Increasingly employers face the challenge of having to contain expatriation costs while supporting the development of their global operations – in most cases by significantly increasing the number of expatriates. Many are finding the solution lies in segmenting their assignees and assignments and redistributing their limited budgets according to which assignees and assignments provide the greatest value to the organization.
Things have changed over the past 20 years – and, in a sense, necessity has become the mother of invention. Back in the early 1990s multinational corporations saw themselves as needing simply to choose between expats and locals, in the expectation that where they used expats they could eventually replace them with locals, reducing the complexity and cost of assignments. Ten years later the number of expats had grown, but the one-size-fits-all approach was already being challenged. Traditional assignments were being supplemented with shorter assignments, local hiring, more junior assignees and an increase in “global nomads” – assignees who moved from assignment to assignment without coming “home”.
And in 2017 expats are still very much a fact of business life – indeed, even more so, as globalization continues apace and developing and emerging markets increasingly host and despatch international assignees. Short-term, project-based and commuter assignments have proliferated, and moves are increasingly employee-initiated or used for developmental purposes. This all combines to create a multitude of different situations that challenge single policies. Cost is an issue, but management and HR teams could use their requirement for a more global cadre of employees, at manageable cost, as an opportunity to become more strategic and to set up well-defined assignee and assignment categories that are also integrated with the organization’s reward and talent management strategies. This strategic approach also allows companies to reduce the number of policy exceptions – a major cause of spiralling costs.
If we accept that the business case for segmentation is incontrovertible, the issue then becomes one of which segmentation criteria to use. There are, in fact, a number to choose from, and the best mobility policies are based on a matrix of different criteria. We outline examples of the principal ones below.
Step 1: Segmenting by type of assignee
- Strategic moves. There are some people – principally top-level executives who are crucial to success in a new territory and employees with vital skills – who you have to move, regardless of how much it costs. Such people have an expensive lifestyle and high expectations, so you need to provide a comprehensive package with benefits and allowances that are well differentiated from those of traditional expatriates. They are the expatriates who are the most likely to obtain ad-hoc deals and trigger exceptions to the common policy so it sometimes make sense to create a well defined category for them to reduce the number of individual negotiations. The key question is how many assignments are truly strategic.
- Global nomads. Because they are constantly on the move these people lose the link to their home location. They may be sent by their company, they may be marketing themselves globally, or they may be a local hire (a German recruited in Shanghai, for example, or a Brit in Dubai) or a returnee (a Chinese/American hired by a company wanting to set up an operation in China, for instance). What unites them as a group, however, is that they do multiple assignments, the link to their home country – and even the definition of “home” – is unclear, they have an international lifestyle, their base pay reflects their previous assignment and doesn’t always follow a clear home or host pattern, and they have specific issues linked to pension, healthcare and work permits.
- Developmental moves. These might be undertaken by trainees, very junior employees or future leaders. Because these people are motivated by the learning and career development opportunities involved in an assignment you can limit or share the cost with them, providing an “expat-light” type of package. But in such cases you do need to manage their expectations.
- Intra-regional moves. Such moves are proliferating as companies seek to rely on local talent and contain costs. For such assignees you can often justify local or local-plus packages rather than the traditional balance sheet approach, particularly if the individuals themselves have good reasons (cultural, pension or tax-related, for example) to move.
- Opportunistic moves. Requested by employees (of any level) themselves, such moves are not business critical, so employees will bear most of the cost and the company doesn’t provide the ongoing support that it would for a traditional assignment.
An additional layer of segmentation is by age: different generations have different expectations. Younger people tend to be single and more highly mobile (and, therefore, less expensive to move) than older people with families, for example.
But whatever criteria you use, segmentation has to be objective. For example, some people might consider themselves to be “highly strategic” (or international) but in reality they are not – and the only way to establish that is by working closely with talent management teams. Historically mobility, talent management and reward have been managed in silos, but organizations have started to adopt a more joined-up approach over the past two or three years, improving the success of their mobility strategies as a result. Mobility teams should rely on talent management teams to determine which people in the organization should populate their different segments (are opportunistic moves are justified by a retention problem in a given area, for example?) and to ensure that developmental moves are part of a well-defined development programme.
