Expatriate Compensation

Purchasing Power

Since the goal of compensation programs for expatriates is to "keep employees whole," anything that negatively affects an expatriate's standard of living should be taken into account.

This section deals with three factors that can decrease the expatriate's standard of living, and create uncertainty and confusion:

• currency
• inflation
• taxes

Keep in mind as we discuss these 3 factors in greater detail that currency and inflation are based on the host country. Our discussions surrounding tax issues are based primarily on U.S. law, but taxation in the host country can also be an issue.

Currency

International assignee pay typically is calculated using the home country's currency (U.S. dollars for U.S.-based companies, etc.). So, when dealing with allowances and base salaries paid to assignees, currency exchange rates come into play. Currency exchange from the assignee's perspective is based on the host country, and exchange rates can change daily.

For example, the difference in cost of living depends partly on the exchange rate as of a particular date. When setting the actual differential for a cost-of-living allowance, it should be calculated according to the current exchange rate.

Information on exchange rates can be found by going to: x-rates.com.