Flexibility in International Assignment Policy and Programs

Transcription

1 Flexibility in International Assignment Policy and Programs Meet Ian This 45-year-old vice president of business development lives with his wife, an aerospace engineer, and two children, ages four and eight, in Southern California. Ian s company has asked him to relocate to Buenos Aires to develop their South American market. The company expects that Ian and his family will reside in Buenos Aires for roughly three years. Meet Jack Jack works for the same company as Ian. Jack, a single, 30-year-old customer support technician, has been asked to relocate to a suburb of London for two years to support the installation of the company s product at a customer site. Consider: Do these two people and their situations have more in common or more differences between them? From a personal standpoint, are their needs relative to their proposed assignments the same? Should the company treat them alike or differently? From a business standpoint, do their assignments mean different things to the company? If your organization is like most, you want your expatriate program to meet employees needs while also meeting business objectives and administrative parameters. To do so, you need a policy that addresses all three perspectives equally (see Exhibit 1). There are many factors to consider if you are developing a policy like this, including: Corporate culture Financial/tax parameters Administrative infrastructure Experience, of the company and of the administrative staff Industry practices Expatriate population trends Career and repatriation expectations Purpose of assignments Compensation and benefits programs addressing these and other factors can be a challenge to even the most experienced manager. Exhibit 1 When expatriate program managers at a recent Prudential Relocation-sponsored seminar were asked what s on their minds, responses included: Doing more with less (in terms of administration, time and money) Responding to the needs of a far-flung workforce in a fair and consistent manner 1

2 Being flexible to meet people s needs without customizing packages for every expatriate Establishing policy that supports the company philosophy, culture and business needs Providing incentives rather than entitlements What stands out about these responses is, at their core, these issues all revolve around the necessity to establish flexible yet consistent policy. One Approach to Flexibility: Tiering by Assignment Duration Let s get back to our two expatriates, Ian and Jack. If their company has, say, 200 expatriate employees, then different policies for these two different assignment types assuming that the company has many of each might be a reasonable way to go. The most typical tiering approach is by assignment duration. Almost all companies have separate policies for long- and short-term assignments that is, assignments of more than one year and less than one year. In fact, it is becoming common to split short-term into two or three segments, with a separate policy for assignments between three and six months and a separate policy for extended business trips up to three months. Given that the origin for this approach is based on U.S. immigration and/or tax parameters, these specific time frames are not focused to the business reasons for the assignments (although the financial implications to a company can be significant). If a company is not U.S.-driven, then alternative time frames are possible. 2 A secondary reason for tiering policies by duration is that certain assignments require more time to complete than others. Some jobs are rotational (a particular employee performs the job for a specified period of time and then the same job is filled by another employee) and some can be split into smaller segments and accomplished by different employees. This approach addresses a number of issues companies face: 1) Shorter term assignments (rotational assignments are typically for less than one year) can be done on a single-status basis and the costs of home disposition and family relocation/disruption can be minimized. 2) Shorter term assignments reduce the impact of the out of sight, out of mind syndrome, which affects expatriates living away from their home office for a long time. These employees risk falling out of the formal and informal system for succession planning and other opportunities. 3) Employees who may not be good candidates for long-term assignments due to family or other personal considerations (e.g., working spouse, elder parent care) may be able to undertake a shorter-term assignment. For all these reasons, short-term assignments have been gaining in popularity and are a reasonable attempt to introduce flexibility into the international assignment program. Beyond having separate policies for assignments of different durations, tiering is not as popular an approach in international assignment policy as might be expected (or as it is in U.S. domestic relocation policy). Reasons for this may vary: Typically smaller total numbers of expatriates and the greater complexity of international assignments make them more administratively awkward to manage multiple policies.

