Trends in Leadership Development – Part 2

lexierwandaqwAuthor:
Lex Lindeman and Han van der Pool – HR Boosters

In my previous post, I wrote about the various ways to approach Leadership Development in Public or Private Organizations.  In this blog, I will go somewhat deeper into recent developments and strategies within Leadership Development.

The traditional executive development programs which concentrate on management theories and exhaustive cases studies have in recent years become less and less popular.  The poor usability of these modalities for current complex global business challenges, coupled with low ROI (Return on Investment) is the reason.  But there are interesting alternatives.

New Approaches
There are many new ways to expose current and future leaders to development activities.  Some of the most interesting ones include:

  • Customized programs developed specifically for the company by consultants and universities in which current questions and strategies are carefully observed.
  • Action learning projects in which participants treat real questions and where the implementation of the solutions in a follow-up session can be discussed.  The so-called Journey programs, in which managers are exposed to problems which can only be solved through good teamwork and perseverance, are examples of this.
  • Company simulations in which the participants are faced with the impact of their decisions.  These can include presentations of experienced managers from the company, in which examples and experiences are analyzed and discussed.
  • Personal development plans coupled with feedback coaching and execution of specific tasks.
  • Master classes to promote acquisition of technical skills and general knowledge sharing, including follow-up instruments to indicate the degree of success directly to the participant.

Developing A Program
A successful leadership development program is achieved by following these basic steps:

  • A Leadership Framework – Define the skills and characteristics of effective leadership within the company.
  • Curriculum – Link to specific leadership programs with several target groups within the company.
  • Measurement of the success of the programs and evaluation of their impact on both short- and long-term results of the company.
  • Continuous Adaptation to changing or new leadership profiles.

Authoritative Strategies
Here are some of the best strategies for creating your leadership development program and implementing it in your organization:

Use of Technology
Computer technology can be used to support development and learning.  The electronic support can focus on:

  • The learning process itself, both individually and in groups;
  • Developing and mastering education material and learning processes;
  • Organizing learning activities.

Some corporate universities have, for example, their own virtual learning environment. Participants from all over the world can work on specific learning programs. The virtual learning environment supports them with the learning process.  The websites offer the participants the possibility to get access in a simple way to specific and often personalized e-learning sources.

These sources are categorized in the website, so the visitor can simply click on internal and/or external Internet sites with specific content coupled to the learning curricula. These so-called learning platforms have been organized around one or a number of specific subjects.

The websites provide the user with the possibility of gathering information but also providing a contribution himself.  This is enabled through several functionalities (supported technologies) such as chat-functions and groupware.  E-learning applications replace a part of the “physical learning routes”, and as a result, the `classroom’ components become shorter.

“Just-in-Time” Learning
On-the-job experiences are a valuable component of development and learning.  We talk about interventions instead of courses because the element of coaching, training on-the-job, action learning and exchange of knowledge and skills through networks play an important role in the development of employees.

The chosen intervention must be related as close as possible to the needs of the employee.

The direct superior is the most suitable person to confirm the need related to the work processes, and the right time to pursue it.  A modular program off-the-shelf and managerial training can support the development if necessary.

Corporate Universities
Many organizations have decentralized their training departments or fully outsourced them.  Many have created corporate universities exclusively for their own employees.  These training departments serve a broad target group and organize a large variety of training and workshops including ‘open registration’.

The difference between a corporate university and a traditional training department is the strategic position it has in the organization, and the role it plays in leadership development, creativity and the problem solving capacity within the organization.

Corporate universities contribute to translating the vision of the company to work processes of the employees.  They focus on those skills which are essential for the functioning of the company.  In increasing complex and competitive business environments, traditional universities are not always fast enough to be able to anticipate to the specific needs of a company. Many organizations also prefer to keep the specific knowledge exclusively within the company.

In Summary
In this post, I’ve highlighted the latest thinking in the area of leadership development and the deployment of training programs in a corporate setting.  In my next blog, I will go deeper into more specific approaches to leadership development for public and private organizations in sub-Saharan Africa.

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Update! Employer Mandated Health Coverage in Dubai

George BashawAuthor:
George Bashaw – Atlas Global Benefits

In early May, I wrote a blog on the Dubai Health Authority’s (DHA) efforts to implement employer mandatory health insurance.  Since my blog, the Director-General of the DHA has put the funding scheme on hold until 2010.

Instead of paraphrasing a nice article in the Khaleej Times, you may find it here if you would like more information on the topic.

