Varying your salary approach by assignment type

As we launch ECA’s MyExpatriate Market Pay survey for another year we take a look at some of the results from last year’s survey which reflect the changes we are seeing in the market.

Those of you who are familiar with ECA will have been hearing us talk about increasing diversity in the Global Mobility arena for a long time. Companies are increasingly looking to diversify to new locations in search of growth, moving talent from across their business to ensure the best people are in place, while also using a wider variety of salary methodologies to achieve this.

It’s worth saying that throughout these changes it is often still the same issue which companies are confronting; motivating assignees to accept an assignment without just throwing money at the situation. One way to help with this is by benchmarking and that’s where our unique MyExpatriate Market Pay reports come in, allowing you to benchmark not just salaries but also policy on a country-by-country basis.

One of the difficulties companies face when benchmarking their expatriate packages is that the diversity described above can make it difficult to ensure that you are comparing the right thing.

For example, when sending their employees on long-term but temporary assignments the majority of companies use the home-based build-up approach, which is designed to protect an employee’s home spending power. As such, when bringing employees from low salary home locations and high salary home locations to the same country the resulting assignment salary will be different. A company’s overall remuneration philosophy will also have an impact – is the company aiming to be an upper quartile payer in terms of salary or are they satisfied with paying lower salaries while being more generous in terms of benefits or bonus payments?

Another factor which has an impact on the packages on offer is the type of expatriate. This is a recent development in the survey introduced to reflect the greater variety described above and we use four categories of expatriate:

• Assignee: on a long-term but temporary assignment to the host country
• Localised assignee: began as an assignee but has since made their stay permanent (either through employee or employer choice)
• Locally-hired foreigner: employee previously working for another company in the host country
• Permanent transfer: employee whose assignment to the host location is on a one-way basis from the beginning

Our recent survey on the subject of permanent transfers found a large increase in the number of companies using this type of assignment, predominantly as a way to try and reduce costs. We also see increases in the number of companies utilising other types of expatriate employees to achieve their aims.

The type of employee will often dictate the salary system being used, as the chart below, showing an example of data from the MyExpatriate Market Pay report for Singapore, shows.

As described above, overall the majority of companies use the home-based approach and this is especially true for assignees; where the employee is expected to return to the home location at the end of the assignment it is even more important to keep the link to the employee’s salary in the home location.

When sending employees on one-way permanent transfers there is no need to maintain any link or protect the employee’s home spending power and, as the chart shows, most companies will provide their employees with a local salary.

Expatriates who are locally-hired and already working in the host location can be difficult for companies to manage. The assignee will wish to maintain at least their current salary in the host location, which will often have been based on a home build-up. Yet they will have no home location salary within their new company to build up from, and their new employer might prefer to put them on a local market rate. A common compromise used by most companies is to pay an ‘expatriate market rate’. Rather than providing these employees with a local salary they are given the same salary as expatriates in the host location without the need to maintain a link to the home location.

Finally, for localised assignees we see a mixture of salary systems as companies try to transition their assignees onto local salaries but face difficulties when doing so and often end up compromising on the salary they offer.

The impact of these choices on the salaries on offer can be seen in the chart below which looks at the average salaries of the different assignee types in Singapore and how they vary by seniority (as shown by ECA points). Locally-hired foreigners are the highest paid overall while employees on permanent transfers and localised assignees have salaries that reflect those on offer to local employees (shown in blue).

At first glance it may seem as if assignees are actually worse off than the other types of expatriates, but this brings us to another crucial factor when benchmarking expatriate salaries – benefits.

In many locations the value of the benefits which the employee receives can be much greater than the salary itself and, as the chart below shows, the provision of certain benefits for assignees is typically more generous than for other expatriates.

Although the salary may be the first thing an employee thinks of and is also one of the easier elements to benchmark, it is the total package on offer which is of most importance as this will reflect the cost to the company and how well off the expatriate feels.

Benchmarking of expatriate salaries is not straightforward, with so many considerations necessary, such as home location and type of expatriate, as well as the value of benefits. However, it is very important given the costs involved, and ECA’s unique MyExpatriate Market Pay survey, free to participants, provides all of the information you need to benchmark effectively. Using its dynamic salary charts, which can be filtered for comparisons across peer levels, country-specific benefits data, or total remuneration packages, users can also focus on particular industry groups, home locations and more on an individual employee level, giving you all the tools required to benchmark your assignee packages in all the countries where you operate.

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