For decades in the mobility industry, the traditional approach to an international assignment has most often been a home country-based “balance sheet” compensation package. This somewhat “one-size-fits-all” policy is designed to protect or even enhance the assignee’s current net pay while on assignment abroad. After all, the logic goes, why would anyone accept a challenging new job in a foreign location for less money than they’re making now? At the same time, companies have often questioned whether the balance sheet was appropriate in all cases. Due to its inherent high costs (typically three to four times base pay) and other concerns, the demise of the balance sheet has long been predicted to be replaced by more localized, short-term, blended or alternative approaches.
At this week’s meeting of the Minneapolis Employee Relocation Council (MERC), Bristol was asked to speak on this topic. The Twin Cities is an appropriate venue to address trends in international relocation, as the metro area has long been a vanguard of international business. Many of the mobility industry’s earliest innovations and best-run expatriate programs originated with famous Minnesota-based multinationals such as 3M, Cargill, Medtronic, General Mills and Honeywell among several others.
The theme of the 2019 MERC conference was “Are We There Yet?” Bristol was asked to address this question specifically with regard to the trend toward alternatives to traditional policies. Bristol’s short answer is yes. Companies are increasingly segmenting their policies to accommodate the diverse and evolving nature of their international assignments. Common policy segments include by duration, by region, by location and by strategic purpose, with different compensation and relocation benefits for each.
In 2019 we are seeing traditional 1-5 year “Expat”/ Long Term Assignment (LTA) policies continue to recede as just one of several approaches. In fact, many companies now start with the idea of Local, Commuter and/or Short-Term arrangements, only utilizing a traditional LTA policy if the precise circumstances warrant.
WHAT IS DRIVING POLICY SEGMENTATION?
The pace of change in mobility is accelerating like never before. Bristol would identify several factors including:
- Continued alignment of the global mobility function to the company’s overall business and talent management strategies, as opposed to the purely operational function of the past;
- Business units’ desire for maximum flexibility and customization (often driven by Talent Acquisition and Recruiting) as opposed to being held to strict and often unnecessary policy directives;
- Persistent demand for cost containment and reduction;
- The Technological revolution and 24/7 accessibility giving rise to the ability to be more productive remotely and on a commuter basis rather than uprooting the family for 3-5 years;
- Rise of the gig economy; freelance workers willing to travel and work on a serial basis’
- Barriers to relocation including family reluctance and assignments to difficult locations, resulting in a scarcity of available talent and/or the need to provide more and better incentives.
As a result, companies are in 2019 designing multiple policies for multiple purposes. How might your company embrace these trends?
POLICY SEGMENTATION: BEGINNING THE JOURNEY
Bristol suggests that for any role worldwide, consider these classic questions:
Why an expat? What is the Purpose of the assignment? Is it a critical business need? Is there a need for technical or managerial expertise? Is it for training or employee development? Is it employee-initiated? Before identifying an expatriate, have you fully assessed the local and regional talent pool?
For how long? Assignment duration determines many terms and conditions, from whether family may accompany, to the shipment of household goods, to the precise calculation of assignment allowances and premiums.
What is next? This question is about expected career progression and planning. Will the assignee return to home or elsewhere? What is the likelihood of a subsequent position within the company?
Clear answers to these questions can leads to clearer policy segmentation.
So…Challenge your management! The requesting business unit should be required to make a formal internal business case for each assignment along with a comprehensive cost estimate and desired outcomes, and put the authorization for each in writing. And then you can recommend the appropriate policy and package.
SEGMENTATION BY DURATION, STRATEGY, PURPOSE
Below is a summary of the wide variety of policy tiers employed by many companies today:
POLICY DESIGN – STRATEGIC CONSIDERATIONS
Another popular and effective means of framing and communicating potential policy categories is the below “Four-Box” model which ranks assignments by both value to the business and value to the individual transferee. In general, the lowest value (Volunteer or Accommodation) roles are on the lower left quadrant (requiring the least money and support) and the highest value on the upper right. Interestingly, the high business value / low personal value assignments / technical needs assignments on the lower right may require the most incentives and therefore are often the highest cost assignments to the company.
POLICY DESIGN – SPECIFIC ELEMENT CONSIDERATIONS
Congratulations! Through careful analysis of your key business drivers, consultation with all internal business units and stakeholders, and external benchmarking against your industry comparator group, you have built a consensus and direction for structuring your policies. Then comes the process of determining the specific detailed provisions for each policy segment. Space limitations does not allow for a complete overview of all elements of policy here, but we would like to highlight just a few examples of the major decision points for each policy below:
- Accompanied vs. unaccompanied; What support, provisions and allowances are needed in either case;
- Frequency of home visitation. Often depends on family status.
- Per diem / COL allowance. Full per diem, monthly allowance or only a location “differential” allowance depending on family status, assignment length and type of accommodations (e.g. spending habits are different in hotel vs. an apartment with kitchen facilities.
- Need for incentives: Acceptance/completion bonus. Hardship premium for remote, difficult or dangerous locations.
- Base Salary approach: Retain home country tie or local/host approach. For what type assignments and which locations.
- Host location Housing. Full provision or a housing differential? What level of housing? Centrally located or suburban?
- Need for incentives (Foreign Service Premium; hardship)
- Evaluate need for Cost of Living Allowance (COLA) and tailor it to the assignment conditions.
- Shipment of Household Goods – or not. Air shipment, sea container, or both.
- Home sale: Will the assignee return to their owned home?
- For what types of transferees, and in what countries
- What are the “Plus” elements (housing, schooling, medical)
- Dilemma of moves from high to low salary countries
The above are only a few of the individual policy considerations.
MANAGED BENEFITS, CORE-FLEX or LUMP SUM?
A related trend in policy design is the growing interest in what is known as a “Core/Flex” approach. In summary, a core/flex policy presents a combination of “core” policy provisions (provided to all transferees) along with a menu of optional benefits that may be offered according to individual needs. The selection of optional benefits is typically made by the business unit or recruiter, with input and negotiation from the employee/candidate, often adheres to a pre-set budget.
Bristol will explore this subject in greater detail in a separate white paper, coming soon.
TWO FINAL WORDS OF CAUTION…
Complex multi-policies are not always better! There is still much to be said for consistency and simplicity and ease of administration and communcation. Over-segmentation can lead to confusion, administrative complexity, inconsistency and lengthy negotiations. You must consider your specific business drivers: your industry; your competition; talent management strategies; expat demographics, sending/receiving locations and desire for administrative ease.
Beware Cost containment being the sole driver. You will not achieve your talent management goals nor will you win the ongoing “war for talent” if you do not support and incentivize your talent appropriately.
Talk to Bristol...
Bristol’s Consulting department assists our clients in evaluating, benchmarking and improving their mobility policies to meet the specific requirements of their unique businesses. For a deeper dive into your own policies, please contact your Bristol account director to discuss how we may assist you or reach us at email@example.com.