More about George:

What’s In A Title?

Author:
Chuck Csizmar – CMC Compensation Group

I once faced a client situation where I was asked to uncover why a Senior Accountant (non-exempt) reported to an Accountant (exempt).  This same company used the title “supervisor” to describe individual contributor positions and it was not uncommon for Managers to report to Managers and Directors to report to Directors.

Given that these situations occurred in a large and presumably sophisticated company, one might ask – is there really a problem here?  What’s the big deal, and is anyone being harmed?  Advocates would say that offering an employee a special title is a harmless and inexpensive reward, one that doesn’t raise employer costs.  It also improves the morale of affected employees.

Where do these scenarios come from?

  • Managers grant esoteric titles to those for whom they have limited means of reward.  “They won’t let me give you the salary increase I think you deserve, but let’s change your title to xxxxx”.  Like greasing a squeaky wheel for a short term fix they want to do *something* to keep the employee quiet / motivated / not thinking of leaving.
  • Employees are given job opportunities (titles) where none should exist.  Have you experienced the long serving Secretary / Administrative Assistant promoted to the newly created role of Office Manager, all while performing the same job?
  • As a salve to employees a “special” title is used because somehow the position (usually clerical) is considered so different from other jobs that it needs to be specifically identified.  Special titles can also be seen as reflecting on the importance of the managers themselves.

In my experience it is usually those in management who consider themselves “above the fray” who do not see title inflation (puffery) as a problem.  Interestingly enough, that level of management can be severely put out if the same title giveaway happens within their hierarchical level.

At the risk of being called Mr. Gloom & Doom, let me explain the type of harvest that you can expect from planting these problem “seeds”.

  • Role clarity (job duties, business impact, decision-making, etc.) behind questionable titles will become blurred.  This in turn would generate more confusion as the company creates Senior Managers and Group or Area Directors and other in-between titles in the hierarchy to differentiate the “real” jobs from the inflated titles.
  • When attempting to determine the competitiveness of your positions the less accurate the title is in relation to the work performed, the more likely your analysis will be skewed.  Benchmarking unique, employee-specific and inflated titles will make a correct assessment of your competitiveness more difficult.  This could have real cost impact.
  • Those with inflated titles will expect whatever perks or privileges that normally accompany the title and their absence could cause difficulties.  It’s an awkward conversation when you tell an employee that the import of their new level in the organization is “title only”.
  • Inflated titles can be a detriment to incumbents as well, such as the “Director” who now only qualifies for a “Manager” title with a prospective employer.  These employees have limited opportunities outside your company because other employers would be reluctant to hire someone where the title is lateral or even backward to what they currently hold.  The result could be that mediocre performers remain with your company because they have no where else to go.
  • The natural extension of inflated titles is inflated grades / salary ranges, as the bogus “senior” position would be placed in a higher grade than the “intermediate” position, right?  This practice will gradually increase your fixed costs without a corresponding rise in either performance or capability.
  • Some employees legitimately find themselves in a dead end job, and granting them a cosmetic title as a salve doesn’t help anyone.  Lead or supervisory mail clerk?  Or the “supervisor” that no one reports to?
  • Employees do not like giving up these inappropriate titles.  Thus employee relations / morale issues will likely develop if you try to correct poor past practices.  You may have to develop creative “buy out” scenarios or grandfather employees.

If you are in a situation with inflated, redundant and confusing job titles, what steps can improve your lot?

  • Organize a Spring cleaning exercise:  start with the low hanging fruit by eliminating (deleting from your systems) all titles that are unoccupied.
  • To avoid backsliding you should accompany that initiative by implementing tighter procedural requirements necessary before a “new” title can be authorized.  While perhaps only a finger in the dike or closing the barn door after the horses have left, you must cut off the flow of new problems before you can effectively address the core issue of incumbents.
  • The company would need fewer job descriptions if the wording was more generalized.  Standardized titles would clear away much of the role responsibility confusion while clarifying an employee’s duties.

Especially in clerical positions, the general nature of duties for most positions (filing, record keeping, secretarial, forms processing, correspondence, etc) lends itself to standardization – which in turn makes it easier to move employees from position to position without having to “promote” someone when their title changes.

Bear in mind though, that title standardization makes more sense in a conference room than it does during an employee discussion.  A “Senior Depository Research Clerk” will always sound more important than a “Clerk III” or even “Senior Clerk”.

