Localization and Local Plus Packages: An Alternative Deal for Foreign Talent Both in spite of – and because of – economic uncertainty and uneven growth, multinational companies continue to refine their talent mobility practices. The strategies for compensating mobile employees range from one extreme to the other. At one end is the approach that compensates expatriates so as to maintain the spending power they would have in their home country, based on the “home country balance sheet” method. Companies using this approach generally also provide a benefits package that allows the expatriate to maintain the same quality of life as at home. At the opposite extreme is a “purely local” approach, in which employers place non-local employees on the same pay and benefits package that they would provide to local employees. Many variations exist between these two extremes, taking into account whether the assignment is temporary or permanent, the tax treatment of various types of compensation, the portability of social security and pension programs, the availability of adequate medical care, and whether the employee is making a one-time move or joining a pool of globally mobile talent with subsequent moves likely in the future. In the current economic climate, multinational employers are eager to control the cost of their human capital expenditures more than ever, yet offering reduced entitlements to save costs runs the risk of an employer either losing or failing to attract the right employees in host countries. Despite cost pressures, localization policies have proven difficult to implement for many employers: Although most companies have a formal or informal localization policy, 72% of these companies say the policy is not strictly applied. Localization is an especially pertinent issue in Asia, with 44% of companies reviewing their localization policy (vs. nearly one-third of companies globally). Other employers have been quite successful in localizing expatriates: The retention rate for localized employees in China, Hong Kong, and Singapore, after two years on localized packages, is at a healthy 80%. The apparent satisfaction of localized employees might be due in part to approaching the right type of employee – the top reason given for localization is the employee’s desire to stay in the host country (58%) rather than cost savings for the company (50%). How can organizations secure new foreign talent more cost-effectively and localize their existing expatriates more successfully? “Local plus” has emerged in recent years as a simple, effective way to structure rewards to secure non-local talent, or to localize long-term expatriates, particularly in key business centers such as Singapore, Hong Kong, Shanghai and Beijing. Local plus provides non-local employees with a competitive local salary package, plus some extras not provided to local employees. The local plus approach can be especially helpful for younger, more nomadic employees without families, who are more likely to appreciate the “psychic income” of working abroad as much as traditional compensation. For more senior technical or managerial positions, local plus allows more flexibility by focusing on cash rather than on in-kind benefits such as company-leased apartments or company-paid education. Tax-optimization opportunities exist even in some higher-tax locations. For example, in China, current rules allow employers to reimburse housing, education and home leave costs tax-effectively. In addition to a locally competitive salary, local plus packages typically include supplementary assistance, normally to help employees cope with high costs of suitable housing, education or other items. Some employers provide specific housing or education allowances, or reimbursements, while others supply a general all-purpose discretionary cash allowance. Variables to consider when implementing a local plus pay policy include: Fit: best for locally hired foreigners, localization of expatriates and for permanent transfer situations where a pure local package is not feasible Local salary levels and pay structures Whether (and how much) additional cash is required to address high costs of housing and education. Supply of locally available foreign talent willing to accept local plus terms Tax levels and net pay impact Regional and competitive trends Social security policies in home and host countries The adequacy of local medical benefits Possible effect on talent management and repatriation Variations by location and management of exceptions Localization pressures, cost pressures and the availability of abundant foreign talent in certain locations have led to the emergence of local plus as the newest tool in the mobility toolkit for many organizations. Generally simpler and more cost-effective for the employer, and more flexible for the employee, these packages can effectively fill the gap between the expatriate balance sheet approach and pure local terms and conditions.