Compensation Cafe

Where in the World is Carmen San Diego’s Equity Compensation?

Some of you may remember the video game and game show “Where in the World is Carmen San Diego” (WITWICS.) It was very popular more than a decade ago. The goal of the game was to find the villain, Carmen San Diego, based solely on key facts about different locations around the world. The players had to know the specific country differences that made it possible to identify each unique location and capture the Carmen.

Compensation around the world is as unique in size, design and structure as were the clues to WITWICS. Unfortunately, when looking at most companies’ equity compensation design and awards, it is often impossible to distinguish which continent the participant is on, much less the specific country or region. Plans that don’t include regional differences can result in programs that aren’t effective anywhere.

As compensation professionals, we pride ourselves in the amount of survey data we use. We spend a lot of time and money obtaining and analyzing base pay and STI data that is specific to position and location. We work tirelessly to ensure that our compensation is competitive for those we want to hire, motivate and keep while still fitting within our compensation philosophy. Unfortunately, we often skip this process with equity compensation, especially when it comes to global awards.

This has been a consistent issue since the explosion of global equity plans more than 15 years ago. An engineer in County X, in State Y in the United States makes $90,000, plus a potential bonus of 20%. The company also offers 2,500 stock option shares. The same company pays a similar level engineer in another country base pay of $32,000, plus a potential bonus of 20%. Inexplicably this engineer also gets 2,500 stock options shares.  People have explained this by claiming that there is “too little data” or consistency allows for “easier movement” if the engineer in question has to be moved to a US location. The reality is that, for nearly every company, this is just bad policy.

I admit it. Variable compensation is hard. Global equity is even harder. It’s variable compensation to the fourth power!

1^st  You have the variable nature of equity itself. (Different instruments, available shares and more.)

2^nd Then you have the variability of the current stock price.

3^rd Add to that the variability of currency exchange rates.

4^th Add the volatile changes in unpredictable future stock prices.

Global equity also requires an understanding of constantly changing securities laws, income and tax provisions, expatriate considerations and other factors. Many companies look at the swirl of data and regulations, throw their hands up and beg for mercy.  A minority put a team of people on the project and work to create a perfect solution. The first approach works occasionally and randomly. The second approach works more frequently, but provides no guarantees.

Just like the competitors in the game WITWICS, the best way to determine how to find the right solution for each area is to focus on those factors that make each location unique. Some locations have already broadly adopted, and have a basic understanding of, equity compensation. These locations often have accessible survey data that is used by your international competitors to determine grant sizes. Other locations still see equity as a novelty. Small amounts may work as an avenue to begin their education. Still other areas do not value equity much at all. No matter what your philosophy is, a better strategy may be to offer a different form of compensation. Lastly, people in some regions are simply not paid enough for equity compensation to work well at all. If you decide to give people a nominal grant of 2% of their annual pay and your stock is trading at $200, you may have problems with someone who makes less than $20,000. Imagine giving that person 2 shares that vest over 4 years. Even the best communication can’t make sense of that!

Craft the plan to meet your people’s needs and locations. Don’t force your people to meet the needs of a tidy little plan and philosophy just to make your own life easier. Remember that every location is as unique as the one where your office is located. Every group of people have a set of desires and drivers as targeted as those sitting in the building around you. If you structure your plan to meet your locations you may find that it works as you had hoped. Otherwise expect surprises (and not the pleasant type.)

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Don’t Tell Me I’m Great If I’m Not!

I have both friends and clients who have been struck by an unfortunate dilemma. I have a couple of friends who have been told one thing for months, and perhaps years, only to find out that the truth they knew wasn’t the “real” truth. I have clients who need to realign pay for people who have been told they were top performers when, in fact, they are less than adequate. In both cases it seems more like senior managers were trying to be nice, rather than sneaky.

Why have confrontation when you can have everyone like you? It’s easier to be nice to everyone. Many managers have made this their approach to leading their staff. Rather than point out flaws, they point out only the positives. Rather than prepare their staff for bumpy water in the future, they keep things on the bright side right up to the moment the boat hits the dangerous rapids. The discussion of a potential demotion, cut in pay or job-ending decision never seems to make it onto the agenda.

