Compensation of Expatriates

Topics: Salary, Executive compensation Pages: 12 (2618 words) Published: October 19, 2008
An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person's upbringing or legal residence. The word comes from the Latin ex (out of) and patria (country, fatherland). During the latter half of the 20th century expatriation was dominated by professionals sent by their employers to foreign subsidiaries or headquarters. Starting at the end of the 20th century globalization created a global market for skilled professionals and leveled the income of skilled professionals relative to cost of living while the income differences of the unskilled remained large. Cost of intercontinental travel had become sufficiently low, such that employers not finding the skill in a local market could effectively turn to recruitment on a global scale.

Any major organization operating internationally could rely entirely on staff recruited locally. Most do so for the majority of positions. However, most companies also employ expatriates, those who work outside their country of origin, for a variety of reasons. In some cases, these workers fill skill gaps when local staff is unavailable; in other cases, they may be sent to train local staff or to install companywide systems in areas like IT and finance. Some may be sent on developmental assignments to gain skills and experience at an early stage of their careers. Increasingly, part of the motivation is to ensure that the company’s future top-management cadre has some international experience.

Whatever the reason for using expatriates, this relatively small group of people takes a disproportionate amount of HR time. In setting pay for key local staff, employers must ensure that they are competitive with the local job market and that they offer challenging jobs within a country with the prospect of advancement within that country. However, this approach is insufficient for expatriates, whom employers must view by reference to different countries — where they originated, where they are currently working, where they will next move and where they will ultimately work. In terms of both pay and career, this perspective means taking into account conditions in at least two, but often more, countries.

Expatriates also cost a lot of money — cost-of-living and housing allowances travel home at the company’s expense, additional premiums on top of their basic salary and children who must be educated. The overall cost of a typical expatriate assignment can approach $1 million. In addition, the cost of an international assignment is three times that of a local hire


0 Growth and interdependence of the world economy
0 Stability of the world political system
0 Continued growth of economic and political integration at bloc level 0 Need for assignees to fill skill gaps
0 Degree of compensation and benefits convergence between countries 0 Degree of convergence in purchasing power between countries 0 Individual willingness or aversion to international relocation 0 Cost of relocation in terms of whether it will increase or decrease overall and whether comparative costs by nationality or assignment location will change 0 Degree that technical change reduces the need to physically relocate staff 0 Changes in corporate structure and culture

0 Tolerance of companies



How to design a competitive expatriate compensation package? Why it is not sufficient to calculate only the Cost of Living Allowance (COLA)? How to define the right compensation level for transfers from low to high cost countries as well as from high to low cost countries? When designing expatriate compensation packages, companies need to take several issues into account. Companies should make their decisions and choose a preferred approach only after carefully...
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