Managing Expatriates in Difficult Locations: Optimizing the Global Mobility Investment Motivating and managing talent can be challenging for any company, but the difficulties are compounded when played out in the international arena, especially in difficult locations. With the dramatic rise in global business activity, many multinationals are sourcing talent worldwide to access new markets and gain competitive advantage, deploying workers outside their home countries. Despite the increase in global talent sourcing, many international assignments fail, either due to poor family adjustment, misaligned incentives, difficult living conditions, or poor cultural fits. To manage the high cost of global assignments and limit the risks, multinationals must develop a strategic framework of compensation, incentives, and training. In fact, many companies are making their global talent strategy an integral part of their overall workforce plan. Within this framework, getting the mobility incentive premiums right is critical to meeting the business needs of the company as well as the expectations of the assignees. Some of the key drivers of international talent sourcing include skills gaps in international locations, management development, technology transfer, senior management roles and training. Primary compensation design decision drivers include operational need, cost, and motivation to accept the assignment, deploying key/core competitive resources, administrative simplicity, and equitable treatment. Rebranding the Program, Weighing the Costs In developing a global mobility program, companies must consider the basic philosophy for incentivizing foreign assignments. Are mobility and incentive premiums enough? Is it necessary to also offer quality-of-living and hardship allowances? Are cash incentives the only attraction or are there other selling points such as career development and personal growth that can be used? Understanding the overall compensation philosophy within the total business context will help a company meet its long-term business and talent needs. So what is a global mobility premium, exactly? A global mobility premium is a financial incentive to motivate and reward someone for international service and to provide a monetary benefit to help compensate for cultural, family, and work inconveniences associated with a global assignment. The premium can be paid monthly or in a lump sum. From a compensation perspective, there’s a hard side and a soft side to premiums. The hard side, in terms of something tangible, takes a look at the actual difficulty of living in a foreign country, especially in places that are dangerous or isolated. The soft side, what is known as “mobility” issues or the more difficult HR issues – things that are hard to quantify, such as being uprooted, potential loss of job opportunities in headquarter locations, and a lack of language and cultural knowledge of a host country − covers specific allowances for international assignments. On the Move: The Who and the Where Mercer clients constantly continue to request data for new locations, both when it comes to assignment destinations, and to home locations. Some popular host locations, such as London or Singapore, are considered either premium or standard assignment destinations, so employers may not need to provide significant incentive premiums. For other locations, however, such incentives may be required to recruit talent because of any number of factors, such as remoteness, social or political instability, environmental issues, et cetera. A hardship, or quality-of-living, allowance may provide fair compensation for any difficulties and attract talent to the area. One way to attract talent is with a mobility premium – a payment that incentivizes the candidate to take an expatriate assignment. Mercer’s 2015 Worldwide Survey of International Assignment Policies and Practices results show that fewer than half of organizations offer a mobility premium (43%) to their typical long-term assignees. European and Latin American companies provide such incentives most often. One-third of European and Latin American companies offer a mobility premium for all assignees, while another 19% European and 11% of companies in Latin America do so in some cases, depending on purpose of the assignment, home-host location combination, or other factors. Offering the mobility incentive is on a slight decline worldwide – down 5% since 2012, and especially in Latin America, where 50% of companies surveyed in 2012 said they provided a premium in all cases, and only 34% do so in 2015. Other regions also saw small declines in the universal offer of the mobility premium, but European companies continue to provide it at roughly the same rate. This payment is typically an ongoing premium (at 63% of companies) or a lump-sum premium (for 32% of employers) and is most often calculated as a percentage of base salary (69%). During times of economic downturn, this incentive premium is one area that clients often want to trim. This can work when assignments are presented as opportunities for advancement and employees see the expat role as beneficial for their career development. Mobility premiums can also be capped or phased out to cut down the costs, depending on an expatriate’s role or length of assignment. About one-third of companies cap the mobility premium, but most do not modify it. Only 9% of respondents said they phase out or eliminate the payment after a number of years. Another option to cut expenses is to consider replacing this payment with other incentives that can be cost-effective, like additional family allowance or an international support fund (essentially, money earmarked for family members to cover all of those exceptional requests). Other companies consider family size carefully when determining premiums. And some companies are focusing on specific market needs. They may take away premiums, but there are specific locations or regions to which they need to drive talent. So they use the mobility premium to motivate people to take assignments for their targeted host locations. Evaluating Difficult Living Conditions Unlike the mobility premium, the hardship or quality-of-living component of an expatriate compensation package specifically compensates for adverse conditions. A vast majority of companies (84%) either always provide a hardship premium in applicable situations (61%), or provide it on a case-by-case basis (23%). Most companies rely on data providers to calculate a hardship premium, and keep a close watch on locations