How much do you need to pay executives when you’re sending them overseas? HRD looks at the ins and outs of relocation compensation
Lee Quane, regional director, Asia for ECA International, talked with HRD about how to calculate salary and allowances for employees being transferred overseas.
A matter of time
“The first factor companies need to take into consideration is the basis of the relocation,” he said; In other words, how long is the employee going to be overseas and what is the reason they are moving there?
For permanent moves, it makes sense for the employee’s compensation and benefits to be aligned with what local staff are given in the host location.
“If I wanted to send somebody from Hong Kong to Singapore on a permanent transfer, I would align the employee’s salary to what I would provide to local Singaporeans,” he said.
Complications arise when determining salaries for long-term assignments which last from one to three years, Quane added. The key in this case is to ensure employees are no worse off after the move.
“What a company will typically do is make reference to the home country salary structure and make adjustments to reflect differences in cost of living, differences in taxes, and so on.”
Purchasing power should be protected by an added ‘cost of living allowance’ so the employee can enjoy the same level of goods and services in the host country. The differences in taxes will then be considered to determine the final salary after the move.
“You need to ensure that the compensation remains aligned to the person’s home country so it’s easy to get the person to go,” he said. “It’s also easier to repatriate the person afterwards because they’ve still got that link to the home country salary structure.”
An underlying purpose
The reason behind the overseas assignment will also effect the compensation given, Quane added. When there is a need for that employee’s skills and experience in the host country – in what he called a leadership move – the firm may have to add an additional incentive called a ‘foreign service premium’.
“This is designed to compensate the employee for leaving their home country and taking the risk that’s associated with the international assignment.”
On the other hand, an employee may move for career development purposes such as gaining greater skills, knowledge or experience.
“Here, you don’t need to provide a foreign service premium to attract the person to go because the incentive is the assignment,” Quane said. “As long as the person’s no worse off, that should be sufficient for them to make the move.”
The true instigator
The third factor to consider is who has requested the move, Quane said. If it is the company’s call to relocate that individual, added compensation may be required.
“The company has to make it worth the employee’s while because they’re saying they need that worker in the host location.”
If the employee is the one who wants to relocate overseas, the firm can simply offer that individual a local salary package in line with what local nationals receive, Quane added.
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