Global Benefits Expatriate Issues Europe The Americas Asia And, more

Benefits and Beyond C. 13

New markets for products and services New sources of supply of raw materials

and labor Economies of scale, logistics, and

outsourcing New demand for similar products Trade Agreements open commerce

among nations (quotas and tariffs)

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What’s Driving Global Market

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Thomas E. Murphy

Business is facing new competitors with varying cost structures

Importantly, wage and benefit costs – globally – are becoming very relevant from a competitive standpoint

Costs determine how and where they will locate and how they will compete.

How do we compensate expatriates?

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And. . .

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Domestic production – domestic markets

Then, it starts sending products abroad

Should it buy or build a plant or service center abroad?

Economics usually drives this answer Over time the company integrates all

of its operations (see Ford, P&G, Unilever, Convergys)

Query: What are the compensation and benefit implications of this change?Thomas E. Murphy 4

Evolution of Global Enterprise

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Access new markets, strategic relationships, M & A opportunities.

Access new raw materials or acquire inventory of products to sell.

Find lower labor costs?

Leverage supply chain

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What’s the Business Strategy?

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There are some very basic territorial, political, legal, and economic factors to consider.

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But . . .

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Work councils Layoff restrictions Intellectual property rights Taxation of total reward system Financing sources, different

capitalization process vis a` vis U.S.A. Risk averse reward systems Publically provided benefits.

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Factors: Political and Legal

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Industry wide union agreements

Strong Social Welfare Programs

Totally different reward system

Less emphasis on litigation

Importance of relationships

The Tribe

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Factors: Political and Legal

Organizational differences between U.S. and EU businesses.

Shareholder-based versus bank ownership

Subsidization and privatization. The importance of employment

standards in EU; EEO in US.

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Factors: Political and Legal

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Economic: High Tax Rates Take-home pay Government

subsidies and mandates

Less emphasis on results based compensation

“Add-ons” -- one month’s pay, bonus, “vesting of benefits,” all of which affect cost of labor.

Short-term versus longer term results.

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Factors - Economic

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How do other countries approach publicly funded health and retirement plans?

What impact does this have on business? Does it mean higher taxes? Higher labor costs?

What are the approaches employers take with respect to the compensation and benefits of expatriate workers in host countries?

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So . . . There are three issues:

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Global Benefits

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Who has the higher labor costs?

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See: BLS International Wage Survey (3.1, 3.3)

Estimates: France, employee earning €3000 per month, pays €350 for health care, and the employer pays €1200 per month.

Labor Costs

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What impact do Social Security and Health Care systems have on overall labor costs?

Higher labor costs in Western European countries than in the U.S.

Direct relationship to higher payroll taxes used to finance such benefits.

China is well below western levels. See Table 13.4

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How do labor costs compare?

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Expatriates What is their pay? What are their benefits?

Technology transfer Lack of talent in country Consistent application of company

policies Succession plan/Diversity

management Direct learning about the country

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Expatriates – The Issues

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The Palestinians (and Israelis)

Economic incentives (QIZ)

Madaba tour Abe Lincoln essay Career – shirt, tie,

government Brainstorming

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Jordan, France, and Italy

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No meetings outside of the plant

No delegation No agenda IBM No accounting or

knowledge of costs Auto Accident No addresses

Ramadan and off-days.

Hugs for Hesham Excuses –

Ottomans Conspiracies and

mistrust of government – Egypt Air

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More . . .

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WASTA Egypt Air In the “black.” The Notary and the

Germans Driving exam Bulgarian and

contract to buy Memorization

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Jordan, France, Italy

Thomas E. Murphy

Jordan, France, and Italy

All is in the “Black!’ Family is very important

Work, Life Balance Don’t let them wear

hats! Women – put your

picture on your CV! House builder’s pride Slow food Bi-lingual Entrepreneurial Residency process

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Lessons Learned

Face is important! Some great values . . .

Business is often based upon building relationships – be patient and respectful.

Cultural differences often are based upon enmity between ethnic groups. They can torpedo typical business incentives.

Bureaucracy is overwhelming – enforcement is not.

Tax avoidance is rampant – and one is encouraged to avoid tax compliance.

Family takes precedence over government.

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Passport Technical Expertise Cultural sensitivity Required experience for promotion -

part of the succession plan

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Expatriates – Selection

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What is the goal? What about cost of living? Make-whole policy? (“Balance

Sheet”) The host-country policy? (“Market

Rate”)

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Expatriate Compensation

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Ma, dove e come abiterremo?

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Factors that Affect Design Tax Laws (U.S. and Host Country) Employment and Social Insurance Laws Currency Fluctuations Cost of goods, services, transportation Culture and traditions What about the Benefits Model?

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Expatriate Pay

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How, and from where, will pay be delivered?

In what currency? Evacuation – emergency (political

or medical). Working hours and public holidays. International Compensation!

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Compensation Details

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Spouse and family accommodations, schools, careers, volunteering, leisure time.

Should expatriate continue to participate in parent company benefit plans? Which ones?

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Foreign Assignment Issues

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What do you do about rewards that are U.S. based and results are determined by U.S. operations?

What are the advantages and disadvantages of balance sheet vs. host country approaches?

Remember: the U.S. considers income of its citizens and residents to be taxable no matter where it is earned!

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Expatriates

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Advantages Equity between

assignments and other expatriates in same country.

Facilitates expatriate reentry.

Easy to communicate.

Disadvantages Disparities

among TCNs and HCNs.

Can be complex to administer.

Very Expensive

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Balance Sheet . . .

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Advantages Equality with

HCNs. Simplicity Identify with host

country. Equity among

different nationalities.

Disadvantages Variation

between assignments.

Variation between expatriates of same nationality in different countries.

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Market Rate . . .

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See: The Milan case (443-447)

Let’s analyze the adjustments that would be required.

Your apartment is ready :

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Remedy – a series of adjustments!

Assignment could result in double taxation by U.S. and host country.

Most companies have Tax Equalization Policy –withhold an amount equal to home country of expatriate and company pays the rest.

§911 of the IRC = $91,400 (FEI Deduction)

What about Social Security taxes? What about Value Added taxes in host

country?

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Tax Issues

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Career blockage Essential for

promotion Burnout Family issues Technical vs.

leadership talent BIG Difficulties

on return

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Expatriates - Other Issues

Length of assignment Defining “success and failure” Trailing spouses How to establish MBOs or other

Performance Management factors, e.g., different accounting, long-term goals, manager’s role, who conducts review?

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Other Issues

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ExpatriateApproaches

Select the best based upon careful research of cross-cultural sensitivity issues.

There is no “universal” management style, but there are generic competencies to consider.

Provide resources for housing location, spouse “development,” kids education.

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Some ideas . . .

I miss Italy, but I’m . . . Am glad to be back!

Provide significant cultural orientation.

Make sure expatriates are prepared for trade union issues in the new country.

Make a pre-assignment trip.

Plan for reentry – avoid the typical problems

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