Expatriate Ranks Grow Despite High Costs

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Despite high costs, a majority (64%) of US and Canadian firms with international operations sent more employees to work abroad in the past two years, a trend that is likely to continue as business becomes even more globalized, according to a survey by international benefits consultant Foster Higgins.

The survey queried US and Canadian employers on the full range of expatriate benefits policies — from allowances and tax issues, to home leave and language training. It found that while 64% of the companies surveyed sent more employees on expatriate assignment, nearly one-third (32%) said such assignments cost too much. Many companies (34%) also said their expatriate compensation and benefits policies have been cut back in recent years in an effort to manage costs.

“Employers are taking important steps to manage the potentially high costs of expatriate programs,” said Bob Braddick, a principal with Foster Higgins. “They’re making sure that their benefit programs aren’t excessively rich, and that each expatriate assignment fulfills a clear set of business objectives.”

According to the survey, the average employer spends about two and one-half times as much on an expatriate employee as it would to hire a citizen of the host country (a local national). One reason is that most assignments go to high- or mid-level employees. The cost differential can be smaller or greater, depending on the country. For example, respondents spent 23% more, on average, to send an employee to Holland and 283% more to send one to Korea, compared with the cost of hiring a local national.

Formal policies

Most (85%) multinational employers have adopted a formal policy for the uniform treatment of all expatriates. Among these companies, 84% say their compensation and benefit objective is to “make the employee whole”; only 8% say their aim is to reward the employee for taking an expatriate assignment. Even fewer (3%) say they are trying to match or exceed competitors’ benefits. And while almost all respondents (95%) say that expatriates are subject to US tax equalization, only 19% say tax equalization is provided on a spouse’s income.

When international assignments are intended to last less than a year, expatriates normally continue coverage under their home country compensation and benefit plans, while those on permanent assignment usually participate in the plans of the host country. Practice varies widely for expatriates on assignments lasting two to five years; in some cases, such employees are covered by a separate program.

Almost all surveyed employers (93%) pay an allowance if the cost of goods and services is higher in the host country than in the home country. This allowance is typically adjusted when the exchange rate changes significantly. The average allowance reported by survey respondents ranges from 10% for employees on assignment in Australia to 50% for expatriates in Japan.

More than nine in ten respondents (93%) provide a housing allowance. More than half (58%) pay a hardship allowance (averaging 15% of pay) in countries where living conditions are extremely uncomfortable or dangerous. Most employers (76%) reimburse expatriates for the extra cost of providing an education for their children comparable to that available in the home country (22% of pay, on average).

Cost control strategies

One cost-control strategy is “destination pricing,” whereby expatriates are paid as citizens of the host country and have limited special allowances or tax protection. Although only a small number of surveyed employers (11%) currently use destination pricing, one-fourth said they may consider it in the future.

Another strategy is outsourcing the administration of benefit and compensation programs for expatriates. While only a handful (8%) of respondents say they currently do so, almost one-third (32%) said they may consider it in the future. Under outsourcing arrangements, only policy-setting, strategy, and program design are handled by internal staff, with an outside vendor handling all administrative functions.

 

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