Expatriate Compensation

Alternative Approaches

The balance sheet approach does a good job of “keeping the employee relatively whole” while on a long-term international assignment and is the most frequently used method for managing these kinds of assignments.

However, there are other ways to compensate international assignees that are less expensive and less complicated.

• Negotiation
• Lump Summing
• Flexible Compensation
• Reducing Allowances Over Time

Negotiation

Negotiation may be the simplest. In this approach, the employer and employee negotiate mutually satisfactory compensation for the assignment. If the costs are accurately presented, this can be an effective approach. The challenge to this approach is the ability to accurately project the costs.

Lump sum

Another approach in compensating expatriates is the lump sum. In this approach, a lump sum is provided to the international assignee to spend as they wish. This can be broken down into lump sums for pre-departure, on assignment, and repatriation. Again, the challenge to this approach is the ability to accurately project the costs over an extended period of time.

Flexible package

A flexible package for a long-term international assignment allows the total cost of the package to be distributed according to the needs and desires of the international assignee (i.e., opting for a smaller apartment, but more money for schooling).

Reducing allowances over time

It makes sense to reduce the allowances over time, at least for certain types of allowances. As international assignees become familiar with living in a country, they learn to live more like the locals. An advantage of this approach is to get the international assignee out of the high-cost expatriate communities in which many assignees live and into the local culture.

When an expatriate is on a longer-term assignment, the COLA can be phased out after the first year of the assignment. An alternative approach is to send a new expatriate out on 100% of the COLA but reduce it after 6 months to 75% – 85% of the recommended COLA and maintain it at that level for the duration of the assignment.