Revisiting Flexible Assignment Compensation Plans

Flexpats revisited

 

In the May/June 2003 issue of The Journal of Compensation and Benefits I wrote an article on flexible compensation programs for expatriates based on my experiences as the program leader for a Fortune 500 company with several hundred expats deployed around the world. I championed the design and implementation of the “flexpat” program at that company mainly to align assignment programs with the overall strategic direction of HR – to afford employees more control over the choices they made about compensation and benefits. There were numerous other benefits the company realized from the program, but they were not the drivers.

Today, I spend my time mostly consulting with small to mid-sized companies who are new to international business. Some things remain the same, like the need for a well thought out policy that insures consistent treatment and speeds decision making and deployment, an understanding of immigration and work permit requirements and the need to compile data for accurate tax administration. There is however, one big difference between creating and operating an assignment program for a Fortune 500 company and a small company with a handful of international assignees – infrastructure. Small companies usually don’t have it in place. They don’t have contracts for legal counsel and tax services in multiple locations, they don’t have a cash management function with in-house currency conversion and transfer capabilities and they usually don’t have accounting and payroll systems that were designed to track and pay the kinds of expenses international assignees generate. If you’ve never paid an employee’s rent then there is probably no code in the chart of accounts for “rental expenses – host location”.

For these smaller organizations, flexible expatriate compensation is an attractive option because the program can be designed to minimize the infrastructure that must be created to support assignments. If a program can be designed that transfers a lump sum amount to the employee at payday and a service provided to help the employee easily convert the currency and send the money around the world based on individual needs, there can be substantial savings on infrastructure. The fine art in crafting these sorts of programs comes from understanding the complex combination of how employees will spend their money around the world, tax implications of the possible structures, the company’s philosophy on compensation and benefits and conventions in the assignment locations and incenting employees to report information back to the company on how they spent the money.

Some companies will believe that some matters should never be left to employee choice, such as whether to attend cross cultural training or send children to private schools. In some countries, landlords will only lease property to a company and not an individual. Yet most companies won’t intervene if an employee decides to take the allowance for home leave and make more than one trip if they can do it without additional vacation time.

Revisiting this issue three years later, I continue to believe that flexible international compensation programs make a lot of sense. As the nature of international assignments change, as the population of assignees become more diverse and as smaller companies begin to do business across borders, they afford opportunities to create easy to understand – and administer programs tailored to meet a company’s unique needs.

If you would like a copy of the original article, which contains detailed spreadsheets modeling a flexible compensation program, please contact GHRO.