Author:

One of the most challenging situations that compensation professionals face is how to respond to unexpected or unusual external events such as maxi-devaluation, civil unrest, or natural disasters.

Flag of Malawi

On Monday May 7, the new government of Malawi agreed to the demands of the IMF and other donors, and floated the Kwacha, resulting in a 47% devaluation versus the US dollar. The new exchange rate, 246.26 Kwacha per US Dollar as of May 13, is fairly close to the parallel rate that has been in effect for the last several months, so in many ways, this move just makes official a rate that has been operational already in many parts of the economy.

Employees will now approach their employers asking how the company is going to protect their level of wages, especially to compensate for the expected price inflation that often occurs following a devaluation. Compensation and HR professionals should move cautiously with salary adjustments.

Here’s why.

Labor markets are impacted by economic conditions, but the fundamental principle that impacts salary levels is the cost of labor, not cost of living.  Supply and demand, not inflation or cost of living, determine the price of labor in the market.  See my prior posts on Inflation and Devaluation for a more detailed explanation.

That’s the theory, but how should an employer address the very real concerns that employees will raise following a maxi-devaluation?  

You need a policy.  Here are some policy suggestions to address devaluation:

1. Focus on Stability
   In the developing world, economic and political instability is common. Employees want employers to provide stability despite the inherent instability in the country. So you need a policy that outlines how your company will respond when certain external events occur.
2. Set a Threshold
   Define a threshold level of devaluation above which your policy takes effect.  This leaves no room for debating when the policy should be applied.
3. Define Actions
   The policy should describe the actions to be taken, the time frame for these actions, and how the ongoing situation will be monitored going forward.  For example, you might stipulate that an immediate adjustment of 15% to 20% of the devaluation be implemented, as an allowance which is separate from salary.  Once the situation in-country is more stable, decisions can be made about how much of the adjustment should be made permanent.  A period of four to six months is usually needed to sort things out.
4. Measure the Market, and then Measure it Again
   You should, of course, know your market position based on a high quality market survey.  Birches Group can help you here – we conduct surveys in over 140 developing market countries.  Are you on target, a bit high or a bit low?  If you have a high position, keep this in mind when deciding about any permanent changes.  Similarly, if you are in a low position, this could be a good time to fix it.  After an event like a maxi-devaluation, your survey data is going to rapidly be out-of-date.  Your provider should be able to advise on how employers in the country have reacted to the economic events and estimate a percentage that  reflects the prevailing practice.  Use this, together with your market position, to determine permanent adjustments and next steps.
5. Communicate
   This will ensure that expectations are reasonable and there are no misunderstandings about what the company will and will not do in response to a crisis situation.
6. Be Consistent
   Once you’ve established a policy, use it!  It is easier to apply a policy consistently than have to explain why exceptions are made for some and not for others.

If your company has staff in Malawi right now, what are you doing to provide stability to your local staff?  Please share your approach in the comments section.

More About Warren

Warren Heaps

Warren on LinkedIn

Developing Markets Compensation and Benefits Group on LinkedIn

Email Warren

Author:

This is the second part of a five-part series, where we present checklists to help international HR professionals plan and manage long-term international assignments. There are five stages we identified for long-term assignment management:

Click to Enlarge

In part one of this series, we looked at candidate assessment, selection and approval. In this installment, we will examine Assignment Planning.

Assignment Planning includes the key steps you must follow after your candidate is selected for assignment and management has approved the move. Now you can delve into the specifics and develop a more detailed budget, along with strategic planning for tax savings and ensuring compliance with immigration requirements.   Here is a checklist for this stage:

Click to Enlarge

We’ll look at each of these steps more closely.

Gather Employee and Family Information
There is a lot of information that is needed to move forward with assignment planning, and sometimes it may not be in your HR system.  The biggest task is to gather complete family information, in order to provide inputs into the draft compensation calculation, and to those coordinating relocation, immigration and visas, and benefits.  You’ll need to make sure the assignee and family members have proper immunizations and valid passports.  If you have multiple policies, select the one that applies to the move, and gather the necessary data from your expatriate data provider on COLA and housing differentials, hardship pay, etc.  You’ll need to schedule a tax consultation, too, using the assignee and family information, plus additional details from the assignee which remain confidential between the assignee and the provider.

Draft Compensation Calculation
A draft compensation calculation (usually a balance sheet) is a key element, as it’s used to communicate the details of the assignment package to the assignee as well as for tax planning and budgeting purposes.  This is the time to assess any adjustments needed to benefits coverage and identify any shortfalls.  Your tax provider will need the comp calc to make the proper estimates for hypothetical tax and for tax planning.  Of course, the compensation calculation is the one piece of information the assignee really wants to review and understand, and probably negotiate, too.

