You should evaluate both the current and long-term potential financial impacts of the assignment.
On a current basis, some of the major items to review are your expenditures for relocation, goods and services, housing, taxes, transportation, and education. Evaluate how the assignment and your employer’s compensation package will help you:
Determine to what extent you might be required to incur duplicate costs at your home location as well as the assignment site and consider steps that can be taken to reduce the occurrence of such duplicate costs.
From a long-term perspective, you should review the impact, if any, on your ultimate retirement benefits (private, company-provided, and Social Security), and, if possible, assess the potential for increased compensation once you have gained international experience.
Employees who work in a home (domestic) location are generally compensated differently than employees who are sent on international assignment, for reasons described below.
1. home-based – based on compensation and living standard of home country peers
2. host-based – based on compensation and living standard of host country peers
3. headquarters – based on compensation and living standards of the organization’s headquarters, regardless of whether the employee has lived or worked in the headquarters location.
Organizations create policies based on various factors, such as, but not limited to, length of assignment, host locations, demographics, type of assignment (developmental, training), and employee requested. Generally speaking, no single approach is better than the other. However, as the home-based approach is the most commonly used, this booklet focuses particularly on the elements of the home-based package.
Regardless of the compensation approach underlying your assignment package, it is important to recognize that due to factors such as fluctuating rates of exchange, different tax systems, and different costs-of-living, almost every international compensation approach differs, often in substantive ways, from how employees are compensated domestically. In short, because of these factors, your compensation will be different.
The balance sheet approach to expatriate compensation is the most commonly used methodology among multinational employers and is most often affiliated with the home-based compensation approach described above (though it is used for the headquarters approach as well). The balance sheet is based on the assumption that you will spend most of your base salary on three major categories of expenditures: taxes, housing, and goods and services. The assumed allocation of your available funds among these categories is dependent upon your family size and salary level. The remainder of your salary (discretionary income) is not allocated among expenditures, but is assumed to be saved, invested, or used for any other purpose. This discretionary income is normally paid in the home country and seldom remitted to the assignment location. However, it is important to understand that the way the balance sheet is implemented varies from one company to another.
If you are on a host-based package, the balance sheet does not apply, as you are being compensated with your host country peers and not your home country peers. Therefore, there is no home country versus host country comparison.
Generally, compensation policies are designed to ensure the employee does not significantly gain or lose compensation during the assignment.
Nevertheless, some employers may pay ‘incentives’ such as foreign service or mobility premiums and location-specific hardship premiums to encourage employees to accept certain international assignments, especially assignments to countries with harsh climates, or those that are underdeveloped or potentially dangerous.
Your company will inform you of the changes, if any, to your equity compensation package. However, you should understand the impact your assignment may have on the taxation of your equity compensation (current and future). As countries differ in their tax treatment of equity compensation (e.g., some tax at grant, vest, and/or sale), to ensure proper consideration of the tax ramifications, companies typically recommend that assignees contact their tax service provider before taking any action with regard to their equity compensation.
Healthcare benefits may require supplemental coverage. Many organizations have a global plan. Generally, you may continue contributing to your company’s health insurance plan, and, depending on its terms and conditions, it should ‘travel’ with you. Your global mobility manager should explain to you what kind of medical coverage you (and your family members who travel with you) will have in the host location and any costs entailed, as well as provide you with a listing of doctors in your host location you may wish to consider. In cases where you are not covered in the host country by your existing plan, coverage under an international or ‘expatriate’ health plan may be available. Also, in some cases, you may be covered under the host country’s state-run health system.
Retirement benefits are very organization-specific, so depending on how your assignment and your organization’s plans are structured, you may or may not be able to stay in your current retirement plan. You should discuss your options with your employer, who may, where applicable, offer alternative mechanisms so that you can to continue to contribute to your retirement.