As ECA launches this year's MyExpatriate Market Pay Survey, Mark Harrison, Remuneration Services Manager, talks through the benefits of benchmarking expatriate pay and some of the challenges.
A question we are commonly asked is: “How much should a General Manager/Drilling Engineer/HR Manager get paid if we send them to country X, Y or Z?” If only it were that easy! For starters, a job title means very little. What qualifies for a GM in one company might not even come close in another. Admittedly, when benchmarking local salaries there may be a large enough sample of, for example, HR Managers working for similar sized companies that it is possible to do some sort of comparison based on job title. Nevertheless, evaluating a job to measure its relative weight within an organisation is a much more systematic approach. It is certainly essential for expatriate salary benchmarking, when not only do you have to take into account different sized companies but also cultures and nationalities. Once you’ve taken that into account using a job evaluation system (don’t worry if you don’t have one, we will do it for you as part of the benchmarking process), there is a whole range of other parameters that need to be factored in, such as where the employee comes from, what the aim of the assignment is, the salary system used and the benefits included.
Keep up with the competition
Taking part in our MyExpatriate Market Pay survey means that for a relatively small amount of effort, participants get access to a free resource which shows them exactly where their expatriates’ salaries sit in the market. They can see how competitive they are and whether they are paying too much or too little according to their overarching objectives. After all, if the overall strategy is towards cost saving then being in the lower quartile is not necessarily a bad thing. If there is a problem attracting or retaining talent a low market position may well explain why.
However, it is a fine balancing act and it’s important to look at the different components of the package, not just the overall picture. For example, it could be that while the cash salary element is in the upper quartile, your accommodation provision may be in the lower quartile. If the employee is using some of that salary to cover accommodation costs and their salary is lowered they won’t be very happy. Is the cut worth it if an assignment should terminate early – at considerable expense to the company?
Compare like with like
The reports not only equip IHR with solid information to guide adjustments to their policy, they also provide a comprehensive overview with which to justify their approach whether that be to an assignee or the Board. Report users are often impressed by how much information there is in them – particularly in the Listings section (see below for more information). This area of the report details the total package on offer to all assignees included in the survey. It means users can compare packages by host location, industry group, home country and salary methodology. Information on accommodation allowances and bonus payments are also included. It really is very comprehensive – and anonymous, of course.
It can come as quite a surprise just how much more it costs to remunerate an expatriate rather than a local. Even for somewhere like the Philippines or Egypt where you would expect a big differential, clients can still be taken aback by just how high it is, with the cost of salaries alone up to six times higher. On the other hand, there can be unexpected similarities between expatriate and local salaries in some locations: in parts of Latin America local pay at senior levels often exceeds that of expatriates, for example. The local salary graphs available in many of the reports can be used to see how well-off expatriate staff are compared to local staff. They can also provide guidance as to whether a host-based salary might be an option for your expatriates.
Local plus is an approach may be considered when a company is trying to contain costs. It is indeed effective in some scenarios such as when salaries in the home and host locations are similar or if the assignment is one way. However, it should not be considered in a vacuum and isn’t always an appropriate alternative. A previous article, The local plus approach to reducing assignment costs, goes into more detail on this and can be found online.
The highest expatriate salaries we observed in our latest survey were in Iran. Angola, South Sudan and Democratic Republic of Congo all feature at the top of the list. Compensating for the high cost of international standard goods and services as well as the need to award high location allowances contributes to pushing up salaries for expatriates in these locations.
Although fewer companies provide mobility allowances today than a few years ago on average (70% in 2009 compared to 62% today according to our Expatriate Salary Management Survey), the number of companies awarding them today is higher than when we surveyed companies two years (53%) ago. While this allowance tends to be an aspect of the package which is easier to remove since there are other ways to motivate employees nowadays (e.g. highlighting the benefits of international experience), it is also an indirect means to overcome long-standing barriers to mobility (e.g. partner’s career/loss of earnings etc.). However, with demand for international assignments growing, companies are perhaps thinking twice about losing this part of the package if they want to attract talent.
There has been a trend towards fixing ceilings, though, particularly for accommodation and education costs. Information regarding how commonly certain allowances and benefits are provided in different locations can be found in the reports.
Applying negative cost of living indices is another area where savings can be made. Nevertheless, although we have seen some signs of companies increasing their application of this (31% – although rising to 50% among larger companies – compared with 29% six years ago), it is still an area that most companies shy away from. Either way, assignees should be told clearly how this element of the package works. If a sub 100 index isn’t being applied and inflation goes up they will expect to see an increase in the package unless they understand that they’ve been receiving a windfall already.
Explain the package
Certainly, an education piece around all the factors impacting an expatriate’s salary, while complex, is worth devoting time to pre-assignment. Another factor that can get overlooked by assignees comparing cash salaries is the impact of the benefits element of the package. Their package may be more valuable than they think – as in the example below – and it will help enormously later on if you make this clear to them from the start.
You should also bear in mind that one culture may be more impressed by some benefits than others. In Western Europe, there is often a preference to receive extra money to use as they wish, while in Nigeria, for example, the prestige of driving a company BMW is likely to be more valued than getting the cash value of that car. In the US, health insurance coverage is more important (and often more expensive) than it is in Europe where costs are generally covered by the State.
Benchmarking of accommodation or bonus provision is a hot issue for many of our clients and much of the bespoke project work we are requested to carry out centres around this. For example, we might be asked to look at a selection of cities to see what other companies are doing there in terms of accommodation for their expatriates and whether they are providing too much or too little themselves. We are often asked how bonuses compare as well. Like the, “how much would X get in Y question” above, bonus provision for expatriates will be dictated by a number of complicated factors and to get a true picture we can carry out a benchmarking project. We have trend information on incentive schemes in our reports as well as actual bonus figures in the Listings section.
Being able to assess how effective your current expatriate remuneration policy is against other companies in the same territories and industry groups is clearly an asset. It can help you ensure your packages are attractive enough to retain and motivate staff while ensuring you are getting value for money from your expatriate programmes.
Even if you have a great salary system in place now, you never know what’s around the corner. Having the possibility at your fingertips to see the impact of adjusting your policy, should it be necessary, is well worth it.