Ensuring pay levels are right for staff posted abroad

Detailed research is needed to ensure pay levels are right for staff posted abroad, says Scott Beagrie

Determining pay levels for staff on foreign assignment presents many challenges for HR and reward professionals, particularly when the posting is to an entirely new region or territory for the organisation. They must ensure an employee has enough incentive to go there in the first place, that they can live there comfortably without suffering any financial hardship, and that it does not turn out to be an unduly expensive exercise for the employer.

The good news is there is no shortage of resources available to help, so employers must decide on the best way to acquire the most relevant information for their organisation and circumstances, as well as making sure it is reliable.

Benchmarking data

For larger global organisations, the most obvious and reliable source is salary benchmarking data from international assignment specialists, such as ECA International, or global HR and consulting firms, such as ORC Worldwide, Watson Wyatt, Mercer, Hewitt Associates or Towers Perrin. Much of the data from these sources comes at a premium, but will typically detail salaries for specific job roles, sector by sector, for countries around the world.

Each consultancy, and the databases it holds, will have its own individual strengths, so employers still need to research the market thoroughly to discover the most appropriate source. They should ascertain that the consultancy has expertise in both the countries and sectors they are interested in and whether any player is pre-eminent or considered the market leader in this region.

Salary details for common job roles are likely to be similar across the board, but for more specialist roles in specific sectors, employers should bear in mind sample sizes can vary. The rule is: the bigger the sample, the more accurate the data will be.

Salary levels

Salary levels are most likely to be determined by the duration, type and destination of the assignment. This will also probably dictate whether staff are offered a host- or home-based package. The latter is favoured for short-term or commuter-type arrangements, while the former will pay them as if they were nationals in the locality. Another factor to consider is general salary levels in the host country, says Peter Reilly, director of research and HR consultancy at the Institute for Employment Studies. “If [employers] are sending people to the US, Germany or Switzerland, because these are relatively high payers in the world, they can get away with a host basis nine times out of 10, but if they are talking about countries where salaries are low, it can be difficult.”

Many consultancies also provide other proprietary compensation calculation options that can remove some of the legwork. For example, ORC Worldwide’s Local-Plus product bases the employee’s salary on host country pay levels but will add expatriate-type perks, such as schooling or housing allowances.

If published data on the country in question does not exist, employers could independently commission a local consultancy or market research company, but the potential risk here is the firm might have an unproven track record, making it more difficult to verify the integrity of its data.

Rigorous comparison

Alternatively, employers could identify UK pay specialists with links to domestic providers in the countries on which they are seeking information. Andrew Walker, business director at Croner Reward, says this enables such companies to carry out rigorous comparison exercises.

Whatever the source of the information, it is fundamentally important that employers understand and can interpret the data they are looking at, says Carole Hathaway, senior consultant at consultancy Watson Wyatt. She points out it is not always as straightforward as looking at base salaries, for instance, because some countries have 13-month payments, while others have allowances that are commonly paid on top of base salaries. In addition, it may be uncommon practice to pay salaries in the local currency.

“The structure of compensation in each country needs to be borne in mind,” says Hathaway. “Make sure you are comparing like-for-like. If employers are looking at data on Hong Kong, one survey may contain housing allowances alongside base salaries, while others show it as a separate amount.”

Read more articles from: Special report 2010: international reward