The Challenge with Expatriate Compensation – Assessing Your Reward Strategy

Posted on 22 November 2021 by IRIS FMP

For almost every operation, compensation, benefits, and rewards are critical in attracting, retaining, and motivating your talent. When optimized, reward strategies can become effective tools for thoughtful workplace engagement, both immediately and long into the future.

As more multinational businesses are investing in new and promising markets beyond their own, the role of an international reward strategy has become a key pillar in supporting operational aims and objectives. Yet, as with any strategy, expatriate compensation can be just as rewarding as it can be challenging.

It is imperative your incentives are cost-effective, align with operational goals, and are helpful in attracting and retaining employees. Incentives or reward packages are used in a variety of contexts; from recruitment to employee retention and beyond. Yet, when it especially comes to expatriate compensation and international assignments, your reward strategy can significantly influence how well your operation performs in global markets.

Building an effective incentive program that truly motivates your talent is no easy feat. Instead, as multinational organizations evolve in time, they tend to outgrow their reward and pay structures. Ineffective incentives can creep into a business culture where strategies aren’t regularly updated, evolved, and advanced. 

Why develop a compensation package for expatriate assignments?

In today’s ever-changing global environment, many businesses rely on the expertise and skills of their employees to build and drive value, often in markets beyond their headquarters. The workforce, nowadays, is mobile – from city commutes, to international assignments. Likewise, the makeup of a workforce is usually blended between permanent and contingent workers, as well as local and worldly expertise.

The availability of a diverse talent market overseas has been known to attract multinational operations. Businesses are discovering that the international workforce is one of the better resources for achieving successful global expansion. For others, international recruitment can help where there is a skills shortage in certain occupations or industries.  Recently, the American labor market recorded many of these “shortages”, where there has been a skills deficit, or shortfall.

Yet, when it comes to expats, they serve a distinct business function outside the remit of residential employees. An expat is a reliable resource for businesses operating in foreign markets, where this type of employee is typically working and living abroad beyond the country of their citizenship. As such, these roles tend to attract unique compensation and rewards.

What are the benefits of a reward strategy for expats?

The advantages of a well-delivered reward and compensation package for expats will be reflected in your company goals, which typically involves employee loyalty and engagement. Yet, the main benefit is the competitive advantage. An incentive program can align with your organizational aims, helping to generate real value from your expat workforce.

Employee incentive program (with examples)

Expatriate compensation approaches:

If you decide an international assignment is beneficial for your business, then consider the following when detailing a rewards and compensation package.

1.      Enhanced compensation and benefit packages

The phrase “compensation and benefits” is, for HR departments at least, a specific reference to a company’s key polices on indirect pay and other contractual rewards. It’s often misconceived as their salary but can actually refer to much more.

Generous overtime rates, stock options (for seniority roles), private pension plans, insurances and more – these are common building blocks in compensation and benefits packages. An attractive job offer, when blending these options, can give your company a competitive advantage whether recruiting from global markets or attracting for international assignments. When these rewards are structured effectively into your culture, it can create a more compelling perception of your business to outside talent. Tech titan Google, for example, has fostered a  highly positive public image of its culture, which attracts talent every year. 

2.     Career training and development

When improving business performance is a central goal to your rewards strategy, the popularly cited opportunity for career training and development is not only a tool for employee retention, but also helps encourage the kinds of value your expats can contribute.

Career training is a cost-effective method for upskilling, which improves the available skills throughout your workforce. Training can also ensure that key expertise isn’t underdeveloped, but rather shared. And, lastly, upskilling means that your expats are likely to develop even more loyalty for your company over time. With employee mobility reaching new heights, which can trouble your employee retention rate, many have predicted that the likes of training opportunities can actually help keep employees loyal. For example, local language training and support can help expats both personally assimilate into foreign cultures but will enhance their business performance too. With supportive training, expats can more smoothly integrate into foreign cultures, which will assist both personal and professional developments.

Nowadays, many organizations invest in people, as much as markets and other valuable opportunities. Training and development, as a favorable incentive, suggests that your company is more committed to its people, their skills, and the contributions they make. While your international reward strategy and expat compensation can align, the types of benefits available for this type of employee might be more creative in order to align with local laws and culture. The Chartered Institute of Personnel and Development (CIPD), for example, recognizes how there are cultural differences that can impact the material benefits of a compensation scheme. Likewise, firms can get creative about both “financial and non-financial comments”, including expatriate pay.

3.     How Mobile is Company Culture?

Incentive programs can balance creativity and strategy in meaningful ways. One way to encourage employee productivity and workplace happiness is through a thoughtful company culture. Your culture has the power to not only attract talent, but retain it. Your culture can be as specific as an invitation to gather outside of work, or as broad as maintaining transparency and openness. Ultimately, mobility is a unique feature of culture, rather than a product of a company. It describes the passion and progression of a workforce and how quickly its energy and spirit can pass between colleagues and other professionals.

The importance of a healthy corporate culture cannot be understated; it brings people together, empowers their work, and fortifies company values.

But is culture-building an effective strategy for expats?

It may seem irrelevant to focus on culture when it comes to attracting employees for international assignments. Yet, when establishing a reputation for your firm in a foreign market, its culture is key in building a healthy perception to personnel and consumers. Your expats should embody values and help to mobilize your company culture and allow this to feel consistent no matter where your business expands to.

Home based-pay vs host country pay rewards

One of the major decisions impacting the compensation of expats is the role of wages and whether it will reflect home-based pay or the host country pay. Both have unique advantages and are foundational in building expatriate compensation packages that attract, retain and meaningfully stimulate those on international assignments.

A case for home-based pay

This describes where the employee’s rewards reflect the typical compensation packages on offer in their home country but are adjusted to housing costs, living, taxation, and further allowances relevant to their assignment in another country. This should be carefully negotiated as it can create inequalities between expats and other employment types.

A case for host country-based pay

This describes where rewards are built based on common compensation packages in the assignment country, as opposed to their home country.

Should compensation be set centrally or per subsidiary?

This decision will determine what can be offered for attracting those to international assignments. The CIPD, as a general rule, suggests that each have unique opportunities and should be considered when finalizing international reward strategies.

There are many advantages to assigning compensation centrally, such as consistency and more direct control over costs, but at the expense of tailoring packages to host-country benefits. This might exclude diversity, so it should be considered carefully.  

If your strategy permits each subsidiary to adjust its rewards based on local laws and culture, then you can ensure compliance. Yet, contrasting centralized models for reward incentives, this can breed inconsistency and rising costs.

A balanced approach would set central rewards and allow subsidiaries some authority to adjust to the local regulatory environment of the assignment. This maintains operational consistency, whilst ensuring compliance is reaffirmed and that expats are given freedoms to benefit from localize perks like language support.

There are a lot of considerations before developing an international reward strategy. What defines a reward in your organization? Should rewards be established, managed, and administered centrally or regionally? What non-financial incentives can be offered? With expert consulting, your international reward strategies can be benchmarked competitively to attract and retain key skills and employees.

Working with IRIS FMP

With the promise of new talent markets, businesses will need to anticipate the challenges and fortify themselves with attractive incentives captured in reward strategies. This is not always easy to navigate without the expert consultation of global HR specialists like IRIS FMP. If your operation is expanding, make sure you have the right partners to help deliver you to these new markets.