where they operate, to see whether hardship issues have declined and whether management has already factored these concerns into the incentive premium. For example, in Shanghai, where one has access to international credits, phones, and communication channels, a company may not have to offer hardship allowances. Many employers fix the hardship premium for the duration of the assignment, although some companies review the allowance annually (40%) or when new information becomes available (17%). Companies typically do not modify the hardship payment even after an assignee has been at the foreign location for a number of years (91%), although a small number decrease (3%) or eliminate (4%) the payment after some time. Some companies who send assignees to especially remote or difficult locations provide another incentive – the danger pay premium. This amount is usually a fixed (46%) or variable (27%) percentage of the employee’s salary. Tools of the Trade Mercer has developed two tools to help companies formulate hardship allowances: the Location Evaluation Reports (LERs) and the Quality of Living Reports. These tools are meant to be used based on a company’s quality-of-living policy and to provide a platform to answer key questions. Should the policy be based on the host location only, irrespective of the nationality someone is coming from, or should it consider a home-to-host perspective? The Host Location Perspective The Location Evaluation Reports methodology, which considers only the host location, uses 14 factors to evaluate living conditions for expatriates and their families: Disease and sanitation Political and social environment Climate and physical conditions Crime Medical facilities Political violence and repression Infrastructure Physical remoteness Pollution Availability of goods and services Housing Communications Cultural and recreation facilities Education facilities These factors are rated on a scale of 1 to 5, with 5 being the worst. Each factor is weighted, with the overall score translated into a hardship premium as a percentage of base salary. The location profile can then be shared with line managers or assignees and a premium determined. For example, a rating of 211 to 250 points would indicate a base-pay premium of 15%. But when you consider an assignment in a difficult location, you may be looking at a 55% or more overall premium for an assignment. The Home-to-host Perspective Some employers prefer to look at the incentive premium from a home-to-host perspective. Mercer’s Quality of Living Reports let you compare cities and set hardship allowances for your internationally mobile workforce. The QOL Reports consider 39 factors grouped into 10 broader categories: Political and social environment Economic environment Socio-cultural environment Medical and health considerations Schools and education level Public services and transport Recreation Consumer goods Housing Natural environment Each factor is analyzed for the host location, and an index is determined, comparing a home location to a host location. Take the example of Berlin, the home city, and São Paulo, the host city. In comparing these two cities, Mercer’s score indicates that the overall quality of living in São Paulo is lower than that of Berlin. Using sample 2010 data (actual data is updated annually and more often in volatile locations), Mercer would recommend a quality-of-living allowance of 17.5% of annual gross salary. (See table for details.) Mercer Quality of Living Index Result: Mercer International Basket, September 2010 Survey Index Categories Home City: Berlin (DE) Host City: São Paulo (BR) Political and social environment 100 45 Economic environment 100 80 Socio-cultural environment 100 75 Medical and health considerations 100 63 Schools and education 100 80 Public services and transport 100 76 Recreation 100 89 Consumer goods 100 99 Housing 100 84 Natural environment 100 112 TOTAL INDEX 70 Mercer Recommended Quality of Living Allowance is 17.5% of the annual Gross salary. In drilling down into the medical and health considerations, we see that São Paulo has modern, private hospitals and clinics that offer good services. But in cases of more complex illnesses, Mercer’s report would recommend seeking assistance in a country with higher medical standards. Regardless of the formula used to arrive at an allowance, evaluate the total incentive and determine whether financial adjustments need to be made. And it’s important to evaluate other companies' policies periodically and benchmark your programs against the data provided. Back to the Future: Incentive Programs for Today and Beyond In reviewing your mobility program, think critically and holistically. Determine whether it’s necessary to assign premiums to the full population of expatriates. Determine whether an employee will move without a bonus. Ascertain whether the individual needs to have a cash incentive to accept an assignment. Identify the opportunity and potential for career advancement of an assignment. Determine whether a mobility premium is needed to drive talent to a specific location, along with a hardship allowance included for difficult locations. As companies realign their talent model, differentiating global mobility policies is imperative. Look at the development value and the business value based on the four key areas in Mercer’s talent and rewards framework: Emerging/high-potential talent Strategic business leaders Career-building volunteers Seasoned technical experts And don’t forget to look at incentives that fall outside of the mobility policy. Defining which is a mobility-related issue and which a compensation issue will help clarify your position. The old model of “one size fits all” no longer works. Businesses and markets are dynamic, and the best mobility programs should also be able to change in response to market changes, talent availability, and business needs. Keep in mind that broader compensation issues cannot be addressed by a mobility program. Harnessing the Full Power of a Global Mobility Program We hope this article has provided direction on how organizations can maximize their talent search and global mobility investment as well as insights into incentivizing candidates, especially in difficult locations. By developing a mobility incentive program that is part of an overall workforce plan, companies will be better able to determine the business value of different types of international assignments and develop the next generation of business leaders to help them meet their current and future talent needs.