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May 10, 2006
Globalization and the Future of Expatriate Compensation
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By Catherine L. Moreton, J.D.

Managing expatriate compensation programs has always been complex. However, changes in the marketplace will require compensation professionals to consider new and more flexible methods for compensating employees who accept assignments in other countries, says Geoffrey Latta, executive vice president of ORC World, in his presentation at the 2006 WorldatWork Total Rewards Conference.

According to Latta, during the 30 year period from 1960 to 1990, companies had very structured expatriate pay programs designed around international assignments that lasted from two to five years. However, said Latta, the traditional ideas about expatriate compensation are changing.

Latta asserts that changes in expatriate compensation are being driven by a number of factors including that:

  • International assignments may be in any part of the world whereas it used to be more common to assign expatriates to the Europe or from Europe to the United States
  • Expatriates may be from any country in the world and there expectations related to compensation will vary widely
  • Many international assignments are in less developed parts of the world and/or in places where there is endemic discrimination, e.g., discrimination against women is prevalent in certain countries
  • Expatriates are often forced to consider dual career issues because they have spouses who will have to put a career on hold to move to a new country
In addition, companies are being more flexible in how they structure international assignments including offering short-term assignments of one year or less, and options for employees who do not want to relocate their families such as commuting between their homes and the new work location on weekends. Large multi-national companies also might have a group of employees who move from one international assignment to another.

One problem raised by this more diverse population of expatriates is how to handle differences in pay when, for instance, individuals are transferred from a less-developed country to a country such as the United States where pay rates are among the highest, and vice versa. In addition, in some of the less developed countries expatriates may face security concerns or concerns over schools for their children. According to Latta, expatriate compensation programs must be flexible so they can be customized to unique sets of circumstances. In addition, depending on the country, base salary may be only one small portion of the total compensation picture that must be considered when giving an individual an international assignment.

Latta offers the following predictions about the future of expatriate pay programs:

  • International assignments will be available to more junior employees at the earlier stage of their careers
  • Increases in short-term assignments (one year or less) will continue
  • There will be more single-status assignments, e.g., family members will not relocate and the employee may be in a commuter situation
  • Large companies may develop small cadres of international employees who move frequently from location to location.
He also notes that as individuals from less-developed countries take assignments in the United States and Europe, the cost of expatriate compensation may actually come down because the international employees are coming from places where pay rates are much lower. Latta notes that companies will likely have to have expatriate programs that accommodate the traditional model, but also address short-term assignments, employees who commute home on weekends, and individuals who make a career as international employees. At the same time, he says, there will be a greater emphasis on measuring the success of expatriate programs. Measurement of success includes cost, and equally important they include attrition rates for employees returning from international assignments.
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