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Benchmarking basics – how to keep your expatriate packages competitive

Benchmarking expatriate packages can be a challenging prospect due to the variety of methods used to calculate and deliver salaries and the range of benefits included. However, if done properly, benchmarking is well worth the initial effort involved. It gives you the confidence to know exactly where you are in the market, as well as the ability to defend your packages either to assignees who may feel they are not getting enough, or to senior management who are pressuring you to cut costs.

So how can you ensure you get the most out of your benchmarking? Armed with an understanding of your organisation’s strategic objectives and an idea of where you want to be in the market, we will look at the main things you need to consider.

Salaries

Regardless of whether you use a home-based, host-based or any other salary approach, the best place to start when benchmarking your expatriate packages is with salaries, as this is the first thing most assignees will compare. Before you do so, you need to ensure that you are comparing the same thing. The best way to do this is by comparing net salaries, as expatriates can be subject to a variety of tax and social security rules depending on the home and host countries involved. You also need to convert all the figures to a common currency.

The salary data in the MyExpatriate Market Pay Reports includes the base salary plus any regular salary-based allowances such as mobility and location allowances, as well as any guaranteed bonuses. Performance-related pay is excluded, as are one-off payments such as settling-in allowances and any benefits-related allowances for the likes of transport, education or accommodation. Any amounts that are gross of tax are netted down and employee housing and pension contributions deducted, leaving you with a suitable measure of how affluent your job holders actually feel.

It is also critical to use a job evaluation system rather than job titles to compare positions when benchmarking. Job evaluation is more systematic and enables comparisons between companies from different countries and industry groups. For example, ‘General Manager’ could mean anything from a junior employee at a small company to someone on the board of a huge multinational.

With salary information submitted and job evaluations complete, you can use your personalised, interactive MySalary Graph to see how your expatriates’ net salaries compare against the rest of the market. In the example chart below, each X is a real job submitted to the survey, and your own job holders are highlighted with red diamonds, immediately showing your market position.

 

By clicking on items in the legend, you can show or hide points as you wish. This could be just to focus the benchmark against others in your industry group, or only those on a host-based approach. The functionality gives you the flexibility to tailor the information to your needs.

Benefits

For local employees in most countries in the world, benefits make up a small proportion of the total package they receive. However, for expatriates, the cost of these benefits can be even higher than the salary itself, as you can see in the chart below (the benefits in this example include accommodation, utilities, education and motoring for a family of four).

 

This shows how important it is to look at the whole package and ensure you get your benefits provision right, both for cost management purposes and to ensure the overall competitiveness of your packages to attract and retain talent. The MyExpatriate Market Pay Reports contain detailed information on provision and costs for the most common expatriate benefits, giving you everything you need to achieve your desired market position.

It is also possible to benchmark the actual amounts provided to expatriates for certain benefits such as accommodation allowances using the Total Package Listings section of the report. This section is an anonymised list of the full details of every job holder submitted to the survey, enabling you to really focus on what is important to you.

Policy

As well as the salary and benefits themselves, the various policy choices that go into calculating those elements should also be considered, so that once you know where your assignees fit into the market, you can understand why they are there. A one-size-fits-all approach to mobility policy is no longer suitable for many companies due to the increasing complexity of international moves, and the significant differences between locations. 

For example, while using a host-based salary approach is not unusual in Singapore, it is much less common in China. Providing assignees with a car is common practice in the USA, but far fewer companies do so in the UK. Benchmarking is a way of ensuring you keep up to date with these differences, as well as other trends in the ever-changing world of mobility.

Bonuses

Bonuses can be complex, and it is important to look at the philosophy behind your bonus policy. Paying a bonus based on the host country system might initially seem like the obvious choice – after all, your expatriates are working in the host country, and it is their performance there which is being measured. However, you may find employees reluctant to move if they are going from a high bonus to low bonus culture, or you may be overcompensating if going the other way around.

The MyExpatriate Market Pay Reports contain information on the number of companies providing bonus schemes, as well as which scheme assignees belong to, how the bonus is calculated and what factors are considered. Of course, all of these policy decisions eventually result in an amount of money paid to the assignee and this figure is probably the one they will be comparing against others, so it is worth looking at this as well. Bonus details are published in the Total Package Listings section, allowing you to benchmark the actual amount real employees receive.

Local salaries

Even when dealing with expatriate packages, an understanding of local salaries and how they compare to those of expatriates can be helpful. Knowing if local salaries are likely to be high enough for a host-based approach to be practical and seeing how local salary scales can vary with seniority can both aid benchmarking. In many emerging economies, salary scales can be very steep, meaning that an average assignee will be paid well above the local market rate at junior levels, while more senior assignees could be paid less than their local counterparts. In the reverse case, maintaining the relative buying power of senior managers from developing countries when they move abroad can involve a huge cost, as well as causing issues in the host country where the assignee’s total net pay will be far greater than that of their local counterparts.

Strategic knowledge of how salaries can interact is invaluable in benchmarking and preparing for potential difficulties. More details can be found in our National Salary Comparison or by using our Net-to-Net Calculator.

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