Prepare for Relocation
Not only is the assignee taking a new position in a new country, the family is relocating, too.  It is a complex and hectic time.  Most companies enlist the help of a relocation firm to work closely with the assignee and the family to ensure a smooth transition.  In this step, the relocation firm might review policies, take stock of the household goods situation, and explain options for shipment and storage.  On the assignment side, this is also the time to explain housing options in the new location, and the budget.  Many companies provide medical exams, security briefings and cultural training.  Finally, a pre-assignment trip is often provided, to find housing, enroll children in school, and generally get a good orientation to the new location.  Don’t forget about pets!

Assignment Approval
The last step in this stage is Assignment Approval.  This means obtaining the final sign-off on budgets and cost projections, normally prepared by your tax provider.  Tax planning – a proactive approach to minimize tax costs of the assignment, should also be considered.  There are many techniques to reduce tax costs by making simple changes to contract language, payroll arrangements or social security coverage.  Sometimes changing the timing of an assignment by 30 days or less can result in huge first year tax savings.  In my personal experience, tax planning, if applied consistently for every assignment, will generate significant savings, far in excess of the costs you may incur from your provider, but it does require a disciplined approach and some flexibility from your company with regard to timing of assignments and allocation of costs.

What’s Next
In the next installment, we will take a look at international relocation.  In the meantime, please add your ideas and questions in the comments section below.

More About Warren

Warren Heaps

Warren on LinkedIn

Developing Markets Compensation and Benefits Group on LinkedIn

Email Warren

Author:

If you are an international HR practitioner, then you have probably had to deal with long-term international assignments.  They can be complex, with many different people involved, both internal resources and external suppliers and vendors.

One of the best ways to ensure all the necessary steps are followed is to use checklists.  These are simple yet extremely useful devices that will help you stay on track with your international assignees.  A recommended approach is to develop a checklist for each of the common assignment stages or events that occur, including:

In this series, we will share checklists for each of the five stages of a long-term international assignment.  The steps highlighted probably won’t match the procedures in your company exactly, but the checklist will provide you with a handy reference which can be customized to your actual process. Let’s start with the first stage, Assessment, Selection and Approval.

In this stage, you’ve identified the need for an international assignee, and now you need to find the right candidate, and gain approval for the assignment.  Here is a checklist for this stage:

Let’s talk a look more closely at each one of these tasks.

Identify Candidates
This is one of the most crucial steps for an international assignment – finding the right person for the job.  You need to consider both the technical job requirements as well as any special skills such as languages which might be required.  Remember, assignments are expensive so you want to make sure your investment is sensible.  Therefore, always consult the outputs from your career and succession planning process to see if there are candidates in need of an assignment to further their agreed upon career plan.  Be sure you also take into account any location-specific limitations, such as lack of schools, security risks, and other situations which make normal family living difficult.  Be sure to involve line management and HR staff together in identifying the potential candidates.

Evaluation and Assessment
You will want to apply the standard assessments used to select people for any position in your company.  In addition, however, special consideration should be given to a candidate’s suitability for an assignment.  This includes an assessment of their personality and cultural awareness, to try and predict how successful they would be in the new environment.    How well does the candidate deal with uncertainty and change?  Are they comfortable operating in unfamiliar territory?  Is their operating style compatible with local culture?

What about their family?  It has been proven over and over that a family that is unhappy on assignment usually causes the assignment to fail or at least terminate prematurely.  So be sure the assessment covers the spouse and children, too.  You will probably want to assure some confidentiality of the results, with no details being shared other than a basic assessment by an external consultant of the likelihood of success and a “go/no-go” recommendation.

Final Candidate Selection
Now you are ready to meet with line management and together select the best candidate for the position.  Be sure to take into account all of the considerations, both the “hard” and “soft” ones.  Pay special attention to the potential impact on the candidate’s career plan.  While many organizations would look at costs as part of the decision, I would suggest choosing the right candidate first, and assessing the cost implications separately as part of the approval process that follows selection.  Too often, companies choose candidates based on cost as the primary consideration, which often results in sub-optimal results.

