Compensating mobile employees in a new era Global trends and the experience at Philip Morris International By Narcisa Chelaru, Mercer and Patrick Hepplewhite, Philip Morris International (PMI) Mobility professionals are weighing up the implications of the COVID-19 pandemic for international workforce compensation in a landscape that has never looked more diverse. The pandemic accelerated the emergence of categories such as remote workers, gig workers and virtual assignees. Global mobility is now managing a workforce that is dispersed geographically, has multiple setups spanning home / virtual as well physical office, and includes different contractual statuses, from home- or host-based to permanent moves or temporary assignments. Despite this change, it is important to remember that the basics still apply. While many predict major shifts in the way international organizations source, attract and reward talent across borders, moving people physically to perform a job based on a business or individual request will remain a constant. And, as they always have done, mobility professionals will continue to come up with innovative ways to adjust to the changing landscape while applying clear principles and logic to keep focused on the big picture. Global rewards trends But what exactly does that big picture look like now? Mercer outlined some key trends in international mobility compensation during a conversation with Patrick Hepplewhite, Head of Global Mobility Policy at Philip Morris International (PMI) at our 2021 Talent Mobility and Expatriate Management Virtual Conference. The trends identified were: Segmentation of pay: Meeting the demands and needs of a multifaceted workforce can be a huge differentiator that drives performance, but it is also a challenge. The key here is seeing your employees as customers. One useful approach is to adopt the personas concept used in marketing to identify, analyze and interpret international assignees’ preferences. The aim is not necessarily to tailor compensation packages to individual employees: it is about identifying how best to segment the modern workforce, ensure employees are listened to and understood, and deliver the tailored experience expected in today’s technology-driven, customer-centric world. Mobility professionals can gain innovative perspectives by capturing structured feedback as opposed to being driven by assumptions and gut feelings. Rethinking skills: Organizations are increasingly focusing on the key skills needed to realize their business strategy. While this structural shift is most visible in the gig economy, many companies are delinking base pay and performance in traditional careers in favor of a pay-for-skills approach, with a focus on rewarding growth and development. A potential challenge here is that whereas a skills premium is typically included at the beginning of an international assignment, many companies fail to recognize the new skills acquired during the assignment or to maintain skills-based pay for returning assignees. This can leave highly skilled and experienced assignees disadvantaged versus newly hired peers, potentially causing them to leave the organization in search of adequate recognition for their skills and marketability. Pay transparency: Pay transparency initiatives, which can be location- or industry-specific, are driven by factors including diversity and inclusion (D&I) agendas, legal requirements, and employee engagement and retention efforts. In practice, it is not always easy to achieve pay transparency when international mobility elements are added to the core compensation mix. A clear understanding of the links between the different elements in the expatriate compensation package helps mobility professionals justify the total value of the package and the real purpose of some of the benefits and allowances included. In many cases, the logic will be based on the question, “Are we creating additional costs for the employees that they would normally not have and need to be compensated for, or would these costs have been incurred even in the absence of an assignment?” Flexible working: Whereas traditional compensation strategies value work according to the job location, talent acquisition strategies are shifting from “where does the company have offices” to “where does talent exist.” This approach raises the question of whether pay based on the higher cost of certain labor markets should be reduced if an employee chooses to work in a lower-cost market. The answer depends on the prevailing pay philosophy and organizational approach to remote working, covering factors such as alignment to headquarters pay, geographical structures, market-level and location-based pay and cost of living considerations. Well-being: Many companies still fail to take a holistic approach to employee well-being, with managers asked to focus exclusively on financial objectives to the detriment of both individuals and the broader team. When employee well-being is merely a “nice to have” with no link to reward and recognition, managers have little incentive to adopt best practices. Performance evaluation criteria for both employees and international assignees need to include teamwork, inclusion, coaching and general support for employees, including remote workers. Organizations should also consider rewarding employees for participating in optional prevention and well-being programs. D&I: Ensuring equity in pay and promotion is an absolute imperative in international mobility, with many countries having introduced legislation in this area. What’s more, compensation strategies can be used to break down barriers to D&I for women and minorities. For example, benefits such as day care or spousal support can facilitate global mobility as can the flexibility to repurpose existing allowances or lump sums. Environmental, social, and governance (ESG) aspects: Employees increasingly prefer to work for an organization that promotes fair rewards (including fair pay, ethical wages in the supply chain and pay equity), protects employees’ well-being, shows concern for the environment and social equity, and has a strong mission, values and purpose. Implications of these trends for compensation philosophy While the notion of finding a perfect compensation approach that suits all mobility types has persisted, the best strategy will always be to use a mix of approaches aligned with the logic and purpose of the move in question. In practice, this could mean using a local or local-plus approach for moves between countries with comparable salary structures and tax rates, between more-developed locations and for permanent transfers. Or it could mean using the balance-sheet approach for business-critical moves of highly mobile employees to emerging markets. Local or local-plus approaches will succeed only if a company implements such a compensation logic in combination with a comprehensive review of its mobility philosophy. In particular, implementing a host approach requires robust talent management to clarify the long-term intentions of the move as well as meaningful education of both management and assignees about the choice they are making. At the other end of the compensation axis, when applying a home balance-sheet approach, it is important to go back to the key principle of equalizing employees’ purchasing power between locations – while remembering that this concept, while