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International mobility has evolved as well as the priorities of multinationals. The years 1980 to 2000 are seen by many as the golden age of expatriation. Globalisation was underway and generous packages were put in place to attract and retain talent but with less attention to cost control.
However since 2000 and as a result of various economic crises, employers have had to rethink the management of their international mobile workforce. Among the most important challenges in assignment management today, in addition to compliance risk management, is to containing mobility costs. Today employers have to solve the equation of cost control vs. talent management against a background of high geopolitical instability and where gaps in expertise are reducing due to higher level of expertise of local staff.
This article will focus on the latest trends and practices of multinational companies related to cost control programs.
Focus on current global mobility trends
It has become increasingly noticeable that employers are dividing their international mobility policy into several sub-policies either according to job grade or seniority (ex: junior/graduate employees, standard assignments, talent development and senior executives…) or according to mobility areas (mobility within the same geographical area and between different areas) or according to the different branches of activity of a same Group. This gives the international mobility department various sub-policies to choose from, providing more flexibility in terms of package costs as well as the type of candidate that could be sent on assignment.
Local plus approaches – A growing trend ?
In recent years, Local plus packages have become more popular amongst multinational companies wishing to find a compromise between the traditional home “balance sheet” approach with an expensive package and pure local package. Usually used in the context of a permanent and definitive transfer to the Host Country, local plus packages have been increasingly used for various assignments as part of an international career. This approach uses host location compensation and benefits as a base, and provides few Benefits.
However it should be noted that Local plus packages can be difficult to implement. Employers should thoroughly analyse the implications of introducing such a package as its cost effectiveness may not reach expectations, besides creating potentially a factor of unequal employee treatment leading to the opposite effect of the one desired with a loss of cost control on a global point of view. We are seeing more and more companies consequently coming back from implementing local plus contracts in favour of a more standard approach whilst reducing international mobility benefits within their mobility packages.
This approach offers a “core” set of policy benefits for all assignees, such as immigration and tax, while allowing for flexible options and benefits based on employee needs or business needs. The difficulty is to remain consistent and avoid a HR case-by-case management that can become ineffective. Our recommendation would be to maintain a common policy as much as possible and for the majority of employees, with just a few flexible options that should be limited to a maximum of 2 or 3 so as to ensure efficiency in HR management.
Working on specific benefits and simplification packages
Most companies are currently working on reducing international mobility benefits for their employees on intra-group mobility in order to better control expatriation costs. The real difficulty being to find the right balance between cost reductions and employer attractiveness as well as talent retention. Nevertheless some gains can still be made by rethinking certain aspects of international mobility packages by changing methodologies social coverage and/or reducing certain benefits in kind while remaining competitive. For example use of furnished accommodations in the host country, or if furnished accommodations do not exist, a payment of a lump sum to the employees thereby avoiding the costs of transporting personal effects. Employers could also revisit the cost of living allowances to see if they are in line with the market and change the methodology used for the determination of cost of living allowance (COLA) if appropriate. An overall audit and analysis of the international mobility policy where such policies exist is necessary in this case.
Overall mobility strategy
When undertaking an expatriate cost cutting exercise, the initial reaction is to consider reducing the number of an employer’s expatriates! Before arriving at such a decision, employers should first consider going through a process of cost optimisation, focusing on how resources could be allocated more efficiently, analysing the tools used and type of organisation (e.g.: through a Global Employment Company) used to employ and manage an employer’s international employee workforce.
Centralized management & new information technology (IT)
A share service or a global employment company allows to have a global view of expatriates’ costs. Indeed, all costs, both in terms of payroll, social benefits, benefits in kind, reimbursements of expenses reports … can be consolidated through the use of new technologies (employee tracking tool, mobile applications …) with other information obtained from subsidiaries (such as additional local costs: housing, schooling, taxes, relocation / migration costs) which allows for a global control of costs and optimization that could be put in place. Many companies currently use such organisation and new technologies and we can see that companies are more and more attracted by such solutions which may involve internal reorganisation.
Creating a Decision Making Tree “DMT”
To assist HR, stakeholders consider the creation of a DMT, with the objective of matching the right employee with the right business needs, determining the right assignment length, package, contract type etc… At the same time various business cases and the decision to illustrate the choice can be made. In doing so, a DMT would then become a first filter when considering an employee for an assignment. HR Stakeholders can then validate the assignment type or policy to apply but can also question if the candidate is the right fit and / or identify other alternatives.
Short Term Assignment STA / Long Term Assignment LTA
In recent years there has been a shift by employers to systematically move away from the use of LTA’s. The current trend is to send “Geographical singles” (employees’ family staying in the home country), through a commuting system and on longer distances (home / host country) and periods. Employers are increasingly using these Short Term Assignments (STA) that theoretically seem less expensive but that can become more expensive if STA are continuously renewed. However and despite this trend, employers are still using LTA but more by default. A point worth noting is that the use of STA requires a lot of planning with the end result being that the costs may well exceed those of a LTA due to employee turnover. It is recommended in this context to review if needed LTA packages and remain consistent with the effective length of the assignment and apply the appropriate package.
The time and commitment that is required to put into place this type of cost savings program should not be underestimated. Furthermore it is doubtful that any savings within the first year of implementation will be seen; on the contrary, costs may even increase so as to achieve the targeted cost optimisation.
Finally a major change in international mobility policy has to be handled very carefully to avoid dissatisfaction amongst existing employees. Communication is all important with the emphasis being placed on those employees likely to be assigned abroad “buying” into the policy changes so as to ensure that such changes will not have a long term detrimental effect on the business as a whole.
The information enclosed within the present newsletter are not exhaustive and do not cover necessarily all legal aspect of the subject. This in no case can replace a legal professional advice particularly regarding the considered case under any particular situation. Copyrights are reserved, except with prior written consent.