Companies try to reduce the number of titles whenever a new HRIS is established (that’s usually when the huge number of active titles becomes widely known).  Anyone who has been exposed to the process of implementing an HRIS (SAP, Peoplesoft, Oracle, etc.) will tell you that job title standardization is a key component of the project.

However there is always a degree of passive resistance when individual leaders realize that *their* area is being cleansed of superfluous / redundant / misleading titles.

Fewer titles can mean more role clarity in your organization, greater accuracy in assessing pay competitiveness, more control of labor costs and indeed higher morale as employees know where they stand and what they must do to succeed in your organization.

A final caution: be careful of setting up titles without occupants “in case we want to promote someone down the road.”   Guess what?  You will.

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How Can I Develop Global Human Resources Management Expertise?

Alan's Mug Shot

Author:
Alan Freeman – LOF International HR Solutions

We are frequently asked this question either by relatively new entrants to the HR profession or by purely domestic practitioners who have been assigned international responsibilities for the first time.  In the latter case, there often is an element of panic in that the individual’s management expects top-notch global HR capabilities “yesterday”!

Fortunately, there are a variety of ways to acquire global knowledge and capabilities. For example:

Formal Education 

We believe that to truly advance in a global HR career, both Bachelor’s and post-graduate degrees in business and Human Resources form a necessary foundation. The University of Minnesota, Cornell University, and the University of Illinois offer excellent HR programs. Thunderbird, INSEAD, Cranfield University and the University of Southern California (IBEAR) offer global MBA programs of note. There are many more.

Additionally, many Universities and professional organizations offer classes, sometimes through their “Extension” programs, in various areas of global HR. These can be well worth checking into.

On The Job Experience

There is nothing like hands-on experience. One should seek out positions involving global responsibilities and volunteer for international projects, work teams and task force activities whenever possible. They also should get involved with business leaders who have global responsibility and shadow them and assist however possible. If an opportunity to live and work abroad presents itself, go for it! No, do more than that. Strive to secure an international assignment!

Professional Organizations

Many professional organizations now offer extensive global activities and resources. Join them and participate in their global HR offerings! Some are open to any and all applicants; some are by invitation only and sometimes dedicated strictly to specific industries. One of the first-best avenues is to become a member of your country’s national HR Association, such as the Society for Human Resource Management (SHRM) in the US or the Deutsche Gesellschaft für Personalführung eV (DGFP) in Germany. These organizations, in turn, are members of the World Federation of Personnel Management Associations (WFPMA). Attend both your country’s association events and WFPMA conferences.

Professional Certification Programs

A number of professional organizations have established certifications such as the SHRM “Global Professional in Human Resources”, the World at Work “Global Remuneration Professional” and the ERC Worldwide “Global Mobility Specialist”. These can be quite useful and we’d encourage the reader to pursue certification.

Mentors

One can learn a great deal from a personal mentor. Some argue that mentorship is critical for success. Establish relationships with successful global business leaders, both within HR and in other disciplines, and ask them to be mentors. Heed their teachings and counsel. 

Conferences, Seminars and Webinars

There are many professional conferences and seminars available literally all over the world and they are often highly educational AND help one expand their professional network. Attend whenever possible!

A few examples include:

  • SHRM Global Conference
  • Big 4 tax firm conferences
  • Major consulting firm conferences
  • ERC Worldwide Global Workforce Symposiums – regional and global events
  • IBIS conferences and “institute”

Consulting Firms’ Reports and Data Products

A wide variety of useful information is available for purchase from major consulting houses. This is typically most useful for gaining knowledge relevant to practices in specific countries and regions. It is almost invariably quite expensive.

Professional Literature

A wealth of professional books, journals, magazines and newsletters are available and well worth the acquisition price and time to read. Much is available through the SHRM and World at Work bookstores, and from other outlets such as Amazon.com. A very short list of useful materials includes:

Periodicals & Newsletters

  • “Benefits and Compensation International”
  • “International HR Journal”
  • Baker & McKenzie “Global Employer”
  • Law firm newsletters, e.g. White & Case
  • Immigration firms’ newsletters

Some Useful Books

  • The Global Challenge, Evans, Pucik & Barsoux
  • Strategic International Human Resources Management, Perkins & Shortland
  • International Human Resource Management, Briscoe & Schuler
  • Managing a Global Workforce, Vance & Paik
  • International Human Resources Guide, Roger Herod, ed.
  • International Human Resource Management, Dowling & Welch
  • Readings and Cases in International Human Resource Management, Mendenhall & Oddou

The Web

Finally, how could we not mention what’s available on the Internet? My first comment is “caveat emptor”!  Some of the information available on the web can be quite accurate and useful, some not so much. One must be very careful in taking the source into consideration and evaluating the quality of the input obtained. The ability to make such evaluations, of course, takes us back to working through the list above.

