Benchmarking can sometimes seem like a time-consuming exercise but if done properly is well worth the initial effort involved. It can give you the confidence to know where you are in the market place and the ability to defend your packages either to assignees who may feel they aren’t getting enough, or to finance departments who feel you are being too generous.
Based on an understanding of where you want to be in the market and the company philosophy and strategy behind the expatriate packages, how can you ensure you get the most out of your benchmarking?
There are many different elements that make up an expatriate’s package and how it is calculated. Here we look at five of the main things to consider when benchmarking.
Whether you are using a build-up to ensure the employee is ‘no worse off’ on the assignment than they were at home, or a host-based salary to ensure equity with colleagues in the host country, this is the first thing most assignees will compare and so should you. Firstly, ensure that you are comparing like with like. The best way to do this is by comparing net salaries as expatriates can be subject to a variety of tax and social security rules depending on the home and host countries involved. Excluding performance related payments, one-off payments such as settling in allowances and benefits in kind such as use of a company car or company paid housing simplifies this process. It is important not to ignore these components altogether as I discuss later.
Using a job evaluation system rather than job titles to compare like positions is also critical as it is more systematic and enables comparisons between companies from different countries and industry groups. For example, a ‘General Manager’ could mean anything from a very junior employee at a small company to someone on the board of a huge multinational.
Some companies may wish to look just at their own industry group or further narrow the benchmarking down. The chart below from ECA’s MyExpatriate Market Pay reports shows an example of how this can be done. You can immediately see where your salaries fit against the rest of the market.
For local employees in most countries in the world benefits make up a small proportion of the total package they receive, however, for expatriates the cost of these benefits can be even higher than the salary itself. Factoring in the provision and costs of accommodation, utilities, education fees, transport and even club membership fees is important not only from the point of view of the costs to the company but also the value for the employee. Since children’s education and the quality of accommodation are identified as key factors in assignment success in ECA’s latest Managing Mobility Survey it certainly pays to ensure that you consider these elements and your market position.
As well as the salary and benefits themselves, the various policy choices that go into calculating them should also be considered so that once you are clear on where your assignees fit into the market you can understand why they are there. Increasing complexity is a big trend in mobility and benchmarking is one way to ensure that you are keeping up with the competition; a one-size-fits-all policy may no longer be suitable. Looking, for example, at the provision of car allowances, the difference between Angola and Hong Kong shown below is stark and clearly there are good reasons for this difference.
These can be complex, and again it is important to look at the philosophy behind your bonus policy. Paying the bonus based on the host country system might initially seem like the obvious choice, after all your expatriates are working in the host country and it is their performance there which is being measured. However, you may find employees reluctant to move if they are going from a high bonus to low bonus culture, or you may be overcompensating if going the other way around.
Of course, all of these policy decisions eventually result in an amount of money paid to the assignee and this figure is probably the one they will be comparing against others, so it’s worth looking at this as well.
5. Local salaries
An understanding of local salaries and how they compare to those of expatriates can be helpful. Knowing if local salaries are likely to be high enough to be practical and how local salary scales can vary with seniority can aid benchmarking. In many emerging economies salary scales can be very steep, meaning that an assignee will be paid well above the local market average at junior levels while more senior assignees could be paid less than their local counterparts. In the reverse case, maintaining the relative buying power of senior managers from developing countries when they move abroad can involve a huge cost, as well as causing issues in the host country where the assignee’s total net pay will be far greater than their local counterparts’.
Strategic knowledge of how salaries can interact is invaluable in benchmarking and preparing for potential difficulties. More details can be found in our National Salary Comparison or by using our Net to Net Calculator.