Employees want to be led, and generally want the truth. I also think managers generally want to tell the truth, but seldom have the skills to do so delicately. While these managers do a disservice to employees by not laying out a realistic path, those of us in the compensation community do even worse by not providing them with the tools, words and examples that will allow them to discuss both the good and bad.

We can’t expect great employees who have been promoted to be great managers to be able to talk about pay issues with any amount of expertise. We also can’t expect that they will always do this task well, even if they have been trained. We need to make it clear what needs to be said to underperformers and check back to make sure it has been communicated.

This is not about avoiding lawsuits or angry ex-employees. This is about not being jerks in the eyes of those we need to keep working hard. Once the trust on performance has eroded in a single example, you risk the chance of other employees questioning their value to the company. Rebuilding trust is far more difficult than maintaining it. Like a swimming pool, it is far easier to keep it full than it is to fill it up.

So look at what you've asked managers to communicate. Then ask yourself if you have provided them the skillset to do so with a complete level of truth. It is not only our job to make sure that pay is properly designed and set, it is also our responsibility to ensure that the discussions around pay reflect the sometimes harsh reality of underperformance.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Mandatory Increases: The Bête Noir of Pay-for-Performance in Europe

Editor's Note:  Today's post comes to us courtesy of guest contributor Judy Freides.

Mandatory salary increases are common in Europe and in some parts of Asia and Latin America. The mechanism for the increase can be a fixed percentage, a flat amount or, in some cases, an individualized calculation. Depending on the country, the increase can be a statutory requirement, it can be negotiated with a trade union or works council or it can be bargained by site.

Sounds pretty straightforward, right? In the abstract, perhaps. But envision this scenario… Your company’s new CEO is sitting down with you for the first time to review your salary increase budget recommendations for the upcoming year. The CEO has never done business outside the United States. In my experience, you can expect some variation of the following conversation…

CEO: “Why is the budget for Belgium so high?”

You: “Because we need the budget to cover the forecasted mandatory increase.”

CEO: “Did you say mandatory?”

You:  “Yes, we have a statutory requirement to give an increase.”

CEO: “Well who decided that?”

You:  “The government.”

CEO (under his/her breath): “Of all the pro-employee, anti-competitive….”

In fact, if you are going alphabetically, you can probably expect the CEO to be seriously considering discontinuing European operations by the time you get to Germany. By Italy at the latest.

While mandatory increases can create quite a few challenges for compensation professionals, I’d argue that the biggest is the visceral reaction of U.S. managers. The idea that employees are entitled to an increase is anathema to the pay-for-performance philosophy that so many of us embrace. The very thought of giving a significant increase to an underperforming employee makes us hyperventilate. So how can we possibly reconcile ourselves to it?

One approach is to help leaders accept the fact that compensation practices are different in different countries. As compensation professionals, we certainly know this to be true. Across Europe we see mandatory profit-sharing arrangements, recurring allowances, liberal vacation policies and company cars – none of which is common in the United States. And while acceptance is difficult, it’s important that business leaders understand that it is not realistic to simply export American human resources practices overseas.

An alternative approach is to proactively try to effect change. If performance-based pay is an integral element of your company’s compensation philosophy, make it a cornerstone of your negotiation strategy. Negotiate a reasonable salary increase percentage, but also require that a portion to be based on individual performance. For example, let’s say you agree to a 4% mandatory increase in France for a total projected increase budget of €100,000. As part of the agreement, you could further negotiate that all employees will receive a 2% mandatory increase, but the remaining €50,000 would be allocated out based on individual performance. While not ideal from an American perspective, it could be a promising first step.

Whichever route you take – maybe even a combination of the two – be sure that you are in alignment with your company’s culture and HR strategy. And don’t worry about your CEO. He or she will probably forget all about mandatory increases within a few days of your meeting… until the next year.

Judy L. Freides is the resident blogger for CompDevil, a new company providing Human Resources professionals with on-demand access to compensation experts via live chat. Judy brings over 15 years of experience to bear in her weekly blog, which focuses on the nuances and pitfalls of compensation around the world. Her recent role as Global Compensation Director for a company with over 100,000 employees in 100 countries leaves her skeptical that there’s much out there that she hasn’t come across. But then again, she loves surprises.