Assignment Approval
The best candidate has been identified based on a holistic assessment that considers technical knowledge, personality, cultural fit, career plan and family considerations.  The final step is to do a budget for the assignment.  The usual approach is to run a cost projection.  There are many ways to do this.  The most common approach is to work with your outside tax consultant; this generally requires a great deal of information as inputs, but yields a very complete picture of the total assignment costs.  Another alternative is to use a system which estimates costs based on normative data.  AIRINC has a product called ACE (Assignment Cost Estimator) which allows clients to estimate assignment costs quickly and with enough detail to make a decision about an assignment.  After all, you don’t need the entire, detailed budget until the assignment is finalized by both the company and the employee.

What’s Next?
In the next installment in this series, we will look at all aspects of assignment planning, from the employee and family perspective, as well as the company’s view.  In the meantime, please share your ideas, and any steps you follow in your company for selecting long-term international assignees.  Are there tools you use that you recommend? Or maybe some stories of difficult situations you wish you could have handled differently, from which we all can learn?

We look forward to your comments.

More About Warren

Warren Heaps

Warren on LinkedIn

Developing Markets Compensation and Benefits Group on LinkedIn

Email Warren

Author:
Mary Lou Stockton – Global Tax Network

A US company sends an employee on assignment to the UK.  The company informs the employee that they will pay X amount for his UK housing.  The employee wants to spend more, because he wants a larger, nicer flat.  He feels the allowance is not enough for the type of flat he wants considering his family needs, including the fact that his wife wanted to live near other Americans.  

The HR Director works with the business manager to determine whether the company would pay more in this case.  The employee is told that he will have to reimburse the company for excess housing cost through payroll.  The employee contends that he should get a tax deduction on his hypo tax for the excess housing that he funded.  The issue went to the tax accountant and finally to the company VP for resolution.  The VP asks why he is being asked to resolve assignment allowance issues and tells HR that they should “handle it”.  The HR Director considers transferring to something less complicated, like nuclear engineering or cell biology.

It does seem expats take a disproportionate percentage of HR’s available time, and require much more administration than one would expect.  The trend in HR today is towards “self-service”.  Why do we need such detailed and centralized control of assignment expenses and allowances?  

Why can’t I just give assignees some extra money to handle the costs of an international assignment?

Employers sometimes use a “lump sum” approach in addressing the additional costs and burdens that international assignees face.  Managed right, this can reduce some of the administrative burdens associated with the expat program.  The employee gets the extra cash that the company was going to spend anyway, and the company is not responsible for negotiating and managing costs at a micro level.

However, lump sums are not always the panacea employers expect.  There are some added risks to consider with the lump sum approach:

• The time burden may not be eliminated – instead it is transferred to the employee
• Assignment costs may increase – both direct costs and tax costs
  • Lump sum payments are typically taxed like ordinary income. In countries where the intended benefits can be provided in a tax effective way, using lump sums may actually increase tax costs.
  • The employee may not make appropriate buying decisions.
• Compliance risks may increase
  • Companies often remove tax compliance services from the expat package when using lump sums, leaving it to the employee to handle taxes.  If this is not done properly, the company could face additional risks.
  • Similarly, immigration issues still need to be properly managed, too.
• Company reputation can be at risk if the employee does not comply with local tax and immigration requirements
• The employee may not appreciate the value of the allowance provided compared with the burden of self-service in managing their assignment costs.
• Administrative time (i.e., HR time) is still needed to develop the appropriate lump sum amount.  Key considerations in determining the lump sum are:
  • What elements should be included,
  • How are these amounts determined, and
  • When does the lump sum amount change, if at all.
• The time the employee spends trying to find a cost effective solution for his or her particular situation means time not spent on the job.
• Employee morale could be negatively affected.  If the assignee perceives that his or her finances are adversely impacted, the resulting stress can impact both work and family.
• If the lump sum amount does not reflect the fluctuations in living differentials during the assignment period (for example, the US dollar takes a dive relative to pounds), or if the employee lacks the ability to live on a pre-established amount, the employee may seek even more money from the employer.
• When this happens, the administrative burden on HR has simply been shifted from the beginning of the assignment to a later point in time.

As a result of these issues, some companies limit lump sum payments to initial relocation costs. Once the relocation costs are determined, the employee is provided with a lump sum amount. The employee is expected to make all his or her own arrangements for the international move. While this may work effectively for domestic moves, it can be more problematic for international moves.

Remember the Goal
Most employers set up their international assignment policies in an effort to protect their international assignees, and to make sure that the international assignment is positive for the employee and the employer. The employer wants to ensure that their assignees do not suffer significant financial or administrative burdens associated with an international assignment. Delivery of benefits over the course of the assignment, coupled with the administration during the assignment, typically provides for a less disruptive and more compliant (i.e., less risky) environment.

