We're celebrating 10 Days of Membership! Today's Gift: $20 off your professional membership with promo 10DAYS20OFF
Training, policies and tools to help HR prevent and respond to harassment claims.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Develop your HR competencies and knowledge in-person in 12 U.S. cities or virtually.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
The decline in the dollar’s value against foreign currencies has forced employers to explore their options when staffing facilities worldwide.
The falling value of the U.S. dollar and changes to the U.S. tax code have impacted global relocation and resulted in some changes to pay and perks long associated with the expatriate lifestyle.
The U.S. dollar’s value has declined more than 25 percent against the euro since the end of 2002 and—for the first time in more than 30 years—is about equal to the Canadian dollar.
The U.S. dollar’s value has declined more than 25 percent against the euro since the end of 2002 and—for the first time in more than 30 years—is about equal to the Canadian dollar. New legislation added complexity: The rate applicable to the taxable portion of high-earning Americans’ salaries when working abroad increased, and many expatriates are also responsible for higher taxes on housing allowances.
These challenges come at a time when the demand for labor in the global market is increasing. Researchers at GMAC Global Relocation Services report that 69 percent of multinational companies responding to a survey said they sent more people abroad in 2006 than in 2005. Meeting this demand is a growing challenge, but a challenge that recruiters in many organizations rise to as they search for innovative ways to fill key positions around the globe.
The Glam Is Gone
For decades, being relocated to another country was a “windfall for expats,” says Scott Sullivan, senior vice president of global sales and marketing with GMAC in Woodridge, Ill., and a former expatriate. “They were getting paid in U.S. dollars and putting a lot of that money in the bank because dollars would go much further. Now the inverse of that is happening. Dollars don’t go as far, meaning companies have to pay a lot more” for U.S. citizens to go overseas.
In most instances, he says, this means paying enough to ensure that expats “remain whole” and “sustain an equitable lifestyle and are able to have the same purchasing power” overseas as they had in the States. The shift from “incenting” employees to relocate to simply ensuring that their move to another country won’t be a financial hardship has had significant impact on relocations.
“Twenty years ago, a typical expat policy created a ‘windfall’ in that almost 100 percent of all living accommodations, expenses, schooling, transportation, and cost of goods and services was paid by the employer,” says Kathy Trachta, director of global consulting for Paragon Global Resources in Rancho Santa Margarita, Calif. Now, “we have indexes that spell out the differences between home and host country [and compensate] only for the differences plus a range or set dollar amount for housing—not an unlimited amount.”
It used to be common, Trachta notes, for organizations to offer a premium for employees taking on assignments in foreign countries. “This benefit is disappearing from more recent programs, with a hardship allowance remaining for specific locations where living is truly a difficult situation due to political unrest, adverse conditions or remote locations far from common conveniences.”
Host Comp Packages
Organizations have moved away from the traditional expat programs, says Achim Mossmann, managing director of KPMG LLP’s International Executive Services in New York. In the past, he says, “You had the typical U.S.-based balance-sheet approach with fully equalized employees and a strong focus on keeping employees on home-country compensation and benefits.”
Today, Mossmann says, it’s more likely for companies to apply what he calls a “host compensation package.” Instead of keeping employees on the home country’s balance sheet, they’re moved to the host country’s compensation package and treated like local employees. “You still continue to pay a relocation allowance and moving costs, but strip away some of the allowances related to the home-country compensation packages,” he says, adding that this trend has increased during the past three or four years.
Mossmann notes, though, that packages vary widely and employees’ experience levels can have an influence. “Typically, what you see is that on a more developmental level you apply the less generous package so the incentive for the employee is really related to personal and future development. For high-level employees and employees filling key positions, you typically still see companies utilize the fully equalized home-based packages.”
Still, according to Mossmann and others, while companies are being innovative in how they approach these arrangements, they are not looking to cut packages aggressively. Geoff Latta, executive vice president of ORC Worldwide in New York, a firm that provides consulting services primarily in the compensation area, says, “A lot of companies have hit the point where they’d love to be able to save money, but not at the direct expense of the assignee.”
Trends in Assignments
Instead of companies slashing packages to save money, there are a number of trends that relocation experts are seeing in the way corporate leaders approach the placement of staff.
Strategic thinking. In the past, global assignments often were made without much consideration of options or long-term implications for the organization. Today, executives are being more strategic about their decisions, says Tricia Danielsen, a senior consultant with ORC Worldwide. They question the value of moving employees.
Corporate leaders look at “who they’re moving around the world and whether they’re really getting the most bang for their buck,” Danielsen says. “They’re really thinking about where the person is going next and what they can do for the organization after they’ve gone on this great assignment.”
The new buzz-phrase is “global talent management,” says Danielsen, with the focus on the entire world, not just one region.
Lisbeth Claus, SPHR, GPHR, still sees a “Western-centricity,” with executives generally having the mind-set of sending people from Western to non- Western countries. Yet the interim associate dean and associate professor of global HR at Atkinson Graduate School of Management at Willamette University, in Salem, Ore., also identifies another emerging trend among multinational corporations: They move people “to everywhere, from everywhere,” not just from the United States to other countries.