3 The ongoing nature of international assignments means that differences between policies can have a long-term impact. Expatriates by custom openly share with each other, and the continual search for the epitome of fairness and consistency prohibits offering different programs to different employees who may be working side by side or with expatriates from other companies. It is also possible to tier policy based on other factors such as business objective or position (e.g. different policies for senior management, technical support and developmental assignments). Though this is common practice in domestic relocation policy, only developmental assignments (assignments intended to serve primarily as training for the assignee) typically have a separate policy for international assignments. Given the side-by-side working relationships between most expatriates, as well as the fact that these assignments tend to vary in duration, most companies prefer to use duration, which is a less personal characteristic, rather than position to distinguish between different policies. Meet Needs Without Adding On Managing multiple policies is not an effective option with an expatriate workforce of 20. Using the example of Ian and Jack, addressing the very different needs of these two employees may seem impossible to do with one policy. In the past this was true. Companies simply used one policy, then found solutions for additional needs as they arose on an exception basis (e.g. Jack s fiancée will remain in the home country so he has requested additional home visits to see her). Exception usually meant add-on. In today s environment, companies facing candidate recruitment issues are seeking new ways to meet personal needs while still adhering to company financial parameters. Some companies have used a lump sum approach by providing expatriates with a specified amount of money to apply toward whatever costs they encounter. In fact, a few companies use lump sum extensively (and a few exclusively). In these cases, these companies have considerable international experience as well as a very literate international workforce for whom guidance is unnecessary. With a lump sum approach, the expatriate receives a megacheck (sometimes as much as $100,000) to cover expenses while on assignment. While this approach can seem inconceivable to many companies, the advantages can be great to those who know how to use it. How does the company benefit? Lump sum is less intrusive into employee finances. Calculations for the lump sum payment may still address certain personal factors such as family size, employee base salary and homeownership status, but other personal factors are transparent to the company. Many companies prefer to maintain as great a distance from their employees personal matters as possible, and lump sum coverage supports that. It comes closer to actual compensation than the balance sheet does. In real life, employees receive salary and determine how to spend it themselves. Lump sum imitates that process. The traditional balance sheet approach determines what a typical employee spends and then bases the expatriate s allowances, etc. on that measure. It provides fair and equitable treatment. Or at least, most fair and most equitable treatment. The company only differentiates 3

4 between employees in the most minimal ways (e.g., family size and origin and destination location). Lump sum payment supports cost management by allowing for accurate budgeting, reducing exception requests and eliminating excessive reimbursements. It requires less ongoing administration. Or at least a different type of administration. Rather than focus on tasks such as expense processing and negotiation, the lump sum approach allows administrators to focus more on counseling and other support activities. For administrators, this can be a much more satisfying endeavor. Employees also benefit. For them: Lump sum is less intrusive into their finances and can eliminate time-consuming paperwork. Policy is communicated clearly up front. Because lump sum requires more knowledge and decision-making on the part of the expatriate, the company s policy must be explained early and well. This addresses a common employee complaint: that policy is not communicated until there is a problem. It improves employee satisfaction by providing greater flexibility and control and immediate access to funds. Employees can spend lump sums as they see fit. There are drawbacks, of course. For example, while the lump sum approach gives expatriates control over how they spend the funds, the level of detail that the company needs to share in order to facilitate that is much more than what is typically provided. How the lump sum payment, and all its components, is calculated and the resources used to determine it should be clearly explained. The expatriate needs that information in order to self-manage the lump sum allotment. Inexperienced expatriates can be overwhelmed by the process and may make costly mistakes during the learning process. And what if someone runs out of money? If this were a one-time event, such as a domestic relocation, the consequences are limited. But if an employee runs out of money during an international assignment, the ramifications could potentially jeopardize the assignment and even impact the relationship with the host country. Companies also may find it difficult to plan/minimize tax costs using the lump sum approach. Some have solved this problem by requiring employees to provide receipts to their tax return filer so that appropriate taxes are paid. One abiding difficulty of the lump sum approach is how to respond to changes in economic conditions during the assignment. If a lump sum is calculated and/or paid at a given point in time, such as at the beginning of the assignment, how does the company account for changes such as fluctuation in the exchange rate? The Flexible Allowance For many companies, the benefits of the lump sum approach are great enough to overcome the drawbacks. That is even truer now as companies have modified lump sum into a new approach. Some call it flexpat and some call it flexible spending accounts, but the effect of the flexible allowance approach is the same. Rather than covering all assistance with one lump sum payment, program components that in the past were addressed separately are lumped together into one or more flexible allowances. As a result, expatriates can make choices that best meet their personal needs within a framework that meets the company s needs as well. 4

