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Assessing Expatriate Selection


How does your company choose its candidates for international assignments? The answer may determine its success – or failure – in the global market.

At the beginning of the American Civil War, President Lincoln had a crucial decision to make about who would lead the Union army – McClellan, Sherman, Grant, Burnside, Sheridan? Lincoln’s first choice was Robert E. Lee, but Lee decided his loyalty lay with the Confederacy and his home state of Virginia. Lee’s decision – and Lincoln’s subsequent loss of the best person for the job – had tremendous consequences that still influence American society today.

Finding the right person for the job can have similar implications for American businesses. In fact, candidate selection is one of the most important activities an organization can perform. It supports every strategic business objective and tactical goal. It ensures the organization has the talent, technical skills and abilities to manage every function and perform every job, in both the short- and long-term. The company’s current health – and its future growth and survival – depends entirely on the people it chooses to respond and react to the functions and external conditions affecting the company.

Yet when it comes to international assignments, few companies today give candidate selection the attention it deserves. In ninety-eight percent of the companies responding to Selection Research International’s 1995 Survey of International Sourcing and Selection Practices, line managers interview candidates for international assignments using “technical skills” and the “willingness to relocate” as their chief criteria. However, when asked to determine the principal factors contributing to failed assignments and ineffective performance, these same companies pointed to “personality characteristics” and “interpersonal style” as the culprits.

The survey also reveals that the line managers have minimal training to interview for international positions, and that few rely on the results of a formal assessment protocol. None of the companies responding to the survey has a competency-driven system in place to integrate selection, training and development, and performance management.

But the hard truth is, without the necessary employee selection processes in place, America stands little chance of competing successfully in the global market.

International competencies, conditions and factors

International “competencies” are the characteristics or conditions that enable a candidate to adjust to new and novel situations, i.e., moving to another country. They also determine the candidate’s suitability for a position in an operation outside the employee’s home country. These competencies are the independent variables that initiate and sustain the dependent variables – successful adjustment and job performance. They are characteristics formed and shaped during an individual’s life and as such, occur as an inseparable configuration.

Another major category intimately linked to characterological factors is familial conditions – the accompanying spouse, children, and other relevant relationships. Companies must evaluate these factors as well if they are to predict how a person will perform in a different business context, culture and environment.

If the ability to live in different places and speak other languages, an intellectual curiosity and an interest in different cultures aren’t the principal factors for international success, what are? What, for example, enables a couple who have lived their entire lives in small-town Texas to move to northern England and do a terrific job by the standards of the corporation, customers and co-workers in the host country? To predict how well individuals will adapt to a foreign environment, we have to look at the ways they think and act, what they tell us about their beliefs, and how they manage tasks, make choices and interact with other people.

Except for a two-year assignment in New Jersey, the Texan couple in our example had spent most of the relocating employee’s career living in a small town with a population of 300. Neither had attended college or taken courses in “International Affairs” or “Literature of the World.” In light of the current simplistic definition of the “global manager,” their cultural exposure and sense of adventure seem limited.

What they did have, however, were internal resources that were undaunted by change. Both were involved in volunteer work because they believed it was important to contribute to their community – not because other company executives were involved. After working a sixty-hour week, the employee drove around on the weekends with his spouse picking up used clothing and furniture for her church rummage sales. They delivered food packages to the needy during the holidays. And, their religious beliefs dictated that people were to love their fellow human beings, regardless of background or upbringing.

The couple confessed that their move from Texas to New Jersey had been a real shock. Until that time, they had not known a person who was Jewish or Italian, yet in New Jersey, they lived in a predominantly Jewish community. Their children attended Hanukkah services, and in turn, invited friends to their house to celebrate Christmas.

When the family moved to the UK, they carried these same attributes with them. The wife joined the local British animal protection association. She also volunteered in community groups and at the school her children attended.

At work, the unionized British employees indicated to the company’s American management that they appreciated the husband’s interpersonal style. The couple was offered another three-year assignment, which they accepted. They still haven’t read the International Herald Tribune.