valid, should not necessarily lead to expensive and standardized packages. Challenges - and solutions - in compensating mobile employees Despite the innovation, agility and logic demonstrated by mobility professionals in recent times, compensating mobile employees is not without its challenges. We regularly hear businesses say they want an alternative solution to the balance-sheet approach. One size cannot fit all, and more flexibility is needed to help businesses make the right choices. Costly packages make mobility prohibitive, creating the need for smart mobility approaches. Businesses can struggle with a lack of consistency and the need for exceptions, and it can be a challenge to clearly communicate expatriate packages and the linkages and logic between their different components to allay perceptions of a lack of equity. Meeting the policy segmentation and diversity expectations of different groups can be difficult too. Organizations need to strike the right balance between removing barriers to mobility and ensuring employees are rewarded fairly and equitably. In that respect, lump sums can help managers address the needs of all employees while simplifying assignment management processes. Amidst these challenges, it is important to always keep the bigger picture in mind. Having a clear value proposition is key to helping mobility professionals wade through the intricacies of expatriate allowances to set competitive and consistent packages that deliver real value for their organizations. Mobile employee compensation at PMI PMI is a truly global company that employs more than 71,000 people and is committed to building an inclusive culture and workplace that reflect the world’s diversity. At the conference, we asked Patrick Hepplewhite about the mobility landscape at PMI and the compensation philosophy underpinning PMI’s approach. Tell us about some of the mobility scenarios you manage at PMI. Traditional long-term assignments: “PMI has quite a high number of long-term assignments that are compensated on a home basis in the standard balance-sheet way, that is tax-equalized with allowances including cost of living, hardship and housing. PMI has two levels of policy based on seniority, with different levels of housing and shipping allowance to create some level of cost differential between the two. At the end of one of those long-term assignments, if the assignee is to stay in the host location, PMI switches the individual to a local compensation basis with allowances to step them down from the assignee lifestyle and covering housing and schooling over time. They are switched at the point of localization to a local compensation basis.” Short-term and commuter assignees: “Short-term assignments are up to 12 months. These individuals remain on the home, tax-equalized basis with benefits such as temporary apartments and per diems.” Global career assignment program: “We have a quite interesting way of compensating individuals on our “Globalist Scheme,” who are expected to be mobile throughout their career. A blended salary rate is based on average salaries across PMI’s major assignment locations. Individuals are tax-equalized using a flat-percentage rate that is set by PMI rather than being linked to any location. And there is a bespoke cost-of-living calculation based on price indices around the world.” Transfers on a local basis: “These individuals are compensated on a local basis that fits into the local salary structure. There is some assistance including help with housing and schooling for a limited settling-in period.” What mobility challenges is PMI facing, caused by the pandemic or otherwise, and how are you dealing with them? “As regards the implications of the Covid-19 pandemic, in terms of compensation for assignees, we introduced assistance such as additional home leave. To facilitate travel for those able to do so, we helped with the costs of things such as quarantine periods, hotel stays, and Covid-19 testing. We are also helping employees with the changed logistics of travel that make it more difficult and slower to move, such as visa restrictions and new quarantine procedures. We’re also seeing that where people used to go on a short-term assignment, they may now do this work for the overseas entity without moving cross-border. This throws up corporate tax challenges as well as regulatory challenges at the senior level in terms of what the individual is allowed to do for an overseas entity versus remaining in their home location. Also, if additional compensation such as per diems and home-leave trips is removed, we need to examine closely how to compensate people for taking these assignments on virtually across borders.” What approaches has PMI adopted across the different stakeholders involved? “In late 2020, we introduced differentiated levels of policy for junior and senior grades, helping with some cost issues, particularly at the former level. We’ve made some of our allowances more flexible, such as the option to choose between a shipment or cash in lieu. We’re also trying to have our global mobility team increasingly involved in direct discussions with the business to explain how policies work in the context of the business’s short- and long-term objectives; for example, a commuter approach or a transfer on a local basis may be more appropriate." What changes do you see linked to managing mobility overall within PMI? Will the pandemic change the way you move people across borders, how you source and retain people, and your strategic perspective? “Our policies and what we provide are likely to stay the same. The biggest challenge relates to individuals questioning whether they really have to move to do a role, including for new hires who traditionally would have moved to one of our hubs or larger offices but now ask to work from home or even from their holiday home. Compensating such an individual as a local in that country can create challenges with expectation management if, for example, a job normally based in Switzerland is done from a lower-cost country. Employees may believe that competitor companies allow fully flexible working, which in reality is generally not the case as there must be some restrictions in place, so expectations must be managed here too. The topic of equity comes into play with home- versus host-based pay. It can be challenging to maintain equity within a country when individuals are working for that country from different locations. Organizations will probably get much tighter with their pay scales to ensure there is equity between people in each country.” Your experience covers many years and spans several industries. What is your key advice for those managing mobile employees? “Try to remember it is a very personal experience for the assignees involved. Mobility is unique in that it can touch all aspects of an employee’s life from partner and family through medical needs to housing and schooling. Assignments bring huge benefits but also challenges. Always keep that at the forefront when developing policies and services.” We invite you to join this year's edition of Mercer's Expatriate Management and Talent Mobility Conference. We are going to host breakout sessions dedicated to local and local plus compensation approaches, as well as a range of plenary sessions, client case studies and interactive discussions exploring the new realities of talent mobility.