More About Mary Lou

Mary Lou on LinkedIn

About Global Tax Network

Global Tax Network provides international assignment tax compliance and consulting services for corporate global mobility programs, including program development, ongoing tax management, and special projects. The firm is recognized as a leader in consulting for emerging to mid-sized global mobility programs. GTN has six U.S. offices, with allied partners and resources in more than 100 countries to support assignee home and host tax requirements.  For more information please contact us.

Author:

Benchmarking compensation in smaller countries is challenging.  The usual approaches often do not work well, mostly because the market is small!  If the country is developing (most small ones are), then economic and social instability and immature labor market conditions contribute to the problem, too.

Some of the most common problems expressed by our clients include:

• Not enough employers in my sector
• Insufficient job matches for my company
• Volatile results from year to year
• Gaps in coverage, with a lack of information for specific levels

There are lots more, but you get the idea.

Survey Insanity
Albert Einstein once defined insanity as doing the same thing over and over again and expecting different results.  I think there is a lot of salary survey insanity – companies looking for data in smaller countries using the same, big country approaches they always do.  When it fails (see the list above), they try again, perhaps by calling a different survey provider, or commissioning an expensive custom survey, but always looking for the same thing — sector-based data for specific occupations unique to their company.  And so the cycle continues, and Einstein must be laughing at us all.

Stop the Insanity!
How do you stop the survey insanity?  Try taking a different approach instead.

1. Remember Your History
   The world of work is well-defined, and despite what you may have heard, has not changed as much as you think.  The basic approach from the medieval guilds — Apprentice, Craftsman, Journeyman, Master — continues to exist today for professionals.  After all, isn’t this very similar to Technical Career Ladders?  Fancy description for what was actually created around 1300.  Military classification is another example of long standing, well-defined work role definitions.
2. Break Out of Your Sector
   In smaller markets there aren’t enough employers in any one sector to provide the granular data you are seeking, so get over it.  Instead, focus on the leaders in all sectors.  Look for companies with whom you compete for talent, and in developing countries, don’t overlook international public sector employers such as the World Bank and the UN.  A small survey of the BEST employers beats a bigger one with all the sector “dogs” any day.
3. Go Generic for your Job Matches
   In the majority of companies, salary ranges are set by grade level or band, and all positions assigned to that band share the same salary range.  There are Accountants, Brand Managers, IT Professionals, Engineers, Admin Managers, etc. all in the same band and sharing the same salary range.  So why is it so important to match specific occupational data in a survey?  If your internal job evaluation is done right, the assignments to your bands will be correct for your organization.

   In our surveys, we capture many different occupations, but the most robust data are the generic “roll-ups” by grade level, which include the jobs for which there are sufficient matches to report separately, plus the unreported data at that level.  More data points yield better results.  So it’s OK to use generic matches.  After all, your pay bands cover multiple occupations already!  And if you need to, you can tweak the data for those special occupations afterwards, when you build your scales.

4. Think More Broadly
   Recently, a client requested information about our survey data for the media and information industry in several small markets in the Middle East and North Africa.  The media market in these places is fairly small, but their job list was full of very specific media industry roles.  I expressed some concerns about our ability to gather enough data to provide a reliable result.  But, I also made the observation that many of the roles were essentially skilled process support roles.  Instead of roles in accounting or HR, they were in TV production and media, but in the end, they were still support roles. We have plenty of matches for our more common support roles in our survey, and I suspect that data would be just fine for the client.

   In addition, we challenged the client to think more broadly about where appropriate job matches might be found.  For example, large embassies often have fully developed public information departments staffed with roles quite similar to those found on a newspaper or television station.

As you can see, the small market survey conundrum can be solved if you are willing to think differently about how surveys are “supposed to work.”  To act differently is to perpetuate salary survey insanity.

Please share your challenges in a comment below.

More About Warren

Warren Heaps

Warren on LinkedIn

Developing Markets Compensation and Benefits Group on LinkedIn

Email Warren

The International HR Forum is proud to be a Partner Organization for the upcoming North East Totally Expat Show on 3 April in New York.  The event is just three weeks away! It will be the largest global mobility event ever held in New York.  So, if you are in the New York Metro area, or if you are able to travel, register now!