This approach, Danielsen says, serves as the primary weapon in corporations’ cost-cutting arsenal. “They’re still giving good, solid [pay and benefits] packages, [but now also] looking at issues like, ‘Do we need an expat in this position or can we do something different?’ ”
Latta agrees, saying, “The biggest changes aren’t so much in a direct attempt to cut back on the part of the company, but for companies to decide if they actually want to send people on expat assignments.”
Length of assignments.Today’s assignments are shorter, says Sullivan. During the past five to seven years, they have declined from an average of three to four years to a one-year average. Trachta adds, “The huge movement to cut expenses associated with overseas assignments is one of the reasons for such an influx of short-term assignments.”
Permanent assignments—or “the oneway ticket”—are also on the rise and “have been a great boon,” says Sullivan. These assignments have been driven “by a greater pool of talent who are pursuing the opportunity to work overseas,” he says. “The path to the C-suite today is much [easier] for people who have international experience.”
Closer to home. Sullivan notes a “greater focus on hiring locally for talent.” The biggest driver: cost.
Companies look beyond the United States, where professionals’ expectations for pay and lifestyles may not be so high. An assignment in Singapore, for example, may go to someone from the Czech Republic who will be more satisfied with modest living arrangements, rather than an executive from Dallas who has an expectation of maintaining a four-bedroom home.
“Organizations have started to look at other ways to move people across borders,” Mossmann says. This means a shift from being U.S.-centric to considering a variety of inter-country options for placing talent. “So, for example, what you see in Europe to some degree is intra-continent or intra-European policies where the benefit structure is a little closer to domestic relocation packages.”
Inter-regional assignments are becoming more common, Danielsen agrees. “Before, you might see moves from the United States to China. Now you’re just as likely to see more inter-regional moves than ever before.”
Says Latta, “In some countries [in the] Middle East, where companies can source technology and engineering jobs from Western Europe, the United States and Asia, I think you’ll see a decline in the number of Americans coming in for those sorts of jobs.”
Pay and benefits. Economic differences between the home and assignment locations can challenge relocation specialists striving to ensure that employees are kept “whole” and to interest employees in the moves.
“The decrease in the value of the U.S. dollar is very marked against other currencies,” Latta says. In addition, “tax changes that have taken place in certain locations result in considerably higher tax for an expat.” While employees are typically not affected—companies generally pick up those costs by adding to base pay—the changes increase the overall expense of relocation. In turn, he says, that “may be an additional reason for the company to consider whether it wants an expat at all, and if it wants an American expat or someone from another nationality,” possibly someone with a less expensive lifestyle.As employees move between developing countries or from less-developed to more-developed areas, variations in the value of what the currencies can buy create challenges in developing and negotiating compensation packages, Danielsen says. These challenges are compounded when employees move to and from multiple areas.
International Relocation Volume.)
As employees move between developing countries or from less-developed to more-developed areas, variations in the value of what the currencies can buy create challenges in developing and negotiating compensation packages, Danielsen says. These challenges are compounded when employees move to and from multiple areas.
The balance-sheet approach, once typical of multinational organizations Online Resources See the online version of this article at www.shrm.org/hrmagazine for a link to a video of Tricia Danielsen, senior consultant with ORC Worldwide, discussing taxation of U.S. expatriates. in the United States and the United Kingdom, is losing popularity, says Claus, a member of the Society for Human Resource Management’s Global Special Expertise Panel. “It just doesn’t work when you’re moving from Singapore to China or Israel to Romania. It just doesn’t make sense, and it’s not a very popular approach outside the United States and United Kingdom.”
Instead, more U.S. organizations pay expats on a split payroll, says Sullivan. “With split payroll, a certain percentage of salary is paid from the U.S. location and the rest in the local currency. Many companies have adopted this approach,” he says, adding that it “requires a minimum of administration and work.”
Split payroll is a better solution for employees than cost-of-living adjustments, Mossmann says, although administration becomes more complex. With split payroll, funds employees use or need in host countries are delivered and paid in host-country currencies.
SWith pay come taxes. The disadvantage varies, however, depending on the expat’s level, Latta says. “If you’re sending a lower-level person, the tax disadvantage of an American against another nationality isn’t as great,” he notes. It starts to cut in “when you’re sending more-senior people because the earned-income exception only covers you up to a certain level.”
Where There’s a Will …
Despite the concerns about cost containment, “working abroad is more common than ever before, and the global workforce continues to increase,” Trachta says. She says young people remain open to such assignments, looking at them as advancing their careers.
“Mature businesspeople see the world shrinking and know that to move up the corporate ladder, it will be necessary to have a foreign assignment,” Trachta continues. This can result in more experienced employees being more willing to go with fewer benefits in the desire to earn a higher position.
Corporate leaders no longer think of themselves as “doing business in another country,” Danielsen concludes. Instead, “they see themselves as [heads of] global firms [with] offices around the world doing the same business. The world has become a very small place, and companies really don’t have to incent people to go anymore.”
Lin Grensing-Pophal, SPHR, is a Wisconsin- based business journalist with HR consulting experience. She is the author of Human Resource Essentials: Your Guide to Starting and Running the HR Function
SHRM Video: Tricia Danielsen, senior consultant with ORC Worldwide, on the taxation of U.S. expatriates
SHRM article: Expat Costs Spur Shorter Assignments, Outsourcing (Global HR Discipline Area)
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
CA Resources at Your Fingertips
SHRM’s HR Vendor Directory contains over 3,200 companies