. It is not just about benefits, but living environment and schooling. These issues could well affect the economics of the relocation, so are best considered before offering the post.”

Employees who actively seek an overseas post may find they receive fewer perks than if they had moved at their employer’s behest. Barry Page, a human capital partner at Ernst and Young, says: “In most cases, a companyplanned relocation has a reasonable lead time, so benefits, cost-of-living adjustments, remuneration and mobility support services have been pre-agreed. For employees requesting a transfer, these benefits mean the need to negotiate a package, and a number of the support services may not apply.”

Low-tax countries

When it comes to enticing staff abroad, low-tax countries still exert the greatest pull. “Tax regimes can make a big difference,” says Northgate’s Morris. “If the employee is going into a tax-free jurisdiction, the employer will have less problem persuading them to move, but, in the main, employers will still provide the benefits to protect their investment.”

For locations without Monaco’s allure, organisations may need to further sweeten the package before staff will pack their bags. Icon’s Hopgood says: “When moving employees to emerging markets, employers need to consider additional allowances to address the challenges. These can range from lack of suitable expatriate standard housing or schooling, to healthcare problems and availability of foods and goods, and even security issues in unstable countries. Employers can address these concerns with physical assistance and compensation, usually in the form of a hardship allowance.”

HR departments are becoming more concerned with tax and immigration rules. The aim is to avoid stealth expats – employees working abroad with the agreement of a line manager, but without taking part in the employer’s official expatriate scheme. Hopgood says: “These stealth expats have been responsible for companies receiving significant fines when discovered by the authorities, and can have wider implications for the company’s operation in that location.”

Finally, do not forget that living abroad can be tough. HSBC’s Expat Explorer Survey, published in September 2010, polled 4,100 expats in 100 countries and found their top worries were re-establishing a social life 41%) and feeling lonely (34%). Hopgood says: “Expectation management is the single most important factor in preparing assignees. Consider cultural training: a relatively small investment can have significant benefits.”

Read more articles on international reward

 

Typical relocation package

• Cost-of-living allowance. To protect the employee’s purchasing power in the new location.
• Housing allowance. A contribution towards accommodation.
• Education costs (international school). Given if children cannot join local schools.
• Hardship allowance. For employees relocating to difficult or dangerous locations.
• Tax equalisation. To ensure that the employee pays no more taxes than in their home country.
• Moving costs. To help employees ship the family’s belongings.
• Relocation allowance. To cover miscellaneous expenses (usually one month of salary).
• Trips home. Usually one or two a year.
• Mobility premium. Offered when employers want to encourage employees to accept an assignment – usually between 5% to 15% of gross salary.
• Spousal support. In some cases, spouses are reimbursed for training/job search costs in the new location.

Source: Olivier Meier, Mercer