Creative Commons image: "The Eyes of an Old Black Cat" by accent on eclectic

Red Flag For Global Recognition

When you're on the international stage and designing programs to recognize and reward an employee’s extraordinary achievements, it’s important to understand the cultural implications of these programs.  Because not everyone thinks the same way.  Companies with a truly global operating mindset will take into account national and cultural differences that distinguish its widespread employee populations.  On the other hand, domestic-oriented organizations with international operations often struggle with their viewpoint, preferring a standardized strategy.

One size rarely fits all.  One size rarely pleases everyone.

You might think that the positive aspects of employee recognition programs are a universally accepted principle, but that’s only partially correct.  Critical distinctions do exist.  In some cultures / national identities the role of the team is such a core element of employee identification that seeking out an individual contributor for recognition would not be a welcome practice.  Some employees might be reluctant to step forward, not wanting to be pushed into the spotlight.

In other countries you will find that the perceived value of cash as a recognition award varies a great deal.

Case study

A former employer of mine once implemented a global Spot Award program for its worldwide employees - without including their international HR community in the planning discussions.  Finalized program elements and procedures covered employees in over 20 countries in exactly the same fashion.  The premise was to provide immediate (read that, fast) recognition and financial rewards (Spot Awards) for those non-incentive-eligible employees who demonstrated performance above and beyond their normal job roles.  Nominations for awards would come from the employee’s direct manager, though employees could recommend co-workers as well.

While the program was deemed a success in the US (defined by the dollars spent), it proved much less successful elsewhere among the company’s far-flung international operations.

Lessons Learned

The first problem was that Managers outside the US placed a much more conservative financial value on so-called “extraordinary” employee contributions.  Or put another way, the U.S. Managers were more generous in their payment awards than elsewhere.  The result was that the cash payments on a per-employee basis were widely skewed to the U.S. employee.  Notwithstanding the vagaries of the various currency exchanges, the international offices did not spend their allotted recognition reward monies as frequently or as generously as their U.S. counterparts.

I recall one scenario where a US employee received thousands of dollars for a particular project effort, while their European counterpart was given a non-cash award (recognition dinner).  This created more than a few awkward moments when the two employees shared experiences.

The second challenge was that many international employees did not want to be individually spotlighted by the recognition program.  They were willing to receive the award, but would prefer that the recognition remain confidential.  Given that Corporate had planned an internal communications campaign to highlight individual award winners, that reluctance proved quite a hindrance.

Compounding the preference for anonymity was the desire for team over personal awards, as individual employees proved resistant to receiving the planned fanfare or preferential treatment – especially in front of their co-workers (team members).

The bottom line was that the recognition and reward program recognized a smaller than anticipated number of non-US employees, less reward money was spent per international employee, and Corporate Communications was hard pressed to find international employees amenable to being highlighted for the program.  Not exactly what the program designers had intended.

Corrective action

The solution seems straightforward.  If a global program is to affect all employees, then potential national or cultural distinctions among groups should be addressed well in advance.  Taking that step would mean including representatives from those groups in the design and communication phases of the project.  However, such a simple step seems a difficult one to take for many corporate global plan designers.  Why?

When they have the bit between their teeth developing a program that affects the majority of employees, management is often reluctant to change course to include the differing sensitivities of small populations, especially if those populations do not speak with one voice.  What they prefer to do is have local representatives accept the global directives, or at best “tweak” the round peg into the square hole. 

How does that approach work for you?  I can tell you that such a tactic doesn't work for your international employees.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Creative Commons image courtesy of Luke Hoaglund

Sometimes the Road Less Traveled leads to a Band of Flying Monkeys

We all get bored. Most of us fill that boredom by exploring something new. Often this leads to an exciting new restaurant, but sometimes it means a terrible meal. Sometimes this means meeting new friends, other times it means getting stuck at a colleague's holiday party listening to stories about office politics and sick children. In my experience, very few compensation professionals are also extreme sports fanatics. I seldom speak to someone in our industry who has recently snowboarded off a cliff or free-dived with white sharks.

