A typical international assignment package includes not only base compensation but also a variety of premiums. These incentives can vary greatly depending on your policy and culture, the competitive environment in which your company operates, the level of the employee and the global assignment location.
In general, the assignee’s base pay remains the same as it would have been in the home country, unless he or she is being promoted or taking on new responsibilities. Cost of living and other variables are usually addressed via allowances rather than salary adjustments.
Foreign Service Premiums
Fewer companies are offering a foreign service premium, unless the location is dangerous or particularly undesirable or if the talent needed is unenthusiastic about the move. When a foreign service premium is offered, it is often 10-15% of the employee’s base salary.
For dangerous or less-desirable locations, a hardship bonus of 5-30% of base pay is common. This incentive takes into account factors like violence, disease, education quality, housing and other risks in the destination. These payments are typically tax equalized.
In addition to base pay and any premium pay for the assignment, most companies offer a variety of allowances to help the assignee settle into the host country.
For most employees, the largest allowance they receive is a housing allowance. This allowance can vary considerably, depending on the company’s policy and philosophy and the destination location. Often, it is not possible to precisely duplicate the departure housing type, size and style in the destination, particularly for Americans moving abroad. Instead, the goal is to provide suitable housing within the framework of local norms. Some companies expect and withhold an employee contribution towards host country housing, or they expect the assignees to place their home country property in property management and use the rent received to offset housing costs.
Most companies offer both a transportation and miscellaneous allowance. The transportation allowance is used to offset the cost of either personal or public transportation in the host country. Unless you are providing a company car and driver, a transportation allowance is very important to ensuring your employees are able to navigate their new surroundings.
The miscellaneous allowance is generally paid to employees to help cover any unexpected costs of moving not specifically addressed in your employee relocation benefits package. Most companies pay up to one month’s full salary as a relocation allowance (capped at $10,000) to help employees cover those expenses.
When it differs dramatically from the home location, many companies provide a cost-of-living allowance. This is usually calculated based on a sample market basket of goods (and sometimes, services) to arrive at a differential.
Companies also can expect to pay all schooling costs for the assignees’ children, including tuition, books and fees.
Taking these payments and allowances as a whole, it is easy to see why traditional international assignments are so costly for employers, and why so many employers are keenly interested in less-costly assignment types. But there are situations where only a long-tern traditional assignment will meet the company’s business needs, and in those cases, this is the level of support that is generally expected.
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Coca-Cola’s Staffing Philosophy Supports Its Global Strategy
The Coca-Cola Co. sees itself not as a global organization, but as a multi-local enterprise. That’s because its global strategy is to allow its businesses in more than 200 countries to act according to local needs, local laws and local cultures.
For this reason, the Atlanta-based soft-drink giant’s philosophy toward staffing is to employ as many nationals in its international businesses as possible. “We strive to have a limited number of international people [in the field] because generally local people are better equipped to do business at their home locations,” explains Jeff Peeters, currently director of HR for corporate finance and human resources in Atlanta, previously HR director for Coca-Cola’s Northwest European division.
However, there’s still a need for expatriates in the system for two main reasons. One is to fill a need for a specific set of skills that may not exist at a particular location. For example, when Coca-Cola started up operations in an Eastern European country, it had to bring in an expatriate from Chicago—who is of Polish decent—to fill the position of finance manager.
The second reason that the company will relocate workers to foreign locales is for the employee’s own development. “Before you take on serious senior managerial responsibility in the company, you should have had an international exposure,” Peeters says.
Coca-Cola associates do that by being part of the company’s global service program, a system that focuses on the development of a core group of workers for international mobility (see, “The Philosophy Behind Coca-Cola’s International Service Program,” this page). Currently, approximately 500 high-level professionals and managers are part of the program. Says Michael J. Semrau, assistant vice president and director for international HR: “The cost of the program is significant, so we tend to focus on people who have knowledge of their particular field plus knowledge of the company, and who can do two things in an international location. One is add value by the expertise that they bring to each assignment and two is enhance their contribution to the company by having that international experience.”
Of the 500 people in the program, approximately 200 move each year. The typical duration of an international as-signment is three to five years, although that can vary based on need.
The workers in this program are supported by an international service program group that manages their compensation. The specialists in this group have responsibility for one of five international groups. They work with local division HR people or regional HR people to coordinate the transfer of the international service people and to ensure that the appropriate compensation elements are in place and provided on a timely basis.
“We try to set up our compensation programs so that we can transfer talent around the world without having significant compensation barriers for international service employees,” says Carl Presley, director of compensation. The company has done this by giving the international service workers a U.S.-based compensation package. In other words, they’re paid according to U.S. benchmarks rather than changing salaries for each move they make.
The workers pay hypothetical income taxes based on a calculation of what they’d pay if they were working in the United States. The company, then, pays their foreign taxes, taking any tax credits that the employee may get. “Many of the elements are the same so that there isn’t preferential treatment for going into one part of the world for international service vs. another,” Presley says.
The international workers’ compensation packages also include such compensation-related benefits as housing allowances, cost-of-living differentials and education costs. If an expat is in a particularly difficult area, he or she might receive an environmental allowance that recognizes the difficulties of that location. And expats in the program may receive home leave, which allows them to return home if they choose to for a certain period of time to renew their ties with their homeland.
To further ensure equity within the international ranks, the company also has a worldwide job evaluation system. The program evaluates the same positions in different parts of the world on the same internal value.
Personnel Journal, November 1994, Vol. 73, No.11, p.116.