For all the value they can bring to an organization, traditional international assignments come with a daunting price tag. In response, companies have been trimming relocation benefits and costs for several years, making the packages less generous for assignees and less costly for employers. Certainly, there is much more variation in the assistance offered to assignees than in the past.
Employees today are more likely to see an international assignment less as a hardship and more as a career- and life-enhancing experience—and they are more likely to seek out these experiences with fewer incentives. Of course, benefits vary depending on the company’s policies, culture and competitive environment, the employee’s seniority and the assignment location. The goal is to deliver the support needed without providing a windfall.
Here are the most common elements of international corporate relocation services – compensation and benefits.
Base Salary and Bonus
The Base Salary and Bonus is annual compensation and any applicable bonus associated with the position, but not connected in any way to the assignment. This compensation does not change unless the employee is being promoted or taking on new responsibilities. Employers base this on home country norms. Most companies address cost of living differences with allowances rather than salary adjustments.
Medical / Dental Benefits
Best practice for Medical/Dental benefits is to provide home country benefits through an international medical insurance policy. This may supplement the assignee’s home country coverage but also allow for coverage while living abroad.
Best practice for assignees is to continue to observe the home country vacation policy. Assignees accrue vacation time based on their position and tenure with the company unless host country law requires a different minimum accrued time. However, it is always best practice to follow the national/corporate annual holiday calendar for the host country as opposed to home.
Foreign Service Premium
A Foreign Service Premium is an incentive payment for an employee to take an international assignment. Employers often calculate the FSP as a percentage of base salary and tax protect the payment. In many cases, an FSP is no longer necessary since many employees seek out international assignments. However, there are instances where a global assignment may require an added incentive and in those cases, a Foreign Service Premium would be the best practice. When an employer offers a FSP, it is typically 10-15% of the employee’s base salary. (Sometimes an Assignment Completion Bonus replaces a Foreign Service Premium.)
Employers might offer a Hardship Allowance of 5-30% of base pay to an expatriate who will be on assignment in a location with difficult living and working conditions. Factors used to determine the hardship levels include climate, traffic, civil unrest, disease, infrastructure, education quality, housing, and more. The allowance is usually a percentage of base salary based upon the hardship rating of the city or country as published by the U.S. State Department.
A Miscellaneous Allowance is a one-time payment intended for expenses not specifically reimbursed or covered in other areas of the company’s global mobility policy. It is typically one-month’s salary or a capped, specific amount (for example, $10,000 for long-term assignments and $2,500 for short-term assignments).
Cost of Living Allowance (COLA) (aka Goods and Services Differential)
The COLA compensates assignees for the incremental cost of purchasing typical goods and services in the host location. Employers offer a COLA when the spendable portion of the assignee’s income is significantly less in the host country than in the home country. An independent data provider calculates the differential based on the assignee’s salary and family size and the cost of living in the home and host locations. Companies review and adjust these allowances periodically.
There may be cases where the spendable portion of an assignee’s income is significantly more in the host country than in the home country. Some companies will make the negative adjustment to the assignee’s salary, however, most opt to do nothing as it is simpler from an administrative perspective and also provides the assignee with a bit of a built in financial incentive.
Per Diem Allowance
Best practice is to use the Per Diem allowance for short-term assignments and international business travel only. This is the equivalent to the long-term assignment cost of living allowance. The benefit is location-specific and intended to cover meal and incidental expenses to offset the difference in costs of goods and services between the home and host countries. An independent data provider calculates the amount based on the home and host cities.
Host Country Housing Allowance
The Host Country Housing Allowance usually depends on the assignee’s level within the company, home and host cities (and appropriate expat neighborhoods) and family size. It is often impossible to duplicate the departure housing type, size and style in the destination, particularly for Americans moving abroad. A third-party data provider provides this figure and employers usually review the allowance when an assignee’s lease is up for renewal. For most employees, this is the largest allowance they receive.
A Utilities Allowance is an ongoing allowance intended to cover basic utilities in the host country. For short-term assignees, the utilities allowance is typically included in lease amounts. For long-term assignees, a third-party data provider calculates this allowance based on the home and host cities, family size and size of the host country residence.
The Transportation Assistance typically depends upon the assignment location, family size and type of assignment. An independent data provider calculates the amount. It can cover all or part of the assignee’s host location personal car rental, car and driver or public transportation expenses.
A Repatriation Allowance is a one-time payment intended for expenses not specifically reimbursed and paid to the assignee at the end of his/her assignment. Best practice is for the amount to be a set, capped amount that is less than the miscellaneous allowance received at the start of the assignment.
Costs and Benefits
With so many associated payments and allowances, it is easy to see why traditional international assignments are so costly for employers, and why so many employers are keenly interested in less-costly assignment types. Frequently, shorter assignments and leaner packages can satisfy the assignee’s needs while reducing the company’s relocation costs. However, in other cases, only a long-term traditional assignment, even with its associated costs, will meet the company’s business needs.
Interested in more information on International Corporate Relocation Benefits & Best Practices? Download our Complimentary White Paper on International Policy Best Practices.