I bring this up because we are responsible for a huge portion of our companies' success. It surprises me how often professionals make a decision to follow a new path without first calculating to possibility of the path ending in a band of flying monkeys, rather than a better solution.

Are you following the road less traveled in the spirit of Robert Frost or Dorothy from The Wizard of Oz?

I ask because I still see a lot of compensation professionals acting against their nature when it comes to new programs. When an old plan is not working as well as planned, many choose to roll out a new program. This is done instead of enhancing the features and communication around an older plan. While the problems may be driven by failures in the design of the old plan, it is just as likely they are caused by poor utilization of available plan features or poor communication of the same.

Given our increasing responsibilities and shrinking staff sizes, rolling out a new plan efficiently is often beyond our capabilities.  We frequently discover that completion is impossible when we are already well down the "new plan" road, when turning back is no longer an option. This results in abandonment or, worse, partial roll-out of the new plan.  It can also mean that your old plan may still, by necessity, be your ongoing solution.

This year, explore a quick trip down the future of your current program path and ask yourself if you can get where you need to go without starting all over. You may find that you have simply been doing things by rote when a burst of new energy is all that is needed to reach your destination.

Remember that although Dorothy finally got where she was going, the journey was both arduous and terrifying.  We seldom have the luxury (or desire) of putting our employers and employees through a truly frightening experience. Dorothy had the distinct advantage of an author who could ensure that her story had a “Hollywood” ending. We generally drive the ending of our stories and are held professionally accountable for their success or failure.

Take a few days before 2011 disappears to document the reasons for the success or failure of your current (or recent) compensation plans. Be brutally honest about whether you and your staff could have done anything to have made them more successful.

Might I recommend doing those things, before you start down another unknown path?

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Test Your Compensation IQ (International Quotient)!

Editor's Note:  Today's post comes to us courtesy of guest contributor Jacque Vilet.

This is a simple quiz to test your knowledge of compensation laws outside the U.S.   Don’t worry ---- no one will know how you score --- not even your manager!

Question:  Traditional incentives do not work well in some cultures.   True?  False?

Answer:  True.  Traditional annual incentives/sales commissions commonly practiced in the U.S. focus on the performance of individuals.    In some countries that have more “group oriented” societies, like Korea and Japan, focusing on individual performance is foreign to their culture and difficult for managers to accept.   They would be much happier if incentives/sales incentives were awarded for group/team performance.

Question:  The cost of sending an American overseas on an extended work assignment can equal 3-5 times his/her base salary per year.   True?  False?

Answer:  True.  When you add up all the components of a typical long-term expatriate package ----- housing, transportation, schooling for children, COLA,  taxes of the host country and hardship allowance (for some countries) ---- the cost can add up very quickly.   There are other “one off” costs involved when, for example, stock options are exercised while overseas. That is one reason (there are others) why the number of long-term expatriate assignments are decreasing.

Question:  Many countries have mandated national health and pension (retirement) plans.   True?   False?

Answer:  True.   Americans tend to know about the nationalized plans offered by European countries, but countries in other regions also have them.  In fact, the U.S. is one of the few countries that doesn’t have nationalized plans.  Historically, as American multinationals moved overseas they brought with them their own ideas of what benefits their employees should have and began offering benefits to supplement those offered by the government.

Experts believe that one outcome of the current economic downturn which is expected to last into the foreseeable future is that governments, in an effort to reduce their deficits, will begin to decrease these government benefits.   We have already seen evidence of this happening with regard to government pensions in Europe.  As a result, we can expect there to be a push for private industry to “pick up the slack” by increasing their supplemental benefits.

Question:  All countries are required to provide employees with severance pay in involuntary terminations.   True?   False?

Answer:  False.   A 2011 study by the World Bank shows there are a handful of countries with no legal severance pay requirements.   But in spite of a country’s labor law, severance pay may be required anyway by “collective bargaining agreements”, which are similar to labor unions in the U.S.   Examples of some countries that fit this description include:  Japan, Netherlands, Sweden, Singapore and the U.S.

