navigating the global compensation challenge for international moves adele yeargan, head of global...
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NAVIGATING THE GLOBAL COMPENSATION CHALLENGE FOR INTERNATIONAL MOVES
Adele Yeargan, Head of Global Mobility, AIGEd Hannibal, Global Practice Leader , Mercer
• Talent Supply and Demand
• Basic Philosophy for Compensating International Assignments
• Challenges in Compensating Assignees from Developing Markets (in this presentation, “DMs”)
• Solutions
• AIG; A Case Study
• Managing Future Talent Compensation
• Key Takeaways
What We’ll Cover Today
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Contradictions in Global TalentShortages and Surpluses Coexist
• Only 25% of Indian and less than half of Brazilian and Chinese professionals considered employable by global standards
• 45 million new entrants in the global job market annually
• 300 million new jobs needed between now and 2015
• By 2030, the US will need to add around 25 million workers, and Western Europe around 45 million
• 214 million migrants worldwide; 40% move between developing countries
• Reverse “brain drain” – top talent increasingly returning to emerging markets
• Significant attrition at mid-career levels; employees move 2–3 times per year to advance career
• Labor laws and visas – complexity limits mobility and development
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WEF Highlights of Talent Mobility Research Findings Definition must expand to fit the new age of talent mobility
Talent Mobility: tal·ənt mō·bil·ətē
The movement of workers between organizations or among locationsof an international organization
The New Definition of Mobility The Need for a New Global Mindset
Career mobility Geographic mobility Position mobilityPeople move based on their experience and jobs.
People move where the jobs are.
Positions move where the talent is.
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Global Mobility Program Development Maturity Level on Mobility
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• First foreign operation
• Local packages
• Equity stake
• Few foreign operations, not integrated
• ‘Adolescence’• Adventurous
staff• Local plus
packages• Equity & non-
equity
• Growing inter-national maturity
• More HQ staff replaced by TCNs, local nationals
• Home-based balance sheet
• Career path focused
• Less equity focus
• Worldwide integration and planning
• Global talent sourcing with less emphasis on nationality
• Home-based balance sheet/globalist comp approach
• Well-developed career planning, repatriation process
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Building an Integrated Approach to Talent Mobility StrategySuccessful Outcomes Through Clearly Linked Programs
Audit Your Mobility Population!!!, HR service delivery, Outsourcing
TALENT
TOTALREWARDS
The right PEOPLE…Talent segmentation
Talent identification
Candidate profiles
Selection criteria
Selection process
in the right PLACES and ROLES…Identification of need and locations
Critical roles
Key skill requirements
PLANNINGat the right COST…Contract type
Remuneration, benefits, allowances and support
Funding arrangements
Management of other related costs
for the right length of TIME and RESULT…Assignment purpose
Type and length of assignment
Assignment lifecycle management
Transition management
INVESTMENT
Key drivers for international assignments:
• Skills gaps in international locations
• Management development
• Technology transfer
• Senior management role
• Training
Primary compensation design decision drivers:• Operational need• Cost• Motivation to accept assignment• Deploying key/core competitive resources• Administrative simplicity• Equitable treatment
Context for Increasing Global AssignmentsGlobal Mobility Key Drivers
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Context for Increasing Global AssignmentsWhy is it complex?
