Debi O’Donovan, editorial director, Employee Benefits: Reward strategies for expatriate assignees changing while the number of expatriates are growing – from both the developed and, in particular, the developing world.
This week I attended an enlightening Seminar on Managing International Assignments organised by the Chartered Institute of Personnel and Development (I say enlightening, primarily because this is a relatively new area to me).
Our first speaker of the morning was Professor Stephen J Perkins of London Metropolitan University, who suggested that employers ask themselves if they have a total reward strategy for their expatriates.
For example, Perkins suggests that a key question employers need to ask is: Are you thinking about the expatriate’s career as well as their reward? If employers do not use total reward, then they risk losing assignees to whichever company is willing to pay the most.
However he acknowledges that some expatriates still focus on pay rather than total reward. These he labels ‘entitled’, because they feel entitled to a certain level of reward and get pretty grumpy if they don’t get it and the ‘benevolents’ who look at the assignment more broadly and are not only tied in by reward, but also weigh up career development and other aspects of the psychological contract they have with their employer.†
A focus on business need
Speaking at the same CIPD event, Natarajan Sundar, director of Orgdesign, looked more closely at business need and how it shapes an expatriate policy in each organisation. “Business context has an enormous impact on what you do,” he said, before going on to give several examples of how specific businesses have shaped their expatriate rewards strategies:
A large oil and gas exploration and production company uses a policy of paying whatever it needs to incentivise movement of staff, within a consistent framework. It is cash-rich in a skills-limited industry working in difficult locations.
A global consumer giant has changed its policy. Previously it had several expatriate compensation systems that was costing the company £500m incremental cost per year. Now the focus is on assignments of no longer than 3 years where expatriates are tasked with developing local staff to take over.
A company formed out of the merger between an emerging economy company and a western company is focussing on having a minimum number of assignments in each direction each year. Instead of basing pay on the country of origin, it pays whichever rate is higher – home or host country. This is costly for each individual, but is justified in the interests of developing a unifying company. The company said ‘cultural integration is important, so lets do something to make it easier’.
A key challenge for HR and reward managers is the growing impact of expatriates from the developing world. So already a mentality of sending Western expats to run offices in the developing world is outdated, and is being replaced with two-way traffic. In addition, employees is developing countries no longer accept lower reward packages for the ‘privilege’ of working for a large blue chip in a developed country. This new global view is therefore changing the shape of reward package for international assignees.
Case study: BP
Carole Crossley, VP HR international mobility, BP
An oil, gas, petrochemicals and renewable company
98,000 staff with operations in over 100 countries
3,500 expats in over 60 countries, from 55 different home countries
large number of international contractors which can influence pay
Carole Crossley, VP HR international mobility, BP has a very firm view on expatriates and their cost to the business: “Our philosophy on costs on expats is not to send someone in the first place. Once you decide to send an expatriate it is going to cost you, because we believe in giving them full support.”
But it is not her decision who goes; at BP it is the individual business which owns the decision on whether and who to send.
BP tries too use two-way movement transfer. For example, in Angola, BP aims to be seen as an Angolan company with Angolan staff. But there are currently not enough engineering graduates in Angola (there were 15 last year) so BP has to send in expatriates from elsewhere. However, they also send Angolan BP engineers out as expatriates to other countries to further develop their skills to take back to Angola.
BP’s basic reward follows a balance sheet process and differentiates on pay according to performance. However, assignment terms are the same for people on the same grade and do not vary for performance.
In some parts of the business there is a real focus on global pay rates. For example, with exploration engineers in Trinidad, there is a strong pull for them to want to work in the USA unless they are paid to stay in Trinidad.
BP also has to overlay hardship allowances with additional pay for ‘demand locations’, that is locations where is a high demand for skills and BP needs to drive people to work there. “The businesses love this because it is a direct link between business numbers and HR,” explained Crossley.
Overall BP tries not to base pay on an expatriate’s home country and instead tries to be “blind to home country”.
“We want people who are working alongside each other to know that they are getting similar pay.”
Case study: Brown-Forman Europe, Beverages
Kim Miller, HR director – international, Brown-Forman Europe, Beverages.
One of the 10 largest wine and spirits companies in the world
4,200 staff in 55 countries
2,000 staff outside the USA
Operate as a multinational rather than a global company
Brown-Forman only sends people on expatriate assignments if they will add value; and the company continually appraises this.
It also has a policy of† allowing someone to be an expatriate in† a particular country for a maximum of five years. If they decide to stay on beyond this, they are localised. “You can imagine the confusion when the person has to go from an expat package to a local one,” said Kim Miller, HR director – international, Brown-Forman Europe, Beverages.
The drinks company uses international assignments to develop staff and increase their flexibility across the business. This ability to move in different cultures and spheres is essential to the function of the business, explained Miller.
Brown-Forman has a very robust assignment policy that covers compensation and benefits.
Part of the deal is repatriation after the assignment. So right from the date the expatriate leaves for their assignment, their managers are thinking about where the expat will be placed on their return.
Expatriates qualify for extra benefits such as a pre-assignment visit to the country they will be sent to (along with their family). “We do a lot of pre-work with all our expats,” said Miller explaining, that the aim is to spot any potential problems before, rather than after, the expat is posted.
Other extra benefits include: accommodation, relocation costs, medical cover, company car, home leave, cultural awareness training, language training (also for spouse and family), education allowances and spouse allowance.
At Brown-Forman, there is a keen focus on spouses and families to accommodate any work-life issues. In some cases even a job for a spouse has been arranged. “We are very people-oriented at Brown-Forman, we look after the whole family,” explained Miller.
In the past 6 months Brown-Forman has had 3 expats (from a pool of 35) return home to the USA after postings in Europe. All have brought back strong experience and moved into more senior roles.
†More articles on international benefits and reward management