Question:  In some countries, employees are paid and promoted based on their age and/or the status of the university they attended rather than on actual performance.   True?   False?

Answer:  True.   Companies that are headquartered in Korea and Japan have had a long history of rewarding and giving preference to employees based on age and/or the prestige of the university they attended.    Multinationals headquartered overseas moving into these countries have introduced the “pay for performance” concept which has gradually changed these practices in local companies.  This is one example of how companies headquartered both overseas and locally have gradually consolidated some of their Human Resources practices.

So, how did you do on the quiz?   If you did well, congratulations!   You know just enough to be considered dangerous!   If you didn’t do well and have international Human Resources responsibilities, you may want to start brushing up on your knowledge of local labor laws in your company’s overseas locations.

Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology.    She has worked with both local nationals and expatriates and has been an expat twice during her career.    Jacque holds the CCP, GPHR and SWP (Human Capital Institute).  She is a member of WorldatWork,  Society of Human Resources Management and the Human Capital Institute.   She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM.  She is a regular contributor to HCI, HR.com and IHR Forum.

Image courtesy of crtutor.com

Prepare for Compensation Meetings Like an NFL Broadcaster

Like many of you, I have football games playing on my TV during most autumn Sunday afternoons. Also, like most of you, I  pay a lot attention to the big plays, but little attention to the broadcast itself. This past Sunday, for perhaps the first time ever, I focused on the incredible preparedness of the professionals producing the television events. It got me to thinking. What if compensation professionals prepared themselves in the same way? Our meetings with Executive Management and Compensation Committees would be short, enjoyable and incredibly effective.  More importantly, our programs would evolve more quickly and represent our companies more completely.

Consider any NFL broadcast. The announcers have spent all week studying the players and game plans of each team. Research assistants have put together statistics with such specificity that they make my wife laugh almost every weekend. “That pass sets the record for most passes to a running back, under 5’7” during the third quarter of a game in the twelfth week of an NFL season.” Cameras are set-up to cover the play from nearly every angle. They know where family members are sitting and where they’re from.

A great example of this attention to detail was a recent game in which Carson Palmer, quarterback for the Oakland Raiders, threw an interception that was run back for a touchdown. Almost immediately, there were replays from three or four different angles. There was nothing surprising here, just expected levels of great work.  Then came the doozey. Within 30-45 seconds of the play the announcers started talking about Mr. Palmer’s tendency to throw interceptions that were returned for TDs. While they spoke, a series of at least eight prior interceptions from the full length of his 8 -year career, played on the screen.

This meant that someone had just prepared for this unique opportunity. Carson Palmer has played more than 128 games in the NFL.  He has thrown 2,560 passes. Of these, eight or nine were intercepted and returned by the other team. Someone on the broadcast team gathered these into a package that was immediately accessible. The director knew the package was there. The researchers knew how to call it up on demand. The announcers were fed some statistical information to support their innate knowledge. And, in less than a minute, everything came together on screen in compelling support of this specific tendency.

Imagine if you were this prepared every time someone asked you about your compensation plans. “Hey, what’s the rule on Change-In-Control for the 2007 Stock Option Plan and does that conflict with the COO’s employment agreement that he received when we was hired at that company we acquired in 2009?” What if you had an immediate (correct) answer every time someone asked, “Why do we have that feature?” or “How much cash and equity should we offer a Senior Software Programmer, in Chicago, IL?”

If we all prepared and stayed organized like NFL broadcast teams, much of the stress of our jobs would be gone. The stress of leaving a meeting with more things to do than when you walked in.  The stress of providing the wrong, or no, answer in an executive meeting. The stress of correcting administrative errors due to assuming we knew a rule, rather then knowing the rule exactly.

Of course, we’ll never get to a point where we simply have a team of specialists to help us get prepared. We do not work in an industry where there is always accurate statistical data, or in a world where our rules are applied exactly the same way every time.  But, we can, and should, consider making this our goal and begin working toward achieving it.  You never know when that one thing that has only happened a couple of times in the past will happen again, but you would likely be compensated and respected more if you had a ready solution when it came up again.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

The Trouble with Expats

On Tuesday I joined fellow Café bloggers Ann Bares and Chuck Csizmar for a Focus.com podcast on International Compensation.  You can listen to the recording here but one topic in particular seemed to spark interest and a touch of controversy: Expat compensation!

