Mariana Villa da Costa – Littler Mendelson
The current worldwide economic crisis is putting businesses under increasing pressure to control costs. In spite of the challenging economic environment, however, companies are continuing to do business globally and even more small and medium enterprises are starting up international operations. Along with this growth of international business operations comes the globalization of employment. In addition to traditional “expatriate” assignments, more and more organizations are looking for alternative types of assignments which better address their needs, and have the potential to reduce costs as well.
Below are some ideas on how to tailor your approach to international assignments in today’s environment.
Examine Your Population
For companies going global, look for early-in-career professionals who are seeking international assignments for their own professional development. This group is typically younger, and often anxious for the opportunity. A lot of expenses associated with expatriate assignments are related to family members. Since these assignees are often single, or married but have not yet started a family, many of these costs can be avoided. Companies can create a developmental policy specifically for this situation, with allowances that are scaled back.
“Volunteers” are a similar group – those employees that raise their hand to go overseas for personal reasons, or those with a lot of geographic flexibility. Older employees, without the burdens of young children, are often in this category. An added bonus – these are often the most experienced technical talent in an organization, and can be deployed effectively for technology transfer and other training missions.
Expats are always keen to get cash and manage their own expenses. Many companies have introduced lump-sum options in lieu of traditional expatriate allowances. This allows costs to be capped, and also offers flexibility to the employees. It is widely known that if the company gives the employee US$ 5,000 for housing, it is likely that the entire amount will be used for monthly rent. On the other hand, if the cap for total housing expenses is US$ 20,000, the employee will allocate his expenses more wisely.
Keep in mind, however, that in some locations, lump sums will not be very tax-effective, and could actually result in higher costs.
Proactively Manage Your Assignments
Another issue facing companies is so-called “permanent expatriates.” These are employees occupying important positions in highly desirable locations of the foreign operation for many years, who for a variety of reasons have not been reclassified as locals. The company needs to establish, in their internal policy and in the international assignment agreement, clear guidelines that outline when such a localization would take place, and then follow the guidelines. Our experience shows that many organizations have policies for localization, but few companies actually use them!
Use Tiered Policies
Many companies use a tiered approach to international assignments. Depending on the type and reason for the assignment, the terms and conditions for the expat package vary. For example, local or “local plus” packages are used for development or volunteer assignments; expat “lite” might be used for moves in markets where talent is widely available or early localization is desirable; and full expatriate packages would be used for senior level executives and leadership positions. Regardless of the pay approach, though, companies must always be mindful of the career planning issues of managing expatriates.
Consider International Pay Scales
For employees in managerial positions, and executives that are going to a foreign location to develop and assess business, and that likely will undertake future assignments, the use of a single global pay scale is another idea. The design of such a scale needs to account for the rates in which the company competes for this key talent. In addition to pay, benefits and some allowances might be included as well.
Managing a global workforce prudently can be an important factor in the success or failure of a company doing business internationally. Therefore, it is wise for companies to cultivate and develop new strategies to ensure their international compensation program is strategically aligned to their business, and also designed with costs in mind.
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