18/3/2009
Despite tough economic times, HR professionals can’t stand still with regard to one of their most valuable assets — their expatriate workforce.

A recent Mercer survey indicates that the number of employees on international assignments doubled from 2006 through the end of 2008 as part of a continuing trend toward globalization. According to Mercer’s 2008/2009 Benefits Survey for Expatriates and Globally Mobile Employees:

• 47 percent of companies said they had increased the deployment of traditional expatriates (employees on 1- to 5-year assignments).
• 38 percent reported an increase in “global nomads” (employees that move continuously from country to country on multiple assignments).

At the same time, recruiting and retaining talent might be even more challenging in the years ahead. According to a recent KPMG study, it’s not just the global economy that is contracting, so is the global labor pool. The study, The Global Skills Convergence: Issues and Ideas for the Management of an International Workforce, indicates that we will see a contraction of the labor pool during the coming decade — affecting countries such as Japan, Australia, Canada, China, New Zealand, the United Kingdom, United States and much of Western Europe.

Expatriate employees play a critical and increasingly important role in managing and maintaining global operations. However, once the global economy is back on its feet, it's clear that multinational corporations will still be facing a skills challenge abroad. This will make fielding a capable and committed expatriate workforce to manage and work with overseas offices even more challenging. Indeed, expatriates might be not only invaluable but also irreplaceable in the near future.

The good news is that domestic and global companies have long recognized that benefits and compensation are key determinants of employee productivity and satisfaction — and, as a result, retention. The Mercer survey bears this point out as the majority of companies surveyed (86 percent) consider benefit provision for expatriate employees a medium or high business priority.

Given the critical role that compensation and benefits play, multinational companies need to focus on putting a solution in place that streamlines compensation management and administration and helps expatriates understand and value their total compensation package.

Lower Costs, Improved ROI

Solutions that can automate global compensation management efficiently should be viewed as a strategic investment, especially as HR faces increasing pressure to be less of a cost center and more of a return-on-investment (ROI) contributor. Despite conventional wisdom, according to the Towers Perrin 11th Annual Study of HR Service Delivery Research Report, companies continue to invest and find value in HR technology systems despite current economic challenges.

While expatriates are operating under different policies and arrangements and in multiple currencies, they are subject to different employment laws and taxation structures. A global compensation management solution can be key to ensuring the accuracy of calculations, holding down costs and improving ROI.

Not only do multinational companies need to account for exchange rates, many expatriates also elect a split-pay option where they may allocate which allowances—even what percentage of each—should be paid in their home-country currency vs. host-country currency. Given the fluctuating status of the dollar and the turbulence in the economy, many expatriates carefully monitor how their allowances are distributed and, in many cases, can frequently change the distribution of their allowances. There are few, if any, regulations governing these distributions, and multinational companies are more than willing to extend this flexibility to expatriates to improve retention.

On a feature-specific level, a global compensation management solution should offer the following functionalities:

• Easily review compensation and taxation information in various currencies.
• Easily identify exceptions or regions with unique practices through the use of standard compensation templates that highlight modifications.
• Easily manage and update employee split payroll requests.
• Extract data in a format best suited to each end user’s needs — i.e., payroll or human resources.

From an employee perspective, adding an element of self-service — whether it’s the ability to track benefits or change compensation allocations — can provide expatriates with a level of transparency. Moreover, such transparency offers reassurance by providing a clear picture regarding figures and calculations and a full understanding of the value of the compensation being provided. In short, communicating the value the organization places on each expatriate promotes a sense of commitment and stability, which can contribute to retention.

From an ROI perspective, a global compensation solution can provide HR with a means to collect data and compile reports to monitor a number of areas to ensure that the company is not incurring added expenses, for example:

• Tax equalization. When employees go on international assignments, employers often choose to assume liability for foreign taxes. This ensures that expatriates neither suffer financial hardship nor collect a windfall as a result of varying tax structures in different countries. Employers typically pay taxes in the home and host location and deduct a hypothetical tax from the employees' pay. The hypothetical tax is an estimate of the taxes the employees would have paid if they had continued working in the home country. On an annual basis, HR should work closely with payroll and other departments to monitor and reconcile these tax payments to identify instances where employees might have been overpaid or underpaid in terms of tax equalization.
• Assignment budgets. Using a technology solution to manage budgeted vs. actual expenses and compensation for an assignment can help identify areas where costs are too high, or which assignment locations cost the company the most. In turn, this information can help HR determine how to reduce expat packages on an individual or geographic basis. In addition, monitoring and tracking can serve as an advanced warning system to indicate when the dollar amount that was initially set aside for the assignment is being approached. 

Retention Reinforcement

Multinational companies that fail to invest in human capital will likely find themselves short on talent and innovation when the global economy takes a turn for the better. To that end, banking on a global compensation management solution can help HR streamline administration, keep tabs on ROI and—perhaps most important—reinforce the message that the organization clearly values the contribution of each expatriate employee.

Thomas Shelton is the founder and president of HRToolbox Inc., based in Atlanta, a provider of web-based solutions for managing payroll, benefits and compensation for a global workforce.