What can we learn from this couple? International adjustment and job performance are separate areas of competence that share certain foundational personality characteristics. Such characteristics include confidence and emotional maturity, social intelligence and interpersonal skills, critical thinking and decision making, the ability to handle novel situations and conditions, independence and self-reliance. They also encompass the ability to become interested in something without making quick, critical judgments — or knowing when not to express such judgments when they do exist. A person can be self-focused and live under the delusion he is tolerant, whereas a person who is intolerant and knows it, but acts with social sensitivity, is in reality the more tolerant individual.

The right tools for the job

How can companies ensure they find the best candidates for an international assignment? They can use an assessment protocol that involves a series of formal evaluation techniques, and assessors who have the appropriate education, training, qualifications and experience. The assessment protocol should be a research-based model capable of identifying relevant information about the candidates so employers can make legally defensible performance-related decisions.

Used correctly selection technology accomplishes several objectives. It allows the couple (or single employee), to make a well-informed decision by reviewing the present course of their lives. They can evaluate whether they and their family members are ready to relocate, or if they have needs and concerns that need to be addressed, either by themselves or with the company’s assistance.

It also helps the company identify and define the candidate’s and spouse’s skills and abilities for each of the factors or competencies. Only then can the company determine what training programs the couple may need, and tailor these programs to the couple’s strengths and deficiencies relative to the country and job. Unless these personal resources and abilities are properly assessed, it’s unlikely that training will be effective where issues do exist.

Formal assessment results also can be used to create a general pool of prescreened international candidates, identify global management/leadership talent, and create developmental plans. Equally important, they allow the company to address repatriation upfront by knowing how to manage an employee’s assignment in relation to organizational planning.

Beyond paper-and-pencil testing

Although people like tests with graphs and numeric ratings, because they look scientific, expatriate assessment is a complicated process that doesn’t fit into a simple paper-and-pencil test. Edmund Gaydos, Ph.D., Director of Assessment, Management Training and Development, and Organizational Development at Anheuser-Busch Companies does a good job of explaining why: “The more a company relies on paper-and-pencil testing, the less sophisticated is its assessment process. Numeric ratings give false precision. All tests are inferential; they cannot tell you how a person will actually compensate or act in a situation. The company must gather rich information about the person: from the employee and spouse, from the supervisor’s evaluation of the employee’s performance, through the Human Resources staff and a formal top line assessment…”

Expatriate assessment is a series of screening gates that give direction and meaning to subsequent training and development activities. Assessment provides areas with which companies can align compensation and performance evaluations, and it can be used to set guides for performance management during the assignment. It also eliminates personal and group biases, and deadline pragmatism from critical staffing decisions. Most important of all, it enables the company to carry out the succession, career and organizational planning so vital to its long-term prosperity.


Employee Home Sales by Relocation Companies – A Tax Benefit or Not?


Employers turn to third-party relocation companies for many reasons, but should tax savings be one of them?

Many employers today use third-party relocation companies to help their employees make job-related moves. While there are many good reasons to take advantage of such specialized expertise, tax benefits usually isn’t one of them.

Even before the new moving expense rules took effect on January 1, 1994, the tax issues surrounding employer-provided home sale reimbursements were a tremendous source of confusion for employers. The tax treatment of such reimbursements – both those made directly by the employer and those made through a third party – have been the subject of several court cases and many IRS rulings over the last 20 years.

The typical homesale arrangement

In a typical employee homesale program, the relocation company purchases the employee’s old residence at a fair market value, which is generally based on an average of two or three independent appraisals. The company pays the carrying costs and selling expenses until it ultimately sells the home. The employer pays a fee to the relocation company that is designed to cover a performance fee as well as the carrying costs and selling expenses. Most agreements also stipulate that the fee will include a reimbursement for any loss the relocation company realizes on the sale.

For tax purposes, the employee reports the sale of his home to the relocation company in the same way as he would treat an independently arranged sale. If he has a gain, it generally will qualify for deferral if he reinvests the proceeds in a new principal residence within the required time limits. The employer is entitled to deduct the entire fee paid to the relocation company as an “ordinary and necessary” business expense. Since no compensation is reportable, there are no gross-ups incurred.