Wrap Up

As with any blog commentary, we’ve only begun to scratch the surface on the possibilities. We invite all readers to share their comments and suggestions as well.   Let’s hear from you!

Thank you

About Alan

Website

Alan on LinkedIn

Multinational Pooling: Saving Money on Global Benefits, Part 1

George Bashaw

Author:
George Bashaw – Atlas Global Benefits

With pressure from the C-Suite, HR is walking a tightrope to reduce cost and provide equal or better benefits.  Multinational pooling is one option to consider for a company that has multiple international locations.  This blog is Part 1 in a series of suggestions to reduce cost without sacrificing the quality of benefits.

Multinational Pooling
Multinational pooling is a contract in which a corporation with two or more locations can spread insurance risk by joining a larger pool of insureds.  This contract is facilitated by a pooling network which has a network of providers in various countries. Pooling can be used to spread risk for a number of employee benefits including medical, life, and disability insurance.

Many pooling networks require a minimum of ten employees per country.  Therefore, pooling can be a great way for smaller companies to provide consistent benefits, reduce administration, and save money.

How Can Multinational Pooling Reduce Cost?
Since the pool consists of a large group, the risk is experience-rated instead of fully insured.  The nature of an experience-rated contract eliminates some of the administrative costs and margins of a fully insured plan.

Providing the experience is good (determined during due diligence), the premium may be less.  If the corporation decides to participate in a pool and the experience is favorable, a dividend payment is received at the end of the year.  If the experience is poor, it may be mitigated by stop loss insurance, or the balance will be carried forward and can be recovered by future dividends.

Additional Benefits of Multinational Pooling
Underwriting small groups is always challenging.  By pooling with a larger group, there are better guarantees, limits, and benefit offerings.  This allows smaller groups to meet a common objective: consistency in benefits. Additionally, the pooling arraignment will likely provide enhanced financial reporting, consistency in communications, lower acquisition costs, and reduce the burden on HR.

What Else?
Multinational pooling is not for everyone.  Due diligence with a few pooling networks can determine the pros and cons.  As this is a complex, technical area, it’s always best to work with a benefits professional with experience in this area.

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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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Trends in Leadership Development – Part 1

lexierwandaqwAuthors:
Lex Lindeman and Han van der Pool – HR Boosters

Leadership is the most important condition for success in organizations. Quality of products and services, improvement of sales results and innovation are all positively influenced by leadership development within a company.  Leading organizations believe development for executives and managers should be an integrated part of their company strategy. Globalization, company growth, and the continuous introduction of new technologies require new skills for company leaders.  In the end, it is leadership that determines the economic performance of the company.

Executives Are Taking Charge of Their Own Development

Research shows that executives who take care of their personal development have a competitive advantage.  Leadership development has also a big influence in the way employees can exploit their knowledge and competencies, and also enhances the retention of talented staff.

Organizations are now offering more and more proactive leadership development within individual development plans.  According to a survey of the American Management Association (AMA), more than 25% of organizations spend more than one-third of their annual training budget on leadership development programs.  Some of the latest leadership development approaches include:

  • External leadership development programs organized by universities, executive training institutes and training through professional companies
  • Internal leadership training programs
  • Temporary ‘stretch’ assignments which help an individual to develop new skills and competencies
  • International assignments to obtain new experiences
  • External leadership training organized by consultants
  • Job rotation
  • Formal mentoring programs

Of course, not all learning takes place in a formal training situation. Experience based on internal and external studies for the US Department of Labor (1995) into the way in which high performing leaders learn, indicates that formal training is just 10% of how people learn.