Here are 10 killer reasons why you should register today:

1. It offers a unique opportunity to network, learn and share with over 500 other Global Mobility professionals.
2. It is completely free to any corporate Global Mobility professional (and service providers need only pay a very modest entrance fee).
3. The event is certified for 4.0 GPHR HRCI credits (Where else can you get your credits for free while having a useful day out with all your Global Mobility friends and colleagues).
4. There will be over 60 different exhibitors covering every aspect of Global Mobility with many others attending. All the leading players will be represented.
5. You can meet many of the leading experts from all walks of Global Mobility including Relocation, Tax, Immigration, Housing, Shipping, Pensions, Benefits, Education and many more.
6. All attendees will get a free copy of our ground-breaking survey from the FEM entitled “Managing the Global Mobility Function”.
7. There will be a rolling program of 14 different seminars including many of the most famous names in Global Mobility.
8. There will be a special focus on immigration – with a “Meet the Experts” panel with leading specialists from Fragomen, Barst Mukamal & Kleiner , Gibney Anthony & Flaherty and Pro-Link Global. We are also honored that there will be a separate session led by Austin Fragomen personally.
9. There will be plenty of time set aside to network, meet with friends or make new acquaintances. You can meet up with all your existing vendors in one place – or indeed source an entirely new panel!
10. There are many opportunities to win prizes, including:
    • Bridgestreet will have an iPad to be drawn
    • Brown Brothers Harriman, Equus, Graebel and Insurance Services International are all offering the chance to win Kindles.
    • Switchplace will be raffling a Kodakeasyshare.
    • Xerox Relocation will be giving away a cash prize of at least $200.
    • AVE are offering an orange iPod nano.
    • School Choice International will be offering 3 Silver Level subscriptions (3 country) one month access to Global Education Explorer, a web based resource for families and companies to understand and compare education across the globe (value $150 each subscription).
    • Cultural Awareness International is offering three free passes to their Webinar on Doing Business with China on May 8. (value $125 each).
    • Plus many more chances to win at the show

So please, before we sell out, register today for the North East Totally Expat Show in New York.

 SPONSORS

LEAD

Equus Software * Fragomen * Sterling Relocation

PLATINUM

AIRINC * Barst Mukamal & Kleiner * Berlitz * Cartus Corporation * Dean Foster Associates * Gibney, Anthony & Flaherty * Grant Thornton * Interdean International Relocation * KPMG * Net Expat * Nu-Compass * Pro-Link Global

EXHIBITORS

ACS Relocation * ACS Schools * Aetna Global Benefits * aka: Luxury Hotel Residences * Appliances and Videos * AVE by Korman Communities * Bennett Schoolplacement Worldwide * Birches Group * BridgeStreet * Brown Brothers Harriman & Co * Budd Van Lines * Cartwright Relocation Services * Churchill Corporate Services * CIGNA * Compass * CORT * Crown Relocations * Cultural Awareness International * Delta Recovery Systems * Expat Tracker * Expaticore * FIGT * Frasers Hospitality * Freed Maxick * Furnished Quarters * GeoBlue * Global LT * Global Tax Network * Graebel Relocation Services Worldwide * INEO Relocation Technologies * Insurance Services International * International Autosource & ReadyDrive * ITG Worldwide * Jacob Street Partners * Living Abroad * Marriott ExecuStay * MetLife Expatriate Benefits * On Call International * Orion Mobility * School Choice International * SECOR Group * Sutton Court * Switchplace * TheMIGroup * Travel Guard * Vandover * Weichert Relocation Resources * William B Meyer * WorldCare Pet Transport

PARTNER ORGANIZATIONS

Families in Global Transition * International HR Forum

JOIN SOME OF OUR REGISTERED ATTENDEES…

AIG * Amphenol TCS * ArborBridge * Associated Press * AvisBudget Group * AXA Equitable * Axiom Law * Barclays * BNP Paribas * Boehringer Ingelheim * Bunge Limited * Citibank * Citicorp * Coach * Cognex * Colgate Palmolive * Columbia University * Corning Incorporated * Corporate Synergies * Covance Inc. * Covidien * Criteo * D&B * Dahl Group Consultants * Deloitte * Discovery Communications * Dragados USA * DSM Services USA * Ellington Management Group * Esquire Bank * Fidessa Corporation * Foot Locker Inc. * Harris * HBS * Honeywell International * HSBC * Human Rights Watch * IBM * Independent * ING Financial Services * Ingersoll Rand Company * JPMorgan Chase * KPMG LLP * Launch Education * Limited Brands * L?Oreal USA * Marsh & McLennan Companies * Massachusetts Institute of Technology * MetLife * Milbank, Tweed, Hadley & McCloy LLP * Morgan Stanley * Nielsen * Novartis Pharmaceuticals Corporation * NYSE Euronext * NYU * Praxair * Praxis Insights* PTC * Ralph Lauren * Research in Motion * Resources Global Professionals * Sikorsky Aircraft Corporate * Smith Stone Walters * Sony Music Entertainment * Teach For All * Terex Corporation * The Hershey Company * The NPD Group Inc. * The Royal Bank of Scotland * Tiffany * Towers Watson * Toys’R'Us * UNDP * Unilever * United Nations * United Technologies Corporation * Voss USA * White & Case LLP * William J. Clinton Foundation *

Author:

Have you heard about the Totally Expat Show sponsored by the Forum for Expatriate Management? This group has hosted several very successful exhibitions designed for global mobility professionals.

