Submitted by Weichert Relocation Resources Inc., December 2010
Finding the "Right" Compensation Strategy for your International Assignees
One of the biggest challenges in maintaining a globally mobile workforce -- from a strategic and logistical perspective -- is determining which type of compensation approach to take with your assignees. What works for a handful of assignees moving from one home country may not work when you are balancing a large mobile workforce made up of thousands of nationalities being shuttled between hundreds of countries on a dozen different assignment types.
The first is the "home country approach," (also called the "balance sheet approach") through which an assignee’s salary is based on his or her home country salary structure. This enables assignees to maintain the same purchasing power in the host country that they enjoyed back home.
Next is the "host country approach," through which the assignee is paid what local employees in the destination country earn for a similar job. As you might imagine, wide variances between salary levels worldwide make this a difficult method to implement. A hybrid of this approach, often referred to as local plus, is to pay a local salary plus a few ongoing allowances such as education or housing for the first few years on assignment.
The third most common is a "global" compensation approach, through which companies put all of their assignees on the same compensation scale, regardless of their home country. Also referred to as a headquarters approach, all expatriates utilize the headquarters as their hypothetical home country throughout the assignment.
When determining the best method for your company, a number of factors should be considered, including, but not limited to, the number of assignees your company moves and the types of assignments they are on, the time frame and objectives of each assignment, local income tax structures, competitiveness in the market, repatriation, administration and program costs.
In the experience of Weichert Relocation Resources Inc. (WRRI), the most prevalent compensation method continues to be the home-country (balance sheet) approach, with utilization rates highest among companies headquartered in North America (68 percent in 2009). While use of this approach has declined by a few percentage points since 2007, research shows that it is still the most widely-used of all compensation strategies. This finding is further supported by a recent survey by Mercer showing that three-quarters of companies use the home-country approach, with nearly all of the companies applying the practice consistently among all assignments.
Whatever method a company chooses, once selected, they tend to stick with it. WRRI research indicates that the majority of companies have not made significant changes to their compensation strategies for the last several years.