High-Teach, High-Tech, High-Touch

In the current competitive market, Human Resource professionals always try to find ways to organize training in the most effective way.  Some options:

  • High-Teach methods are all methods aimed at the person to ensure that learning takes place as effectively, pleasantly and efficiently possible.  High-Teach is all about learning and lesson methods.  From an initial interview, specific learning objectives for the participant are formulated, and the learning methods and instruments are adapted to the participants, their context and the characteristics of the competencies.
  •  High-Tech methods are all the applications and instruments which can be offered for preparation, deepening or development of subjects on-line with a computer
    (e-Learning).  E-Learning is common for both applications training (learning to work with software packages) and for general managerial skills.  This method is usually very efficient; a participant can learn at a moment of his choice wherever he is.  By means of the computer, you can gather knowledge, but real insight in your own person, or to practice skills and behaviors, you’ll need to interact with others.  The computer doesn’t offer that interaction, yet the bulk of your development always takes place in relation to others.
  • High-Touch methods are all working methods which are aimed to deepen and intensify contact with the participant.  This process requires confidence and security for openness, and the courage to explore.  It is always the mutual connection which makes the moment instructive.  Inviting people to openly explore new ideas is the nature of High-Touch.

Coaching Methods

Coaching is considered as a flexible and confidential communication from both sides in which an executive can give feedback, and receive support and recommendations. Executive coaching is organized in three different manners.

  • Feedback Coaching is direct feedback given within the framework of a personal development plan, and addresses specific questions (duration: on average up to three months).
  • In-Depth Coaching is a close and deep relationship between the executive manager and a coach.  During the sessions, they work on specific and mostly personal questions (average duration: from six up to twelve months).
  • Substantive Coaching provides leaders with support to address substantively complex questions with the objective to increase skills, capacities and competencies (duration: variable).

In successful leadership development programs, several methods are often used.  Support from top management and a strong link to strategic questions are conditions for success.  The outcome of the programs must help the managers to solve questions from their daily business practice.

Recent Developments

Creative and non-traditional programming is becoming more and more important.   Traditional course programs in an auditorium are de-emphasized, and there is a clear movement from High-Teach to High-Touch.  Some organizations also add High Tech elements to their programs.

Other recent developments include:

  • Tailor-made programs developed specifically for the company by consultants and universities in which current questions and strategies are carefully observed.
  • The development of ‘action learning’ programs such as the so-called ‘journey programs’ in which managers are exposed to problems which can only be solved through good teamwork and perseverance.
  • Elaboration of personal development plans with coupled feedback, coaching and execution of specific tasks.
  • Increasing attention to acquiring technical skills and sharing knowledge.

In my next post, I will provide additional, in-depth insights into several of these recent innovations.

In Summary

Organizations have to deal with a range of challenges to anchor leadership. Research has shown (Tichy, 1997) that successful organizations have several leaders, at each level of the organization.  This starts at the top.  Leaders with an established reputation and a track record of success are the best learning masters for others and future leaders.  Developing leadership in an organization is not possible without the commitment of the top leaders in the organization.

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International Schooling – At a Glance

Photo Liz Perelstein (2)Author:
Liz Perelstein –  School Choice International

Educational concerns and the details surrounding them are sometimes overlooked when structuring an expatriate package, but to families moving with children there is no greater obstacle to taking on an assignment or to the potential success of a move.  Here are some examples of information that may make a big difference, either to the employee or employer.

Did you know that private school fees in the UK have risen by 43% since 2003?  (Source found here.)

The best place for raising expat children is:

  • UAE 
  • France 
  • Spain 
  • UK 

Viva España!  In a recent survey conducted by HSBC based on five categories, including the cost of raising children and how much time they spend outdoors, Spain comes first.

Did you know that Canada ranks among the world’s leaders in per capita spending on public education?

Did you know that Cuba spends 9.8% of its GDP on education and the US 5.8%? (Source found here.)

Did you know that 27% of children in India are privately educated?

Please sign up here to receive the Fact of the Week from School Choice International.

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Can We Employ Them HERE When They’ll be Working THERE?

Author:
Alan Freeman – LOF International HR Solutions

We recently addressed a colleague’s question that echoed one we hear fairly often.  “We have an operation in Country A and want to hire our first employee in Country B.  He is a national of Country  B, will  continue to live there while working for our company, essentially all his work activities will be conducted in Country B and he will not be an expat.  Can’t we simply put him on a Country A  contract, enroll  him in Country A social insurance and our company benefits schemes, pay him through the Country A payroll and all will be well?”

Indeed, it is a true story (I am NOT making this  up!) that a senior executive once told me that he intended to hire seven employees in France under UK contracts and payroll from the UK.  His rationale?,  “We don’t want to have the extra burden of  setting up new administrative capacity in France and, besides, I don’t want to get tangled up in those restrictive French employment laws.”

