Expatriate Compensation Plan For Expatriate Assignments
Author: Ahsan Hameed (Date: 17.12.2015)
This literature is aimed to address the case problem through the developing expatriate compensation plan along with developing theoretical understanding about expatriate assignments, its benefits and issues related to it. The methodology adopted for this task is based upon a critical review of the theoretical literature and visiting country related information websites in order to take updated information. The findings of the research are helpful for HR managers, consultants and students in terms of developing understanding about expatriate assignments and expatriate compensation planning.
2. Expatriate Assignment:
Unlike the other organizational assignments (tasks), the expatriate assignment is such, in which, the company sends any person to another country in their regional office, subsidiary company or in case of parent country, host country or even third country national (Briscoe & Schuler, 2004). There are several reasons, which stimulates the companies to go for expatriate assignments. First, the expats help the subsidiaries to adopt and practice the same management style, being practiced by the parent country. Secondly, this approach is helpful for parent companies to effectively control and coordinate with subsidiary along with the successful business establishment and also enjoying knowledge and skills transfer opportunities (Goel, 2013; Nylander, 2015).
However, besides the benefits, there are also some issues attached with expatriate assignments, which, if not managed properly, may fail the expatriate from achieving their goals. The major issue of expat assignment is that it is quite expensive (Briscoe & Schuler, 2004; Goel, 2013; Budden, 2014). Moreover, Goel (2013) has presented the common reasons of issues, causing expat failures from different nations (Appendix 1). For example, the American expats face problems of spouse adjustment, expat adjustment in host country due to inability or emotional incompetence.
Moreover, especially on long term expatriate assignments, like 2 – 3 years, the family issue is known as biggest issue and even it has been found as a major reason of failure of expatriate assignments (Chiotis-Leskowich, 2009). That’s why, the HR personnel always keep family issues on priority while making preparations for expatriates. Further, Selmer & Leung (2003) have completed their investigation on Women’s as expatriates, in which they have come up with the finding that women, as compared to men, more likely to have two kinds of problems on expatriate assignments, such as, social adjustment ad wnork adjustment. For example, they might feel isolated and having difficulty of meeting with people and understanding local areas (Diane, 2015). However, the women with strong determination and interpersonal skills are able to adjust themselves during expatriate assignments.
In short, the advantages of expat assignments increase its inevitability and importance, but the attached issues make it challenging for HR managers to develop export plans.
3. Expatriate Compensation Plan:
The focus of expatriate plan is to develop a successful expatriate plan for Mr. Jim, which not only fulfil his expectations, but also resolve the upcoming problem, which will ensure the success of expatriate assignment.
Black & Gregersen (1999), Goel (2013) and Briscoe & Schuler (2004) are fully agreed that the family issues are a big problem for Americans. As the assignment will last for 2-3 years, Mr. Jim has a plan to move to France with his whole family, as his children need to live with fathers. The strategy of expat plan is to develop a compensation plan for whole family moving to France.
3.3 Potential Issues:
Unlike the other assignments, the nature of expatriate assignments are complex, because of the associated issues, which also increase the management challenges for HR executives while expat planning (Black & Gregersen, 1999). In accordance with current expatriate planning, several issues have been found.
Before leaving, there is need to arrange training for Mr. Jim, which will help him to work in France. These trainings will also create cost
Visa, Permits and Travel Arrangements:
In order to stay more than 90 days, Mr. Jim & family require a French visa before travelling. Whereas work permit will be taken after reaching France. However, there is a need of making other travel arrangements before departure (French Gov., 2014).
While moving from US to France, Mr. Jim & Family has to face the relocation hardships, such as, packing, travelling, new culture, new language, school arrangements and overall adjustments (Expatica, 2014; Numbeo, 2015).
Mr. Jim has to arrange housing in Paris. Although, the company will help in finding housing. However, there are other issues such as, location of the house, providing guarantees to landlord, utility expenses and municipal fees etc. (Expatica, 2014). There is also difference in rent between US and France. In France, a 3 bedroom apartment in city costs around 1200 Euros rent per month and 14400 per year (Numbeo, 2015).
Language and Culture:
Mr. Jim and family needs to get training about language and culture. In Paris, the language institute costs around 900 – 1000 Euros per month (per person) (Alliance Francaise, 2015). Mr. Jim & family have to learn the language.
In order to travel within the city, there is need of travelling allowance or any alternative. The normal cost of travelling is 1.8 Euro (train ticket),
The one of major expense for Mr. Jim & family is the child’s education. The following table shows the annual fee of children (ASP, 2015).
Spousal Employment Concern:
At the start, due to language limitations, it is difficult to arrange employment for wife of Mr. Jim. However, after 6 months, the efforts can be made to arrange a job for Mrs Jim.
Health / Medical / Insurance Issues:
The health insurance, medical and social security charges include 7.5% of salary of employees (Expatica.com, 2011).
Compensation and Incentives:
The compensation package of Mr. Jim will be different than that of the USA, because now a compensation plan will construct for expatriate assignments. In France, a sales and marketing director earns around €110,000 to €190,000 annually. They also receive bonuses (up to €19,392) and profit sharing (up to €5,500) (Appendix 2 & 3).
The taxation is a very important issue, because there is a significant difference between USA and France. On the current salary, in USA, Mr. Jim has to pay 28% tax on salary, while, on the same salary in France, there is need to pay 45% tax (Appendix 4).
Home country costs:
As Mr. Jim & Family is having home in the USA, which costs mortgage expenses and maintenance expenses. However, the company is not going to provide an extra cost for home country properties.
As the company is giving a car to the Mr. Jim family, so the question about driving license is valid. However, being a US citizen, the US driving license is valid up to 1 year. In 2nd year, it needs to get a French driving license (French Embassy, 2013).
Foreign Exchange Differences:
There is also difference of currency between both countries, which will affect salary volume as well. The one dollar is equal to 0.93 Euros. For example, if the basis salary is $160,000 in USA, then it would be €148,800 (Travlang, 2015).
3.4 Expat Compensation:
According to Suutari & Tornikoski (2000) and Hall (2015), the key components of expatriate compensation package include, basic salary and bonuses, expatriate allowances, housing allowance, hardship allowance, travelling allowances, insurance benefits and taxation support. The compensation package has been designed for Mr. Jim and family, which will consist of following benefits.
- Basic salary (similar to home country)
- Visa cost and documentation 100% expenses by company
- Travel cost to France 100% by company
- Expatriation allowance 5% of salary
- Relocation allowance 10% of salary
- Children education allowance 10% of fee by company
- Language Training 100% cost for first six months (Jim only)
- Housing Allowance 25% of Rent by company
- Travelling allowance (Car will be provided by company)
- Healthcare / Insurance No
- Home country Allowance No
- Bonuses + Incentives As per needed
- Housing annual cost is 14,400, 25% paid by company
- Car annual premium of 7 year leased car is around €3,428 (Total €24,000)
- Children annual school fee is €131,120, the 10% will be paid by company.
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