• Gross and net compensation varies between countries
• Purchasing power varies between countries
• Exchange rates change
• Tax structures differ
• Benefits and social security systems differ
• International moves disrupt employees lives
• Some locations are unattractive
• Language and culture differ
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|Home salary
Home salary balance sheet
HQ base
Inter-national scale
Hybrid/ expat “light”
Local plus
Local salary
Commuter assignments
Short-term assignments
Extended business trips
Permanent transfers
HQ secondments Locally hired foreigners
Global nomads/career expats Localized expatriates
Returnees“Prevailing wage” assignments
Net salary
x$
tax
x
tax
Philosophy for these Alternative Mobile EmployeesPay Approaches Vary from Traditional International Assignments
$
tax
Long-Term assignments13
Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %)
Assignment locations 2000 2006 2008 2010
Middle East 5% 10% 15% 22%
Western Europe 27% 29% 20% 19%
U.S./Canada 21% 17% 15% 18%
Asia Pacific 19% 16% 18% 15%
China 6% 9% 9% 9%
Latin America 8% 5% 4% 5%
Africa 3% 5% 9% 4%
Japan 2% 2% 2% 2%
Source: Mercer’s/ORC’s Worldwide Survey of International Assignment Policies and Practices14
Source of Expatriates 2000 2006 2008 2010
Western Europe 33% 31% 28% 24%
Asia Pacific 3% 13% 12% 23%
U.S./Canada 28% 27% 23% 22%
Japan 27% 17% 15% 16%
Latin America 3% 3% 3% 4%
Africa 1% 1% 12% 2%
Middle East 1% 2% 1% 2%
China 0% 1% 1% 1%
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Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %)
Philosophy for Compensatin Mobile EmployeesTransfers from Less-developed (developing) Countries
• Home country pay structure
• Moves from Developing Markets (DMs) to developed countries
• Moves from one DM to another
• Disparity of base pay levels between home and assignment location
• Pay disparity does not equal cost-of-living disparity
• Limitations of conventional pay approaches
• Repatriation to a developing country
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Philosophy for Compensating Mobile EmployeesKey Questions
• What are the job levels of transferees?
• What is the nature and length of assignments?
• What is the economic level of the home country?
• What is the economic level of the assignment country?
• What are the cost differences between the two countries?
• What is the salary structure of the home country?
• How well do host peers tolerate pay disparities?
• Should a lower standard of living carry over on assignment?
• Does a consistent compensation approach for all expatriates matter?
• How many such transfers are you likely to have?17
Philosophy for Compensating Expatriates from DMsElements of Compensation
• Pay delivery practices:– Number of months’ pay– Variable pay– Other allowances
• Statutory requirements:– Extra month’s bonus– Profit sharing– Vacation pay– Transportation allowances– Social security– Termination indemnities
• Local executive perks & benefits:– Supplementary pension plans– Housing allowance/loans– Representation allowances– Dual employment contracts– Car and drivers
• Executive perquisites
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Base Pay
GuaranteedCash
Base Pay
Guaranteed Cash
Short-TermIncentives
Base Pay
OtherBenefits & LT Incentives
Total Cash Compensation
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Philosophy for Compensating Expatriates from DMsCompensation Levels
2020
Challenges in Compensation Assignees from DMsIncome Disparities Among Employee Levels
Entry level Executive
Salary level
Developing location
Developed location
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SolutionsDifferential + Position Allowance
Home Budget
DifferentialEquivalent PeerSpendable Income
Position Allowance
Home Budget
Host Country Peer Budget
Differential
Host-CountrySpendable
Host-Country Peer Spendable
Establish an Operational Foundation: Global Compensation & Global Mobility
Implement a
Global Job
Grade Structur
e
• A company-wide initiative to establish GJG• Gave us a clearly defined structure for TDC (Total Direct
Compensation: Base, Short & Long Term Incentive)
Establish a Home
of Record
Philosophy
• Defined Home of Record for all employees• Where the employee was last employed as a local (if
applicable)
Transition all
Assignees to one Policy
Worldwide
• All assignees transitioned to the new mobility policy• Scorecard used to calculate the changes based on GJG & TDC
Create a Vision for Workforce Mobility
Design a CoE
Delivery Model
• Design the optimal delivery model for Mobility at AIG• Align and Integrate to the HR Vision
Execute the
Design Plan
• Write business case with project plan, secure budget • Deploy resources to manage change as well as “BAU”
Knowledge
Transfer,
Communication
s
