While multinational corporations dedicate a whole HR team to dealing with staff expatriation issues, smaller firms may be tempted to wing it, at the risk of losing prized staff and increasing costs. Article by Constance G. Konold.
Soon-to-be expatriates are well advised to take the reins and responsibility in hand for studying the situation and informing their hierarchy of standard practices. DRHs of smaller companies are well advised to hire a professional expatriate consultant. Short of that, here are some guidelines for practitioners of expatriation in Western countries. When calculating the financial expatriate package, the DRH needs to keep in mind the purpose of such compensation: to ensure the expatriated person’s rapid recovery of top performance and his/her commitment to staying with the company. Culpepper (2008) notes that 59 per cent of companies offer both short and long-term expatriates (from one to five years) a relocation allowance and 55 per cent offer tax compensation/equalization. Fifty-three per cent of companies offer long-term expatriates (from one year or more) an education allowance for dependents and 34 per cent offer a housing allowance. It is possible to find online applications that provide equivalencies between two destinations that will help calculate expatriate packages automatically. A free trial is available at xpatulator.com.
Standard Compensation – Expatriate allowance refers to extra pay for accepting to live abroad. This is not a perk but rather an allowance of 10 to 40 per cent of base salary that will help compensate for the hazards and inconveniences of expatriation. A cost-of-living allowance is an adjustment to salary which allows expatriates to maintain the same standard of living in the host country as in their home country, or, in certain cases, meet host country expectations of a standard of living which may be higher than the home country’s. This allowance needs regular adjustment for inflation.
A housing allowance absorbs the cost of home rental and utilities (electricity, water, gas, etc.). It will enable the expatriated family to live at the level expected for their rank in the host country or at the same level as their home country, whichever is superior. Likewise, this allowance may also include a schooling allowance for children who may need the benefits of a private school. N.B. Satisfaction on these items will have a direct effect on performance so should not be squeezed. If applicable, a hardship allowance requires an additional 5 to 25 per cent of base salary to compensate for a difficult location, extreme climate, or dangerous situation. (London and Paris are not hardship posts. An oil rig or a job in Somalia are.)A car allowance is fairly standard if the expatriate will be required to use a car regularly for personal purposes – for instance, because he will have to live a certain distance from a city center – or have a company car. The services of a chauffeur may also be included. This allowance can be justified if the family has had two cars in the home country and especially if it is a dual-career family. Dual-career allowance is compensation for the loss of a second salary when one of the spouses must give up his/her career to follow the expatriating person abroad. Companies may even find it to their benefit to help the accompanying spouse find work, though this is rare. “Relocoaching” and career coaching are more and more in vogue to address this issue.
Home-leave / travel allowance may include, at the very least, one round-trip ticket for everyone in the family to the home country destination (transferable to other family members if this allowance is not used by the immediate family itself). Home-leave allowances should be generous to prevent fracturing the family fabric. The company also needs to offer the expatriate and his/her partner language courses if their competencies in the host country language are not yet fluent. Expatriates are not just ordinary employees: they are “diplomats” for the firm’s image and will be considered with cordiality “as a couple” in most foreign cultures, which requires the at-home spouse to be as conversant in the native language as the expat worker. Why should the company go to these extents to compensate an employee “just” for expatriation?
The HR Justification Factor: Costs generated by turnover. Do you know what an unhappy expatriate who leaves his host-country job early will cost you? Do you know what you will do with him if he/she asks to come home early? The savvy DHR knows that an unplanned rupture of the expatriate contract – for any reason – is going to cost the company a lot of money. This alone justifies being liberal with expatriate compensation and attentive to the difficulties of retention and repatriation so that the expatriate stays put as planned. There is a stiff price to pay for errors. Staff turnover, or replacement of employees, may cost up to five times an employee’s annual wages, depending on his experience. (Bliss, 2011) Even at the low end of 50 per cent of annual wages for replacement, this cost needs to be reckoned with. Separation costs such as severance pay, recruitment costs (search fees, advertising), HR costs for resourcing and training a replacement can make a significant negative impact on the balance sheet. For instance, the cost of turnover (at 50 per cent) of a manager’s salary of €70,000 euros per year amounts to €35,000. Therefore, if an employee is being sent abroad on a mission because he is a prized, needed, highly productive manager and the company presumably wants to keep him on board for a number of years, it would make sense for the company to offer an overall package up to €105,000 (€70,000+€35,000).
According to the findings of my master research students at Eshotel, Paris, in their thesis “Gamification as a Solution to Staff Turnover in the Hospitality Industry” (Bui, 2012), the list of turnover-related expenses is long:
• overtime to a replacement due to temporary loss of productivity
• loss of business due to a job left temporarily vacant
• loss of clients due to dissatisfaction
• costs of interviewing new candidates (time and payroll costs)
• cost of exit interview and possible financial compensation
• cost of loss of knowledge, skills and contacts
Recruitment costs involve:
• outside services: recruitment agency and Internet posting fees
• selection and interviewing manpower
• background searches
• networking (estimated at up to 100 hours for top-level replacements)
• psychometric and skill testing
• re-outfitting a new employee (payroll, computer, security and ID, business cards, internal and external publicity announcements, telephone, email accounts, credit cards, etc.)
• deployment, onboarding, mentoring, etc.
Training costs can include:
• trainer’s salary
• training materials, manuals
• supervisor’s time estimated at 7 hours per week for a new recruit
Above all, severe loss of productivity costs that will impact profits include:
• lost productivity during adaptation period
• co-worker time invested in tutoring the new employee rather than concentrating on his/her job
• mistakes made by new employees
Companies often hire a “relocation service” – in either or both, the home and host countries – to help outbound managers and their family with relocation and settlement in a new destination. Relocation consultants – who may work individually or as a team, on a freelance basis or as a division of a large consulting firm – usually offer a range of services from housing (rentals, purchases, negotiation of contacts) to helping expatriates find schools for their children. Before signing with a relocation service, it is advisable to first ascertain the price range of properties that will be presented. Often times, expatriates may find that their budget is beneath the range of properties shown or that the agencies will neglect clients who are not in the high-rent category. Relocation services should offer more than just real estate. Several years ago, I coined the term “relocoaching” to describe what a trained coach with relocation expertise does for an expat. This kind of “accompaniment”, for the expat and/or his family – is often more productive than signing up with an expensive corporate service. Relocating costs should be included in the expat compensation package. Ideally, relocating or career coaching services should be made available to a spouse who has left a job to accompany his/her mate overseas.
Expatriates can usually find rental properties, used appliances, second-hand furniture, information on schools, and “how-to” guides by contacting expatriate associations such as Expatriate Women, which has global reach and a country-by-country guide as well references to many useful books; churches with bulletin boards and bazars (standard at most Anglo-Saxon churches); international professional networking clubs for women, such as City Women and EPWN; or online magazines catering to the expat crowd, such Expatriate Living or Expatriate Exchange. In conclusion, if the purpose of sending a manager overseas is to benefit the company, then it is the company’s responsibility to make sure – as a cost-reduction measure – that the expat and his/her family are able to be functional as soon as possible in the new destination and will accept to stay in the new post long enough to amortize the investment.
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Asian View (2011), Two Approaches to Expatriate compensation. Accessed online at YouTube http://www.youtube.com/watch?v=jisS5iE5HUI [April 2012]
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Bui, Q. et al, 2012, Gamification as a Solution to Staff Turnover in the French Hospitality Industry, ESHotel Master 2 Research Paper supervised by Constance Konold.
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