While the desire to avoid the costs and efforts of establishing operations and additional administrative burden in “new” countries is understandable, it is not wise.  Here’s why.

What are the key issues?

In most countries, a person resident in the country and performing services in the country is considered an employee in that country.  It doesn’t matter where the payroll is paid, where the contract is issued, or what country the employing entity is located in.

In our example above, the likely circumstances would be:

  • The government of Country B would assert that the employment relationship must be governed by Country B’s employment laws.  This means that a local contract, and any additional “work rules” and requirements, must be executed in accordance with Country B’s rules.  This also means that, on an ongoing basis, the employer is required to manage the employment relationship under the terms of Country B regulations.
  • The employer and employee would be subject to Country B social insurance and, potentially, other mandatory program requirements, such as funded termination plans, 13th and 14th month payments and mandatory benefits.  Social insurance and other contributions usually must be withheld from payroll and remitted in accordance with Country B regulations.
  • The employee will be subject to income tax in Country B, not only on income generated related to his work in Country B but, potentially, on his worldwide income.  Many countries require regular ongoing income tax remittances as income is being earned (so-called Pay-As-You-Earn or PAYE arrangements).  In such cases, payroll once again is required to properly withhold, remit and report on income taxes in a manner akin to what must be done for social insurance.
  • If based upon Country A parameters, the employee’s compensation and benefits package probably will not conform to Country B legal requirements and market practices.  The employer could easily be paying too much or too little and if currencies are different, and there are exchange risks to consider.  Each country has unique practices for mandatory and supplemental benefits, and the latter are usually integrated with local social plans in some manner.  In the end, the inappropriately designed plans could be quite problematic and the employee would have the burden of dealing with them.
  • Finally, although it is not a purely an “HR” issue, there is a significant corporate risk that HR professionals must be aware of when setting up employment in additional countries.  Simply put, if an employee engages in business activities in a given country, especially if these activities produce revenue, the local authorities could rule that those activities create a “Permanent Establishment”, or PE.  A PE is an ongoing business that is subject to local country corporate income taxes.  If the company has not carefully established a local business entity that serves both as the employee’s “employer of record” and as a means for putting limitations around in-country business activities, then the authorities may assess corporate income taxes against the employer’s revenues both in-country and elsewhere.  To illustrate a worst case scenario, if our example employee is on contract with the Country A entity and triggers a Permanent Establishment ruling in Country B, not only could the company’s Country B revenue be subject to Country B corporate income taxes, but Country B might also demand taxes on all of Country A’s company global revenues.

Is there a simple solution?

Yes. Local employees must be employed on local terms and conditions, in accordance with local market practice, by a local employer-entity, and paid via local payroll services that ensure compliance with employment, social insurance and income tax regulations.  Oh, and by the way, if per chance the target employee doesn’t already have the appropriate immigration status, Work Permit and Residency Visa requirements come into play as well.

Exactly how the above can be accomplished is dependent upon what’s possible and appropriate in each country.  It isn’t overly difficult or expensive to “do it right the first time” and it is much less expensive and disruptive to the business than not doing it correctly.

More about Alan:

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Expats…What tax?

Claudia HoweAuthor:
Claudia Howe – Global Mobility Tax, LLP

You are an HR professional (or a VP of Tax or a CFO) and you have just been told that your company wants to send an expat (oh horror!) to the UK.  “Expat,” you think to yourself – “what now?  How can we understand the costs, and what about taxes – isn’t that a really expensive and complicated area?”

Understanding the Basics

Understanding the basics of an expat assignment is critical, especially the tax costs.  As many already know, the tax costs can be the most significant line item on the cost projection worksheet.  But don’t worry; there are ways to manage it!

If your company does not have an international assignment policy in place, you will have to determine the whole package including housing, COLA, education cost for the kids, and what tax reimbursement philosophy is to be employed.  Without a policy, many of these items will be subject to individual negotiations.  This can work for a few assignees, but once you expand your program beyond one or two, it’s a good idea to establish a formal policy to help manage costs and reign in the negotiations.  While all of the aspects of an expat policy are interesting, my expertise is in the global tax arena, so this posting will concentrate on how to decide the best approach to managing taxes for your expats.

Tax Reimbursement Methods

When an employee goes overseas, there is always an impact on the employee’s taxes – income taxes and social taxes.  If left unmanaged, there could be unforeseen consequences, either positive or negative, from the employee’s perspective as well as from the employer’s viewpoint.  Expat tax policies address these issues with tax reimbursement methods including tax protection, tax equalization, or the “simplest” of all:  laissez-faire (aka “do nothing”).