5 To help employees make these choices, companies provide the services of international assignment counselors who counsel the expatriate family on the company s program and connect them with a destination location expert who can help them make their choices. These destination experts then organize the expatriate s familiarization trip, arranging to show them housing, schools and other amenities that the expatriate family has identified as important. In this way, the family can better match their own needs with the choices in the host location. Here are two examples of companies who have put flexible allowances programs to work. Company A s Flexible Spending Account typically includes the following items: Host Housing Rent and Utilities Goods & Services Differential Miscellaneous Relocation Allowance Home Country Automobile Disposition Assistance Home Leave Airfare Emergency Travel Mobility Premium Spouse Assistance Student/Dependent Travel Airfare Hardship Allowance Rest & Recreation Trips (R&R) Company B s Host Location Allowance includes: Goods & Services Allowance Host Housing Rent and Utilities Dependent Travel Airfare Home Leave Airfare living area for expatriate employees with those characteristics. An amount for dependent travel airfare is only included if the expatriate has qualifying dependents. Based on the total of these individual calculations, expatriates have at their disposal a total amount that they can redistribute based on personal preferences. If they prefer housing that costs more than what the company specified, they can choose that and transfer the extra from their goods & services allowance allocation without having to get approval from the company. Another common combination is to include the host housing allowance, goods & services differential and host transportation allowance. It is easy to see in this example how a family who would prefer to live outside a city where housing and goods & services costs are lower but a second car is needed would be able to reallocate their funds to meet their preference. And all without costing the company additional money. The Impact of Using a Lump Sum Approach The statistics bear out the success of a lump sum approach. According to a survey by Runzheimer International, many companies (73%) found that the lump sum approach alleviated auditing of expense reports and receipts. Forty-six percent reported reduced staff time spent per international relocation. Respondents also found it helped employees settle in faster at the new location while it reduced exception allowances. Apparently no company found that it reduced program costs (see Exhibit 2). In both cases, the companies calculate the allowance based on standard characteristics, assumptions and policy guidelines. For example, the amount of the monthly goods & services allowance is based on family size, salary level and the typical 5

6 Implementing a Flexible Policy There are certain common traits of companies that have had success with flexible approaches to policy, including lump sum programs. These include: Candidate identification and assessment program. Though it is true for any type of successful international assignment, the additional self-reliance required of an expatriate family using a flexible policy underlies the importance of selecting the right expatriate family. Another key to an effective program is exceptional counseling. Without it, employees may feel lost or experience frustration at not having the information or experience they need to make decisions. Many companies support their counseling programs with a resource such as Prudential Relocation s Overseas Assessment Inventory, which identifies the personal attributes and attitudes that may impact an employee s success or failure in another country. A third program trait that almost all companies with successful lump sum programs have is a worldwide destination services network, where local expertise can provide the guidance to relocating families that a headquarters-based staff cannot be expected to deliver. Final Thoughts Companies looking to improve the success of their international assignment policies by making them more flexible have turned to three approaches: Varying policy based on assignment duration Greater use of short-term assignments Introduction of flexible spending allowances into traditional expatriate assignment policies The advantages to the company and their expatriate families are many, and impact recruiting and staffing of international assignments, greater satisfaction with the assignment experience and managed costs for all. Though many of the approaches described in this paper would not have been possible even two years ago, the advent of expatriate support services, especially destination services, and the use of shorter-term assignments have brought about a new way for companies to meet their expanding international business objectives without overtaxing their administrative and expatriate resources. For more information, please call (800) or speak with your relocation manager to see how you may integrate some of these ideas into your existing policy program. Lump Sum Approach alleviates auditing of expense reports and receipts Lump Sum Approach Reduced staff time spent per international relocation Exhibit 2 6