Five Easy Ways to Waste Money on Expatriate Assignments

bio_400x400Author:
Chuck Csizmar – CMC Compensation Group

Once your company decides to send an employee overseas on expatriate assignment the danger of imminent waste looms large. The problem usually begins with management not understanding or even choosing to ignore the real costs of the international assignment. The money pit is then worsened by having only a weak business reason to support the assignment. If you lack a compelling business justification for why an employee is needed overseas, it is likely that you won’t be able to measure whether their assignment will be a success or not.

Below are some of the major reasons for the cost spiral of money slipping out of your hands; however, this is by no mean an all-inclusive list. I have no doubt that you can provide your own reasons as well.

  • Do not worry about the ROI

For some companies it is easier for a manager to have an international assignment given a green light than it is to have a piece of hardware or software approved for purchase. Where is the business case? Where is the justification via projected financial return that management should be held accountable for? Is anyone being held accountable that an ROI is achieved?

You should think twice before agreeing to pay out 2-3 times annual salary to provide for an expatriate assignment. “It’s in the budget” is never a good business reason.

  • Tell the employee that they are the only one who can do the job

Once an employee realizes that they are the only, or preferred choice for the assignment, you lose all negotiating leverage. I recall one fellow who insisted that he and his family live in Inner London (meaning: uber expensive) – though the office was 35 mi. north – or else he wouldn’t take the assignment. Do not expect someone holding leverage to be reasonable and accommodating when discussing terms & conditions of what you will pay for.

Strive to develop a stable of qualified candidates. It would also help if you remember that the ability to perform the job should not be the only criteria for selection. A bad cultural “fit” would be a painful and expensive experience for everyone.

Note: an employee with an attitude of doing you a favor, versus appreciating the career opportunity being offered, is a bad bet.

  • Do not bother to create an international assignment policy

Unless you enjoy living in a “let’s make a deal” world, you would be advised to lay down an international assignment policy, and then adhere to it. You will still be challenged by the employee / spouse to make improvements in their conditions, but without the support of a policy you will be hard pressed to stand your ground.

Note: make sure all terms & conditions have been confirmed *before* the plane departs. Once you have an expat on the ground in the host country you have lost whatever leverage you might have had. From there you *will* agree to term revisions, because senior management will conclude that having already made the investment you have to keep the expat happy or risk the assignment.

  • Focus on the employee, not the family

Even an otherwise contented expatriate will be rattled if every night they come home to complaints about life in the host country. Such a situation will distract the employee from concentrating on their assignment, and eventually you will face the need to further revise terms (increase costs) and / or the employee will throw in the towel and the assignment will be deemed a failure.

Be sensitive to potential family issues and include everyone in cultural orientations. The family is the expat’s support group, and if they are unhappy . . . well, you know the rest.

  • Separate assignment costs into multiple budget categories and line items

This way no one would understand the full extent of the costs involved. During five years spent overseas on assignment, neither Corporate nor local Finance was able to explain the full cost of my assignment. They had assigned expenses into so many diverse costs centers and budget line items that the confusion never cleared. Imagine the drip – drip – drip of your money if no one is even asking!

If no one is watching the costs of the assignment, those costs cannot be controlled. It would be like handing over a blank check – with no guarantees of gaining anything in return.

Finally, watch out for the manager who tries to “save money” by circumventing HR assignment policies. These creative thinkers consider that short cuts save money, but typically those “cuts” do little more than alienate the expatriate (and / or family) by treating them as second class citizens. Bad idea.

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8 responses to “Five Easy Ways to Waste Money on Expatriate Assignments