While laissez-faire keeps the company’s costs down, it usually gets the expat worried about the tax implications of the assignment as any incremental costs will directly hit the assignee’s bottom line.

Tax equalization and tax protection are alternatives which help both employees and employers manage the costs of assignments.  If you are not familiar with tax equalization or tax protection, it is easy to get them confused.  Here are the basic definitions:

  • Tax Protection – Employees are “protected” from any additional taxes that may result from the international assignment but can benefit from any decrease in taxes which may occur when, for example, moving from a high-tax country to a low-tax country or no-tax country.  So, the employee may pay less tax, but will never pay more than if at home.
  • Tax Equalization – Employees are “equalized” so they pay the same amount of tax – no more, no less – as if they were at home.  The company pays any difference and also benefits from any tax reductions.  This method is the most equitable for a workforce and the employees can easily understand the tax impact on them:  none – the employees pay the same tax as if at home.

Both methods are designed to help the employee, and if the host country tax rates are higher than the home country tax rates, then they technically will result in the same bottom line to the employee and the same cost to the company in the long run.  The fine distinction between the two is that with tax protection the company promises the expat that he will be reimbursed for any excess tax costs over his “stay-at-home tax,” i.e. he will pay no more than had he stayed home.  Tax equalization says that the employee will pay “neither more nor less” than had he remained in the home location.  And, unless they are going to Dubai, the host country will have the right of taxation and will tax the income (yes, even if paid from the home country and even if the work performed is for the benefit of some other location).  Because the host country tax system is unfamiliar, it is not always easy to know how much tax will be due in that country.

Tax Equalization vs. Tax Protection

Here you are, with your first expat, and you now wonder:  “hmm – tax protect or tax equalize” – how should we decide this?

The answer is usually more complex than meets the eye.  When you are in the infancy stage of your expatriate program you usually can afford customization to each expat’s situation.   We often see in practice that the first few assignments in an organization are custom built.  Tax reimbursement policies are often written once the first few assignments are already underway.

Here are some examples to help illustrate the two approaches.

Tax Protection Example

Let me give you an example where I would clearly recommend tax protection:  you are moving a young single line manager from the UK to Spain for 2  years; she will not receive any allowances, only relocation benefits.  The tax protection gives her the additional assurance that she is not going to pay more tax than had she remained home, but if she pays less in Spain than what she would have paid in the UK on the same income, then she gets to enjoy the windfall (and spend the extra money on something nice).

Tax Equalization Example

However, on the other end of the extremes, for example, when you are moving a US executive with wife and school age children from the US to Singapore, I would highly recommend tax equalization.  You ask:  why?  Well, it usually will take a bit more financial incentive to get the executive to accept the “risk” (financial and otherwise) of taking such an assignment (so he is doing the company a favor).  The assignment costs will increase due to the family’s need for financial assurance, there is a cost of living differential, and housing is a lot more expensive.  So, the cost projection worksheet is filling up quickly and the total compensation reportable in both countries becomes staggering.  All the numbers will make everyone’s heads spin, but the company really needs this executive to focus on the task at hand.  The easiest way calm this person’s financial anxiety is to tax equalize; promise him that he will pay the same amount of tax as if he had stayed home.  This will tie his personal bottom line to a tax system he is familiar with and leaves the tax planning and tax risks in the hands of the company (and their trusty tax advisors).  This approach also allows the company to pursue expatriate tax planning strategies to help manage the tax costs, therefore reducing the overall cost of the assignment.  Such strategies are available in many countries but require expert assistance and a full examination of income, social and corporate tax impacts.

How To Get Started

So, what about this first expat you are told is going to the UK next week (or wait, did they say he had moved already?  Or was that just a business trip?)?  It is best to break it down into the big components first:  immigration, payroll, taxation, relocation etc.

Then consider the needs of the company and the needs of the employee and find out the costs to each party under a couple of scenarios.  Once the costs have been established (and you may need assistance with some of the items) then it is time to go back to management to get the costs approved.  And don’t forget the tax costs!

Yes, managing expats is a complex and daunting task at first.  But if you prepare yourself with good information, helpful advisors, and most importantly gain strong support from your line managers, your company can reap the benefits of international assignees and, at the same time, manage the costs effectively.

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