Variations on the theme

Some programs provide that if the employee is able to arrange an independent sale at a higher price than the relocation company has agreed to pay, the company will buy the home at the higher price and resell it to the designated buyer. When this happens, and there are sales commissions that, according to local custom, are the seller’s responsibility, the employee will be charged with income to the extent the sales commissions are paid by the relocation company. Since real estate expenses are no longer deductible as moving expenses, this compensation will be subject to tax gross-up.

Another variation is where the relocation company agrees to repay the employer if the employee’s residence is ultimately resold at a gain. In such cases, the Internal Revenue Service has ruled that the relocation company is acting as the employer’s agent, and the employer is actually the purchaser and reseller of the employee’s home (Letter Ruling 9036003, 5/31/90). The home is treated as a capital asset held for investment by the employer, which means that the amounts paid to the relocation company for carrying costs, selling expenses, taxes, etc., are nondeductible capital expenditures that must be added to the basis of the property. The following example illustrates how this type of situation should be reported:

Example: Relo, Inc., buys Mr. Hobbs’ home for $155,000. Three months later, the home is sold for $175,000. During the three months between the purchase and sale dates, Relo, Inc., made the following payments:


Carrying costs               $ 3,600
Repairs                          300
Closing costs                    800
Selling expenses              10,500
Transfer taxes                 1,500
  Total                      $16,700

The gain on the sale of the home is $20,000 ($175,000 less $155,000). The employer paid Relo, Inc., $1,400 broken down as follows:


Service fee                 $  4,500
Appraisal service fee            200
Carrying costs/repairs         3,900
Expenses re: sale             12,800
  Subtotal                   $21,400

Less: the credit
   for gain on sale (20,000)

  Total                      $ 1,400

The employer should report the transaction as follows:


Gain on sale

Gross sales price           $175,000

   Closing costs                 800
   Selling expenses           10,500
   Transfer taxes              1,500 (12,800)
Net sales price             $162,200

  Cost                      $155,000
  Carrying costs/repairs       3,900  (158,900)

Short-term capital gain     $  3,300

Ordinary and necessary business expense

Service fee                  $  4,500
Appraisal fee                     200

Ordinary deductible expense  $  4,700

Direct purchase and resale by employer

If the employer has a homesale program in which it purchases an employee’s home directly (i.e., without using a third-party relocation company), the tax result to the employee will be the same as if a relocation company had been involved. The employer recognizes a capital gain or loss, computed as shown in the earlier example. The only difference is that no ordinary deductible expense results since no service fees are paid.

The bottom line

The accompanying chart, Tax Treatment to Employer, summarizes the basic tax treatment to an employer of each element of an employee homesale program where (1) homes are purchased and resold by a relocation company, and (2) the employer buys and resells them directly.

The principal tax difference between the direct and third-party methods is that when the employer is the purchaser/reseller, the carrying costs, selling expenses, and ultimate gain or loss are all rolled up together and reportable as a net capital gain or loss, in contrast to being deductible as an ordinary expense. This may cause timing differences between when the cost is paid or incurred, and when it may actually be reported in a tax return; it may also create more administrative and accounting burdens, but generally, no tax impact will result.



Tax Treatment to Employer

Transaction Description Relocation Company
Purchases Home
Employer Purchases Home
* Sale proceeds paid to employee None Acquisition of prop. held for investment
*Sales commissions paid on sale pre-arranged by employee Compensation subject to tax gross-up Compensation subject to tax gross-up
*Services fees paid to relocation company Ordinary deduction Not applicable
*Carrying costs paid to relocation company/directly by employer Ordinary deduction Added to home basis
*Selling expenses paid to relocation company/directly by employer Ordinary deduction Added to home basis
*Loss on home sale paid to relocation company/realized by employer Ordinary deduction (see Note: below) Capital loss
*Gain on home sale repaid to employer All transactions treated as if employer purchases home Capital gain, net of carrying costs and selling expenses

Note: If the employer’s agreement with the relocation company provides that the employer will be reimbursed any gain on sale, all transactions will be treated as if the employer had purchased the home directly.


Expats Relocating to Hong Kong: Where East Meets West


Its Chinese heritage and 150 years of British rule have given
Hong Kong an interesting blend of Eastern and Western culture.