We've all encountered at least one expat that made us wonder what service they perform that’s so valuable it’s worth a rent-free five bedroom apartment with high molded ceilings, private school for three kids and a monthly ‘hardship’ allowance that’s higher than most of the locals’ salary.  (And also wondered where you sign up… unfortunately, it’s the same place you sign up for golden parachutes.)

In the centralized organizational structure that characterized the early days of globalization, that's what you did - you sent your ‘tame’ leaders overseas to whip the locals in shape and supposedly groom them for the next level of leadership.  And since they were already making a packet and enjoying a fine standard of living you had to sweeten the pot to get them to go, especially if family was involved. 

But times are changing.  On the one hand, we see a greater demand than ever for global leadership skills, as well as a critical leadership shortage in developing countries that necessitate seeding new local offices with experienced personnel and leaders.  That means that expats aren’t going away and we’ll still see generous packages for top roles. 

At the same time, there is heavy scrutiny of conspicuous spending even as companies are realizing how important global experience will be to compete in the global economy.  So we’ll probably see some evolution on the expat front with an eye to acquiring more global experience for less money. 

Here are a few predictions:

1. Top expatriate roles will still exist but be fewer and harder to get outside of companies that have a formal global leadership program.
2. Companies that have a formal global leadership program will vacillate between ‘home’ based pay, which tends to result in more complexity and inequity vis-a-vis the locals, and standardized ‘host’ based pay, which reduces complexity but creates disparity in assignment attractiveness.
3. Companies will get better at clearly separating COL adjustments from local job responsibilities, making it easier to explain variations in expat packages as well as smooth the adjustment when returning home.
4. There will be more reliance on short-term assignments, site visits and web conferencing tools rather than multi-year fully loaded expat assignments.
5. To develop future leaders, companies will start sending mobile high potentials on overseas assignments that look more like relocations with a bit of assistance than expat assignments.
6. As overseas assignments become more common for early leadership development purposes, repatriation programs will increase in importance in order to help employees re-adjust to corporate life and avoid wasting or losing valuable skills acquired during the assignment.
7. Companies will – or should - begin defining ROI criteria for expat assignments, as my Café colleague Chuck Csizmar advises in his excellent and informative post Expats: How to Toss Your Money Away.  (Chuck tends to take a dim view of throwing away money.)

When determining an appropriate expat package, one size doesn’t fit all.  An unmarried junior engineer looking to pick up some global experience has very different needs and expectations from a senior business leader who will be undertaking new responsibility and relocating his or her family.

Having said that, no organization has time to create a compensation package from the ground up every time someone goes on overseas assignment.  An effective expat policy takes home country, host country, skill and job levels into account in order to strike the right balance between consistency and individual appropriateness.

Picture courtesy of justlanded.de.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

He Said / She Said Is Always Expensive

Recently I was asked by a U.S. client why I recommended that they create an international assignment letter for their expatriate employees.  After all, they only had a few employees overseas and previously had resisted the call to “play the lawyer card.” They felt that management could effectively deal with the circumstances of expatriate situations as matters came up, and were reluctant to lose what they considered their prerogative – to set terms and conditions as they thought appropriate for each employee.

This is not the first time I've been asked that question, as it's not unusual for small companies or non-profit organizations to send an employee overseas with little more than a verbal agreement and a series of vague assurances.  These organizations wish to avoid bureaucracy and move quickly.  However, often these casual and hurried arrangements have proved painful and expensive experiences:

• The shock faced when coming to grips with actually living in a foreign country, vs. visiting.  The realities of daily life, combined with cultural differences compared against “back home” become quite a wake-up call when no longer insulated by the transitory nature of a business or vacation trip.

• The constancy of unforeseen and confusing local situations (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction that employees lost focus on the job – the reason they were there in the first place.

• Relationships with headquarters suffered as the employee asked for repeated consideration (increased payments) to redress what they considered coverage gaps in their terms & conditions.  The trust element was weakened as employees felt they were being short-changed by management.