  1. I fully agree with the points that you raise regarding the need to carefully plan and budget an assignment.
    We strongly advocate that the company consider the term of the assignment and if family are to accompany the transferee. We frequently advise against short term, hurried “solutions” which do not take into account the realistic length of the assignment. This approach can actually end up costing far more, through frequent renewals and the knock on effect of delaying long term solutions. We encourage people to think strategically about immigration and plan it out as part of an integrated mobility package. This allows for the identification of future work and anticipated costs from an early date.
    Look for sustainable (immigration) solutions from the outset of an assignment. We have found that choosing the correct immigration category rather than the most obvious can create more streamlined / less costly solutions in the longer term. Most immigration jurisdictions seek to attract high value skills into their respective economies. Ireland is no exception to this. If an assignment is to be reasonably long it may be useful policy to factor an examination of longer term immigration paths that an assignee may follow to see if one route is more flexible / less costly than the apparent first choice route. Looking for the easiest rather than the best route can prove expensive!
    Take into account the fact that different permit types give different benefits to the holder. In Ireland it is possible to move the assignee out of the Employment Permit regime into the general immigration regime after two years. However to do this the assignee has to come into Ireland on a Green Card rather than an Intra Company Transfer Permit. In this type of situation as an assignment progresses the Green Card route offers increased flexibility at a lower cost: removing the expensive Permit renewal fees due to the Irish government that remain with the ICT with each renewal.
    Take into account the fact that the assignee’s spouse or dependents may wish to work or study. This may be a particular issue if the transfer is to be of a reasonably long duration or if the assignee has older children. Different permit types will offer different possibilities for the family.

    • Ellis – Your comment has made a number of valuable points that add to the readers understanding of the complexities involved in international assignments. One other thought I would submit is that some companies are gravitating toward the use of country-specific assignment agreements, based on the variances of host country practices. In this regard the overall benefit is similar between countries, even if specific offerings differ.

  2. Tanya Lapierre

    Recognizing company culture is becoming thankfully more and more important in successful assignment program definition. Make sure you build a program that addresses the culture of your organization. Having too few or too many benefits that don’t address the different types of mobility needs you have internally will potentially see you tossing money out faster than you can account for it leaving.
    Another great way to waste money on an expatriate assignment is to pretend there are no other tax laws other than your own countries’. Oh! and let’s not forget stock option taxability issues in foreign jurisdictions. However did you stick to only 5 🙂

    • Thanks for your comment, Tanya. Great examples of how to throw money away. Btw, you are right; for the sake of space I left my examples of wasteful practices to only five. Likely we can all acknowledge that the actual number of wasteful examples would be off the chart! Employees and managers can be a creative bunch.

  3. Chuck — thanks for the interesting post. My current role doesn’t involve managing international assignments, but after doing it for 10 years, I think it’s in my blood and I enjoy keeping up with it.

    Another point money-waster — and it is probably an amplification of your suggestions regarding a coherent policy — is: “Don’t worry about the potential future impact of present decisions”. This is especially applicable to organizations just entering the international arena.

    With my previous employer, we went from a handful of assignees — all from the US — to well over 100 — representing 5 different payrolls — in less than 10 years. .. and the struggle from moving a very customized to a more standardized environment was tough (and never truly settled). Institutional memory is a powerful thing, and decisions made in the early days that seem good and right at the time, have a way of coming back to bite you later. The expectations and culture created in those first few years are not easily shed.

    • You make a good point, Ted. Companies staring out with expatriate assignments often fall into the trap of waiting to establish a policy – because they have so few expats to worry about. By the time they realize the critical importance of having a policy they are often infested with precedent-setting examples that other assignees will point to for years to come.

      There are no secrets out there, so every “good deal” will become known. Then the “why not me?” calls will start, and its downhill from there.

  4. Chuck – Excellent post (as always!).

    Another way to be sure to waste money on an expat assignment is to ignore tax planning. In my experience, a little bit of extra time devoted to tax planning, with the assistance, if required, of a tax professional, can save thousands of dollars, even on a short assignment.

    For example, did you know that a non-US employee working in the US and contributing to US Social Security can obtain a Certificate of Coverage upon secondment to a totalization country (most European locations, for example). Such a strategy can avoid high social charges in countries like France and Italy, and save the company a bundle.

    Another sure fire wasteful practice – don’t bother to plan for the next assignment. Just let the money invested in the development of the candidate accrue to the employer they join after you return them to a boring domestic job following their kick-ass assignment.

  5. Charlie Jones

    Chuck,

    I think you make some excellent points on the expatriate issue. The other side however, is a problem of establishing local offices and local hires with little regard for the local market value of positions. This can result in overpaying some local hires or excessive hidden costs due to local employment laws.

    Charlie