Step 2: Segmenting by type of assignment
- Short-term assignments are growing faster than traditional long-term assignments. They grow faster than long-term assignments because they are often seen as more flexible, easier to manage and sometimes less costly for the company. They typically last between six months and a year, and are undertaken without families. Packages typically include daily allowances or a cost-of living-allowance, full housing costs, sometimes a mobility premium and/or hardship allowance and home leave. However, not all companies agree that it is easier to motivate employees to go on short-term than long-term assignments, because short-term assignments often split families. Similarly many companies don’t think that short-term assignments are easier to manage because of the difficulties of keeping track of and managing individuals.
- Commuter assignments. Definitions vary between companies. Some commuter assignments are Monday to Friday; others comprise two days in one location, two days in another; yet others are one week on, one week off, and so on. But they are increasingly popular because they are less disruptive to family life than other types of assignment, and their success is being more carefully tracked. Commuter assignments typically last up to two years, except when they are initiated by employees, when they may continue indefinitely. Arrangements differ: while accommodation is usually fully covered, assignees will receive either a daily allowance or reimbursement of costs as per the company travel policy, and according to 2016 Alternative International Assignment Policies and Practices report, while only 15 per cent of companies pay a mobility premium, more companies provide a hardship allowance: 25% of participants pay a hardship allowance to commuters while 40% don’t provide one. The remaining participants don’t send commuters to hardship locations.
- Using locals. Localization is increasing, and using different approaches depending on local conditions in the host country is often necessary.
Using a decision tree helps an organization to determine the best approach in each country: flexibility rather than rigid rules are critical to success. And “how” you localize is critical: elements such as housing and education are perennially emotive. Forward planning is essential.
Step 3: Introducing flexibility into expatriate packages
Companies are increasingly introducing different type of packages for the different categories depending on the nature of the assignee and the assignment. Introducing a great deal of flexibility is possible by mixing different approaches or even within the traditional balance sheet approach. For example, a Swiss expat may cost over €508,000 doing the same job in Shanghai as a local earning just €42,000, but there is a vast range of remuneration package options between those two extremes. It is even possible to differentiate between different types of “locals” – for instance, local could mean local Shanghai, a foreigner hired in China, an expat from Hong Kong or an expat from the West.
Being able to present management with this matrix of different options to show them what they could get for what they think they can afford to pay for any given role, is very powerful. It also generates a more interesting and productive discussion than working out a package for someone who has already been selected for a role.
Step 4: Assembling the segmented policy components
Before embarking on the segmentation journey it is important to take into account your company’s unique culture, history and employee perception and mentality – you shouldn’t simply try to replicate what others are doing. Nor should you underestimate the challenges to overcome, the time required nor the importance of bringing key stakeholders with you. Don’t try to do too much too fast. Prioritize the change areas and phase implementation. It could take between four and five months to define the concepts and prepare the policy, another six months to start to implement it, and 18 months for it to be fully operational. So when you embark on a segmentation strategy, manage people’s expectations by making it clear that it won’t happen straight away.
You shouldn’t combine the development of a new segmented policy with a massive outsourcing exercise either: you need to retain control of the policy and how it is communicated.
There are several things you should do to help ensure the success of the new policy. One of the most important is to align segmentation with talent management and gain support from the talent management team. Seeking approval of the key principles from top management early in the process is also critical, as their endorsement helps to secure the buy-in of the rest of the organization and encourages good governance.
It is also important to establish advisory committees involving home and host HR, top-level expats and management. Establishing a clear transition process is helpful too, whereby the new policy applies to new expats and you buy out those expats who resist change. You also need a steering committee to manage the policy, track exceptions and settle contentious issues. The danger of segmentation is that although you gain approval for the principle, after one or two years you start having “negotiations” and the policy starts to fall apart. Strong governance guards against this danger.
There is usually a category of individuals in any organization who are critical to its continuing success and who, in an increasingly competitive talent market, you should be providing something different for. And, within a carefully-thought-through global mobility segmentation policy, you could do that without increasing your overall mobility costs.
Contact the author, Olivier Meier, on LinkedIn.
Find out more about policy segmentation and policy design.