Fair and competitive compensation is critical to ensure employees are motivated and to encourage staff retention. In the context of a globally mobile workforce, additional allowances specifically relating to international assignments are often added to the remuneration package for this purpose. A commonly provided addition is a mobility allowance, which companies may refer to by an alternative name such as a foreign service premium or an expatriate allowance. It is provided in recognition of the assignee’s willingness to be internationally mobile.
Reasons for inclusion
The inclusion of this allowance in international assignment packages has remained consistent for many years, with 65% of companies currently providing it as a component of their standard home-based approach (it is less commonly used in host-based approaches, as we shall see).
A mobility allowance can prove beneficial during the negotiation phase prior to an assignment as it incentivises the employee to relocate. Indeed, employee motivation is the most common reason cited by companies in ECA’s Expatriate Salary Management Survey for providing this allowance. Many companies will also use it to compensate for moving or to cover additional miscellaneous costs.
© Employment Conditions Abroad 2019
Calculating the allowance
There are various ways in which this allowance can be calculated, but the most popular method is to define it as a percentage of the home gross salary, most commonly 10%. The second most common method is to use a fixed amount for the allowance, with approximately half of companies using this approach varying provision on the basis of seniority and/or family size. As expats will likely discuss any assignment specific allowances with their peers, calculating the mobility allowance in the same way is recommended for assignees working together on a defined project in order to encourage employee equity and to reduce any kickback.
A third of companies have a maximum mobility allowance, most commonly determined as a maximum cash amount, but only 15% of companies guarantee a minimum mobility allowance.
If the position is considered business critical, companies are more likely to include a mobility allowance in the assignment remuneration than if the assignment is recognised as developmental or part of a graduate scheme. Nearly a third of companies participating in ECA’s survey operate both standard and ‘light’ home-based packages, the latter being used primarily for talent development or employee-initiated assignments where the opportunity to work abroad is sufficiently motivating to warrant a lower mobility allowance, or none at all.
The location of the assignment in relation to the employee’s home location may also determine whether a mobility allowance is provided or not. For example, a Chinese headquartered company may not provide the allowance for any assignments within Asia, but they would provide it for inter-regional moves. That said, it is important to keep in mind that location allowances are designed to compensate for the level of adaptation required when moving from one location to another, whereas the mobility allowance is primarily paid as an incentive only.
It is also interesting to consider how mobility allowance provision varies according to industry sector. Companies in the oil & gas industry, for example, are most likely to include a mobility allowance in their packages, with over 80% doing so. We have already recognised that motivation is a key reason for paying a mobility allowance, so this trend is perhaps unsurprising given that the locations this sector requires its staff to operate in are generally perceived as more challenging. On the contrary, the number of companies in the technology sector reporting the inclusion of this allowance is notably lower than the average. This suggests that assignments within this industry are to more desirable locations and are already attractive enough for reasons such as career development, so there is a reduced need for additional financial incentives.
We have established that mobility allowances are a traditional component of a home-based assignment package, but what if a company uses a host-based approach? You would likely expect that the inclusion of a mobility allowance is less frequent than for home-based packages, as the host-based approach aims to ensure equity with host-country peers (who would not receive such an allowance) and tends to be favoured for its cost saving advantages. In practice, ‘local-plus’ approaches, where the ‘plus’ refers to additional expatriate benefits and allowances, are much more common than simply paying assignees a host-based salary. Just under half of companies provide a mobility allowance when using a local-plus approach.
Provision of mobility allowancesby policy type
© Employment Conditions Abroad 2019
Only a quarter of companies always provide a mobility allowance for short-term assignments, with a further 17% saying they sometimes provide one. The primary reason this varies is due to seniority. More junior assignees are less likely to require additional financial incentives to relocate for career-development assignments, which are often shorter-term affairs. Moreover, the perceived level of commitment is arguably lower for a prospective short-term assignment than a long-term one, so additional compensation to motivate employees to move abroad may not be required.
An organisation’s approach to mobility allowances needs to align with global talent needs and the objectives of the mobility programme. As the importance of having a mobile and internationally minded workforce increases, offering a mobility allowance can be an effective, consistent and defendable way by which the company can attract the best talent. However, as assignment types, the reasons behind them, and assignee demographics continue to evolve, the application of mobility allowances is changing in parallel.
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Many statistics in this report come from ECA’s latest Expatriate Salary Management Survey, which examines trends and best practice in international assignment pay and policy. In addition, our experienced consultants can provide expert advice to help you choose the remuneration model that best fits your mobility strategy and assignee population. For more information, please get in touch!