• Perform RFP, Selection, Contracting, Implementation• In-house team(s) transformed• Regular stakeholder communications
Build the Policy Format for all Mobility Programs
Assess the
Business Needs
• Constantly listen to business leaders and passionate stakeholders• Look future-forward: what are the business drivers and initiatives
Beta Test
Programs
Regionally and
Globally
• Regional, country or project based tests provide insights, help refine final state• Hard to perform Global tests, may need to “extrapolate” from smaller markets
Socialize,
Secure Leaders
hip Approva
l, Roll out
• Build relationships with those who will champion change – sometimes your harshest critics
• Align changes to other initiatives for support and momentum: i.e.: Global Policy projects, Organizational Effectiveness restructuring, Geographic Optimization
Create a Framework that Can Easily Flex – the Mobility Program should be as Dynamic as your Business Needs & be able to Manage Global Complexities from Compliance to Employee Profiles to Talent Development
Policies
Standards
Guidelines
Procedures
Segmenting Assignees: Four-box ModelCurrent Assignees by Category (Median Values)
Emerging/High-Potential TalentInternational learning/ development to
grow next generation of leaders
Strategic Business LeadersFill mission-critical roles and deliver
specific, strategic business results
N=199N=28N=20
20%20%15%
N=251N=37N=21
40%30%60%
17%17% have a specific policy for this category38%
21%14% have a specific policy for this category48%
Career-Building VolunteersInternational experience to fulfill personal objectives
(opportunistic, employee-driven moves)
Seasoned Technical ExpertsProviding specialist skill/expertise to fill local gap
or to complete a specific project/task
N=108N=14N=8
10%10%10%
N=247N=38N=24
40%55%35%
13% 3% have a specific policy for this category20%
19% 16% have a specific policy for this category52%D
EVEL
OPM
ENTA
L VA
LUE
BUSINESS VALUESource: Worldwide Policies and Practices Survey
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Taking It to the Next LevelIntra-company Collaboration – Mercer Point of View
• Developing an integrated strategy for global talent mobility
• Guiding principles shape strategy, design, and measurement
Locations Quantity & Duration
Lifecycle Management
PLANNING Purpose & Skill Requirements
Talent Supply & Demand
Elements and Purpose
Performance and Risk
Equity, Choice, Flexibility
TOTAL REWARDS
Communication & Transparency
Comparators & Positioning
Segmentation Performance Requirements
Leadership Capabilities
TALENT Employee Value Proposition
Key Roles
Governance & Accountability Administration Oversight &
AdvisoryINVESTMENT
Success Measures
Affordability & Sustainability
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Exec. Level LT IA Policy Intra-Regional Local Plus
Relocation allowance X X
Home sale closing costs X X
Pre-move house- hunting trip X
Economy class airfare X
Business Class airfare X X X
Housing deduction X
COLA X
Dependent education
Tax prep X
Transportation X
Core benefit Discretionary benefit X Not applicable
Pre-
Mov
eO
n-As
sign
men
tCase StudyFlex Policy Example
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Case StudyFlex Policy Example
Policy Core/Flex Elements
Compensation Home country compensation guideline
Benefits Home country compensation guideline
Work Authorization Temporary visas/work permits; no permanent ones
Healthcare International Plan
Tax Preparation Core
Dependent Education Core
Emergency Leave Core
Home Auto Loss on Sale Optional
Cost-of-Living Differential Expatriate or EPI Index
Tax Equalization Optional
Home Leave Optional – Economy Class
Host Country Transportation Optional
Cultural Orientation Optional/On-line
Core
Optional
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Key Takeways What We Covered Today
Organizations will continue to source talent globally
• Become part of the talent conversation
• Ongoing need to validate mobility program philosophy
• Educate mobility staff on pay challenges from countries with disparate compensation levels
• Establish a “Watch List” of problematic countries
• Audit, evaluate, and evolve your Mobility policies
• Implement Mobility Workforce Planning programs
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Per diems
Daily living allowance for groceries, meals out, recreation, transportation, incidentals
Normally one fixed per diem established per location, but practices vary
Customize allowance per what is provided at assignment location
For example, does accommodation have cooking facilities? Is transportation provided?
For example, does accommodation have cooking facilities? Is transportation provided?
Don’t hesitate to contact us!
Ed HannibalChicago+ 1 312 917 [email protected]
Adele YearganNew York+ 1 212 770 [email protected]
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