Coming from an environment where every expatriate was given a detailed assignment letter “before” getting on the plane, I was at first taken aback by the client’s question – because the absence of mutually agreed terms and conditions is almost certain to prove expensive to companies trying to take a “short cut.”

So why is providing an assignment letter a good idea?

• Protection:  Like any contract, confirming the terms & conditions of the assignment protect both parties from misunderstandings, misinterpretations and assumptions – before expenses are incurred.

• Clarity:  Accepting an overseas assignment is a major step for any employee, as well as for family members.  The more you clarify the terms and conditions of the assignment, the more likely you are to ensure a smooth assignment for all parties.

• Cost control:  Defines expenses that the company will pay for and conversely what they will not.  An agreement here will mitigate issues rising once the expatriate is on the ground in the host country.  Concerns raised once the assignee is relocated usually result in increased company costs, as negotiating leverage is lost and the company feels compelled to avoid alienating an expensive investment.

• Standardization:  Your international policy should strive to treat expatriates in the same fashion.  Unique circumstances do occur but the basic principles should be followed for every assignee.

So how bad can it be, playing it by ear and leaving terms & conditions to be developed over the duration of an employee’s assignment?  Aren't flexibility and quick thinking positive management traits?

Yes, but when courting the inherent risks that accompany an undocumented assignment, you should be prepared for:

• Higher and unbudgeted costs.

• Frequent negotiations to improve the expat's situation.

• Disgruntled assignees and / or affected family members.

• Greater risk of failed assignment.

Short cuts usually limits the financial and emotional protection the employee and their family will rely on, while the company has committed  substantial monies to place them overseas.  That is not a good management practice.

Terms and Conditions

When preparing an international assignment letter, the following  key elements should be included.

• Title, compensation and assignment duration – critical elements of status and reward in the host country.

• Housing and cost of living allowance – should include the amounts involved and frequency of review.

• Benefit coverage (medical, dental, life, vacation, holidays etc.) – how will home country benefit protections be handled in the host country.

• Relocation –coverage for the employee’s home country residence, to include overseas movement of household goods.

• Property management (as applicable) – what will happen to the home country residence?

• Tax preparation – employee obligations in both countries.  Usually a statement of company liability for “additional” taxes.

• Home leave – how often, and under what circumstances?

• Schooling, language, cultural orientation (as applicable).

• Repatriation – a balance is usually struck here between the employee’s strong concern and the company’s natural vagueness for what the future might bring.

The items listed above represent only a portion of the questions that your expatriate candidate will have.   So should your company consider taking a casual approach to sending an employee overseas, unsupported by a signed assignment letter, be aware of the risks involved.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Creative Commons image courtesy of the DC Art Museum

Lunch at the Compensation Cafe: Understanding International Rewards

International compensation is a challenge that a growing number of HR and reward professionals must face.  Simply extending what you do in the US to overseas locations doesn't work.  It's much more than a difference in language and currency.  Every country is distinct, not only in terms employment laws, tax codes and economic forces, but even in their attitude toward work and pay.  And when you step out past Western Europe. . . the differences can be stark.

Join the Compensation Café team's global rewards experts - Chuck Csizmar and Laura Schroeder - and me on Tuesday, November 15, 11:00 to 11:45 Pacific Time,for Episode 5 of our new roundtable series and a caffeinated conversation about this important topic.

You will learn:

1) Why analyzing international compensation is different.

2) How to deal with the challenge of varying statutory and regulatory obligations.

3) Advice on managing international compensation, whether you are a global company, a US firm with international operations, or just a small time player with a limited employee footprint overseas.

For more information and to register, please go to the event page, hosted by Focus.com.

You can follow the event on ourTwitter stream at #CompCafe as well as on the Focus event page, where you can comment, ask questions and chat - so that the conversation can go on beyond the 45 minute live discussion.  If you are unable to join the live event, a recording of the session in .MP3 format will be posted to the event page within 24 hours - and a written transcript will be available within the following week.

We're looking forward to a great conversation - and hope you'll join us!