No one is quite sure how Hong Kong’s 1997 reversion to Chinese rule will impact its current capitalistic business culture and democratic values. For now, perhaps the best way to understand Hong Kong is to think of it as a Chinese culture influenced by Western practices. Although its traditions and values are comparable to China’s, Hong Kong Chinese are more individualistic and take more risks than their counterparts in most other Asian societies. Following are some key themes that will help your expats better understand the Hong Kong culture.

Group-oriented individualism

In an individualistic society, the emphasis is on the rights, desires and goals of each person. Individuals pursue a career and a way of life that is best for them — and which takes priority over the needs of a company, a community, or sometimes even a family.

In a collectivist society, the emphasis is reversed. Group needs take precedence over individual desires, thus one who pursues individual goals or attention is often looked down upon.

Hong Kong is an interesting mix of both societies. Considered the financial and marketing capital of Asia, it is fertile ground for consumerism and entrepreneurialism, and this is reflected in the business-oriented style of its people.

At the same time, the collectivist ideals of several thousand years of Chinese history have given the people of Hong Kong a sense of loyalty to the group; they may pursue individual goals in terms of a their careers, but remain loyal to one company. The family is also a strong influencing factor.

On the ladder of life

As is true in other Asian nations, fixed hierarchical relationships are respected in Hong Kong, and preserving social harmony is important. People are expected to adhere to a certain decorum or behavior that includes showing respect for others and accepting the obligations that come with one’s position in the hierarchy.

This emphasis on hierarchy is reflected in the writings of Confucius, who taught that each person has a fixed place in the social order, with attendant obligations and responsibilities. It is also seen in the Chinese language. For example, there is no simple word for brother and sister as there is in English. Instead, there are more specific words for siblings that indicate whether a brother or sister is older or younger than the speaker.

The importance of face

Although the concept behind the value of “face” is not new to Americans, who understand the expression “to save face,” it is the key to a deeply held Asian value. People in Hong Kong go to great lengths to avoid calling attention to errors or emotions that may cause embarrassment to themselves or others. To damage another person’s face challenges that person’s position in the hierarchy, which, in turn, threatens the social order.

Culture and communication

While Americans have been taught to be direct, businesspeople in Hong Kong are seldom confrontational. They prefer to communicate indirectly, and whenever possible, will avoid saying the word “no.” They also use more nonverbal cues, or may simply suggest that a matter be given “further study” in order to avoid a negative reply. Open-ended questions are preferred, since they don’t force a person into a corner.

One good turn deserves another

There is no exact translation into English for the Chinese concept of guanxi, but it can best be thought of as a structured interdependence in which people provide reciprocal assistance for each other. When one person does a favor for another, he expects that person to provide some type of unspecified assistance in return. Guanxi relationships may exist with the clerk in a neighborhood store, with local government officials, or with business associates.

Life perspectives

Since the Chinese civilization dates back 4,000 years, the people of Hong Kong have a longer view of time than do many Westerners. In business, they are more apt to be influenced by the past and the long-term future. Although bottom-line profits are important, there is an emphasis on developing relationships over time that are based on trust. Also, events that occurred long ago in the Western view may exert a stronger influence on the Chinese.


Confessions of a Former Transferee: How I Viewed the Appraisal Process


The relocation appraisal can be a major source of conflict between employers and their transferring employees. Here’s one transferee’s story – and what you can do to avoid a similar situation

Years ago, I accepted a job transfer to a new location, and the relocation process began. During the next several weeks, I suffered through endless inspections – by appraisers; realtors; radon, structural and termite experts – who looked through every closet and corner of my home. I reminded myself “this too, will pass,” and that I’d soon be settled comfortably in my new home, relishing the challenges of my new job.

Then I got the call. As a corporate relocation professional, you know the call I mean: the one where I learned about the average of my two appraisals and the Guaranteed Buyout Offer being made on my home. Stunned and angry, I stormed into the HR department. My recently anticipated relocation had just turned into a nightmare.

“That relo company is trying to buy low and sell high!” I screamed. “I had an appraisal done for a second mortgage a month ago and that was $10,000 higher! Why can’t I use that one? And the appraiser says the interior needs painting, but I just painted it!”

Sound familiar?