This year, the International HR Forum will be represented at the New York Show on April 3rd.  Birches Group LLC will have a booth in the Exhibition Hall — stop by and introduce yourself as one of our loyal readers.

Check out the details on our NY Totally Expat Show page.

When you register, please be sure to mention you saw the event on the International HR Forum!  And if you want to, leave a comment if you will be there, so we can look for you.

[Editor's Note:  We are happy to welcome Jen Stein as a Guest Author.  Jen is the Managing Director of the Global Tax Network Chicago office.  She has more than 15 years of experience in expat and foreign national tax preparation and consulting, starting her career with Arthur Andersen, and then Ernst & Young, where she served for over 14 years.]

Taxes are one of the most complicated and expensive aspects of an international assignment.  To control these costs, most companies utilize a tax policy as part of their international assignment process.  The two most common approaches are tax equalization and tax protection.  How do you decide if one of them is right for your company? Let’s start with some definitions.

Tax equalization is a process that ensures that the tax costs incurred by an assignee on an international assignment approximates what the tax costs would have been had (s)he remained at home (i.e., had (s)he not gone on international assignment or received any assignment related allowances or compensation items). The intent of tax equalization is that the assignee neither suffers significant financial hardship nor realizes a financial windfall from the tax consequences of an international assignment.

When tax equalization is utilized, the employer generally bears the responsibility for paying the assignee’s actual home and host country tax costs. In exchange, the assignee pays to the employer a “stay-at-home” or “hypothetical” tax as determined under the company’s tax equalization policy.

The estimated stay-at-home hypothetical tax should be collected from the employee each pay period (i.e., through a payroll deduction) and there should be an annual tax balancing to reconcile this estimated withholding amount to the final hypothetical tax liability for the year. As a result of this final tax balancing, the employee may owe the company additional stay-at-home tax, or the company may need to return part of the stay-at-home tax to the employee.

Tax protection is a process that reimburses an assignee the excess taxes (s)he incurs while on an international assignment. The employee is generally responsible for the payment of all actual home and host country taxes. The annual tax protection calculation then compares the stay-at-home hypothetical tax to the actual worldwide taxes paid by the employee. If the actual worldwide taxes exceed the stay-at-home tax amount (as determined under the company’s policy) the company reimburses the excess to the employee. If the actual worldwide taxes are less than the stay-at-home tax, the employee retains the tax benefit (and accordingly, receives no reimbursement from the company). Tax protection generally puts the burden of filing and paying home and host country taxes on the assignee.

The assignee’s cash flow may be seriously impaired under tax protection if (s)he is in a high tax rate country. The assignee must first pay both his actual home and host country taxes, then request a stay-at-home tax calculation, and finally be reimbursed for excess taxes. Compliance with the host and home country tax laws is sometimes “overlooked” since the assignee is solely responsible for filing and paying his home and host country taxes. In addition the assignee has a financial incentive to minimize his actual tax. Cash flow and compliance problems are exacerbated in high tax countries. If the assignee fails to comply with the host country tax rules and the failure is exposed, the company may be the target of unexpected and unfavorable publicity.

When tax protection is utilized, the assignee may reap a significant financial windfall if his/her assignment location country has no tax or a very low tax.

Why would a company utilize tax equalization instead of tax protection?

Tax equalization supports equity, mobility, compliance, and partnership.

• Equity is achieved because the assignee is in a tax neutral position during the assignment.
• Mobility is enhanced because changes in assignment countries produce no significant tax benefit or disadvantage for the assignee.
• Compliance with both home and host country tax laws is encouraged because there is no benefit to non-compliance.
• A partnership is formed between the company and the employee, with the company paying all worldwide actual taxes and the employee paying his hypothetical tax.

The perceived fairness of the tax equalization program provides intangible benefits since the assignee is not significantly impacted by the tax consequences of his international assignment. The use of tax equalization assists the company in being able to move employees based on business needs. It helps avoid situations where it is easy to fill a position in a country with a low tax rate while having difficulty filling a post in a high tax rate location.

By keeping the tax windfall generated by transfer years or low tax rate locations at the company level, assignment related tax costs associated with the international assignment program are controlled.

However, there are some disadvantages to using a tax equalization policy as well, including:

• Administration needs may increase due to implementation of hypothetical withholding and tracking of year-end balancing calculations and payments.
• A well defined policy may be needed to handle the variety of situations that can occur.

When deciding which, if any, tax policy is right for your organization consider the goal of the international mobility program, the business needs of the company as well as the ability of the organization to administer the policy.

More About Jen

Jen on LinkedIn

About Global Tax Network

Global Tax Network provides international assignment tax compliance and consulting services for corporate global mobility programs, including program development, ongoing tax management, and special projects. The firm is recognized as a leader in consulting for emerging to mid-sized global mobility programs. GTN has six U.S. offices, with allied partners and resources in more than 100 countries to support assignee home and host tax requirements.  For more information please contact us.

[Editor's Note:  We are very excited to share with you the assignee's spouse perspective on international relocation, from someone who has lived through five such moves.  Rachel Yates edits a website, Defining Moves, devoted to assisting relocating families around the world. ]

Ten years ago, my partner was offered his first international relocation to Kenya. We saw it as an opportunity for adventure, travel and fun, and with that in mind, I made every mistake in the book. With hindsight, I had watched too many period dramas; in my mind, relocation was going to fall somewhere between Out of Africa and Downton Abbey. The reality was far less glamorous, and involved me spending the first six months sobbing, wondering what on earth I had done. So where did I go so badly wrong?

No Preparation
My husband’s career was driving the relocation, and I assumed that ‘everything would be taken care of’. But I hadn’t taken the time to consider what my definition of ‘everything’ was; if I had, I would have realized that I was describing a vacation, not a life. My lack of research meant that I had no idea what we as a family were getting into, what we would need to transition and integrate successfully, and what the relocation package provided. Instead of days spent writing my opus magnum, I was in daily crisis management, trying to plug all the holes in our very leaky life plan.

No Self Assessment
I hadn’t taken time to explore my own vision for our new life, how I would cope with the loss of career and professional identity, with being defined by my relationships rather than my self, and what skills I needed as an individual not only to survive, but thrive. I didn’t realize how important my family, friends, colleagues and support networks were, and so hadn’t ensured that I stayed connected to my old life while I was finding my feet in the new one.

No Ownership
Relocation is an intensely personal, emotive and stressful process, and yet I signed all control and responsibility over to people I had never met, and assumed they could read my mind. Not only that, because of my lack of planning I had no idea what I wanted, what was realistic, and what was a complete waste of time and energy. I waited to be told what I needed and what I had to do, and didn’t realize that once I arrived in Nairobi, the work of the relocation company was done and I was on my own.

No Focus on Fundamentals
I saw life as a set of basic physical requirements, and underestimated the importance of the social and emotional needs. I was swept away by the need to pack, to select what seemed indispensable, and to stockpile ‘essentials’ that would we would be unable to get in location. And of the stuff that I took, ironically only the plain white dinner service and the silverware was ever really used. If I had done my research and pre-move networking, I could have found out what people already there really wanted, and bribed / bonded my way into a whole new social network. I was too busy thinking about what I should take, rather than what I could give.

So what’s changed?
I view relocation as a process, not a product. It’s an enormous challenge – the sheer volume of paperwork, physical practicalities, social isolation, and navigation of the unknown – but I am aware of it at the outset, and do a great deal of research, networking and preparation to ensure success. By clarifying what’s really important to each member of the family, I’ve simplified our requirements and thus the work involved. I have identified the non-negotiables - I know what we can survive without, and so the ‘essentials’ list is small, but I know to give them priority. We abandon furniture but ship the pets; we can live without power, but not human contact, and if it’s really important, we can buy it, borrow it or import it later.

I appreciate directness
On our first relocation, I was working, had two small children, and an absent partner already transferred to Kenya. Impersonal emails notifying me of mandatory attendance at vaccination appointments, consulates and the like felt rude and demanding, and I took the lack of social niceties personally. Time and travel have taught me the value of clarity in communication, and if you give me a choice between one email with a clear list of objectives vs. fourteen chatty emails with one task in each, I’ll take the former. While personal skills smooth the transition and soothe ruffled feathers, the relocation company’s role is not to be my friend, but to do a job – move me quickly, quietly and legally.