Like most transferees, I had taken the situation personally. My reaction had as much to do with the appraiser’s lack of appreciation for my newly painted cinnamon-red living room walls as it did with the financial loss my husband and I would take on the home, the results of a real estate market gone sour.

Ironically, at the time, I was a real estate appraiser myself, and had faced the same reaction from other transferees. I’ve learned, however, that although you and I may understand the basic principles of the relocation appraisal, your transferees often don’t. And sometimes, even if they do understand, their emotions override their reason.

Educating your transferees about the relocation appraisal before it takes place can save you a great deal of time and trouble. Most transferees will realize that while the differences between a mortgage and relocation appraisal can be vast, they are reasonable.

The proof is in the purpose

The major difference between the two appraisals is simple: purpose. The mortgage appraisal is completed for loan purposes, to support either a sale or refinancing. When a mortgage appraiser inspects a property, he assumes that the purchasers – or owners – like the decor; the cinnamon-red walls will have little impact on the home’s value.

A mortgage appraiser is more concerned with the structural integrity of the property. He estimates the home’s value so that in case of default or foreclosure, the lender’s collateral interest is protected.

The mortgage appraiser is also responsible for scrutinizing economic conditions, so he appraises the property based on present market conditions. Although mortgage appraisers may use different approaches to decide the cost of financing, typically, if sellers pay closing costs and/or discount points in a particular market and those costs have not inflated the sales price, the appraisers will not make a deduction for financing.

The problem with relo appraisals

Relocation appraisals, on the other hand, are conducted as if the property is vacant, or in “as is” condition.The relocation appraiser must envision the house minus its furnishings and wall hangings. Will the cinnamon-red walls appeal to the majority of potential buyers? Even if the house has been “neutralized” (relocation-speak for a house painted beige from top to bottom), the walls may need repair and repainting when the wall hangings are removed.

The relocation appraiser considers what typical home buyers in a given area expect, and estimates the cost of any decorative improvements or repair. These anticipated expenditures are usually deducted in full.

Like the mortgage appraiser, the relocation appraiser must also consider current market conditions, as well as forecasted market trends. Are there plant closings planned nearby? Will there be layoffs or group relocations? How many competitive listings does the property face? Is there new construction in the area that will attract the home’s potential buyers? Equally important is the time of year in which the relocation company will acquire the property if it fails to sell within its initial marketing period. If the transferee’s 60 or 90-day marketing period occurs during the summer months, for example, the relo company may wind up acquiring the property during the winter months, typically a slower time for home sales. As a result, there may be financing and forecasting adjustments made against the property.

Comparable neighborhood sales

Often, transferees are encouraged to provide comparable neighborhood sales to relocation appraisers. To appraisers, one high or low sale does not a market make; three, however, may suggest a trend. Relocation appraisers discuss the sales terms and conditions of all comparables with the parties involved in the sale. If a sale has occurred, high or low, which is not considered a “normal” sale in the market, the appraiser will disregard it. Transferees also need to understand that the more current comparable sales are, the more closely they reflect current market values and trends.

Decorative dilemmas

Relocation counselors frequently advise transferees to complete any unfinished projects or minor repairs before the appraisal. Too often, however, transferees take this to the extreme. I, for example, added custom built-in’s, papered and painted, spending thousands of dollars I would never see again. Of course, the appraiser’s trained eye stripped the wall of its hangings and noted the umpteen thousand nail holes that would need spackling and repainting.

The built-in bookcases I’d added did increase the home’s marketability, but not its value. This is generally true of other features as well, such as upgraded carpets, hardwood floors, pools, Jacuzzis and extensive landscaping. If a prospective buyer wanted to pay actual cost for these items, he would more than likely add them himself according to his own needs and tastes.

A final word

The relocation company never intends for the Guaranteed Offer price to be the highest or best offer a homeowner will receive. Rather, it is offered as an alternative in case the owner is unable to sell his home during the marketing period. Transferees who are aware of this are often willing to reduce their current listing price accordingly, since this will often result in a sale price higher than the appraised value of the home.

A real estate appraiser for 10 years, Faith Kaiser currently manages transferee services at Mobility Services Inc., Newburyport, Mass.