I don’t place all the responsibility on the relocation company
The move is a partnership – and while they are responsible for managing many of the practicalities, I need to fill in the blanks. Standards and practices vary between companies and locations, and so it’s essential for me to understand what we need to transition effectively, and how the company can help, if it all. In many locations, support services that we take for granted simply don’t exist, and so no amount of phone calls to the relocation manager will make a difference. There are many excellent companies out there who do a wonderful job, but there is a reason it is a multi billion dollar industry, and it isn’t because global transitioning is easy.

What About You?
Have  you relocated internationally?  What are some key learnings you can share with us?  Please leave a comment with your story.

More About Rachel

Rachel Yates is the editor and publisher of definingmoves.com, a website that provides information and inspiration for relocating individuals, partners and families with the knowledge, experience and warped humor of expatriates and locals from all over the globe.

Rachel on LinkedIn

[Editor's Note:  It is with pleasure we welcome Nathalie-Michèle Sylvain as a Guest Author. Nathalie-Michèle is based in Montreal, Canada, where she specializes in candidate and family assessment, expatriate support and intercultural management training. She regularly participates in global conferences and has been an invited speaker for cross-cultural topics at some of these conferences as well as at Canadian universities.]

A lot is said about cross-cultural training for international assignments. Some argue that it is very important and should be done prior to departure, others claim in should be done at the host country and others still doubt the value of cross-cultural training all together. But we tend to forget that the effectiveness of a cross-cultural training depends more on its content than on its timing. So what makes a good and effective cross-cultural training program?

Why Provide Cross-Cultural Training?
Perhaps the first question to answer is:  Why provide cross-cultural training to an international assignee? Simply stated, because a good cross-cultural program will narrow the gap between expectations and reality. Though no amount of training can ever reproduce exactly future reality, it should enable the assignee to gain a more realistic perspective of the challenges ahead. And, the closer the expectations are to reality, the easier the transition will be. Through proper training, the employee and family members have been prepared and have thought of coping and adjustment strategies. They can take some ownership of the assignment’s outcome and this will most likely turn into positive motivation to succeed.

However, when expectations are far from reality, international assignees will quickly feel that they have been mislead and this will have a direct negative impact on motivation to succeed, as they will refuse to own the outcome of the assignment but rather place all that responsibility solely on the company.

But not all cross-cultural programs out there are equal. Many focus on language, customs, etiquette, dos and don’ts, climate, history, leisure activities, etc.  Not unlike travel guides. Of course, an effective cross-cultural training should address those topics (before or after arrival in host country).  But the primary focus should be on the impact of culture on our unspoken expectations – at work and outside work.

A good cross-cultural program should focus on these key elements:

• Management styles and culture;
• How sources of motivation can greatly vary from culture to culture;
• How supervision styles favoured in one culture can be catastrophic in another;
• How hierarchy is perceived differently, and what that means when conducting meetings or brainstorming sessions;
• What is the place of interpersonal relationships in business? Is it contract first, personal trust second? Or the other way around?

Communication Styles are Key
Another important area of focus is communications styles. Communication is not merely a matter of language; rather,  it is understanding the intention behind the words. Across cultures, this becomes more complex, as some value direct communication styles while others, preoccupied with harmony, honour, or hierarchy will often prefer an indirect style. This is when ‘that’s not possible’ becomes ‘we will see’. How long does it take an unprepared employee overseas to understand that ‘yes, yes’ simply means ‘I acknowledge that you are talking to me’ or that the answer to ‘do you understand?’ will always be ‘yes’?

An effective cross-cultural training should also take into account the company’s culture and whether the company wishes to establish its culture in the overseas location, or whether it accepts to adjust to local culture (e.g., is this a joint-venture with a local partner?  Is management local? Does it view itself as a multinational company or as a global company? etc.).

In addition, a complete cross-cultural program should address all the issues above as they pertain to expectations at school and in everyday life. It should also expose the different phases of transition (culture shock) and propose coping strategies for the different members of the family.

In Summary
When developed carefully, and delivered by an expert,  a good cross-cultural program is an essential tool in developing necessary skills to perform in an international context.  It will illustrate to the assignee what adjustments at work are needed to become as effective abroad as he or she is at home.  To achieve this, it should be done prior to departure.  Cross-cultural programs developed under this model should also be offered to anyone working in an international context, whether from home or abroad.

More About Nathalie-Michèle

Nathalie-Michèle on LinkedIn

About Transitaré

Transitaré specializes in assisting assignees and their families with cross-cultural transitions in connection with international assignments.  Nathalie-Michèle Sylvain is the Principal.  She has worked extensively overseas for Canadian and American employers, and focused on international human resources issues.  She holds a Master’s degree in Organizational Behaviour from Birbeck College, University of London.