Compensation Cafe

Taking the Easy Road

How many success stories do you figure start with the phrase, “I took the easy road”?

Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure – with the intent to level the playing field for those with multiple country responsibilities.

However, for the rest of their international population it’s not as straightforward.

The Challenge

Companies with local national employees face a challenge and a risk when it comes to their decision as to how to reward in each of their operating countries.    Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to standardize pay practices?

For those charged with developing tactics to effectively pay employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions.  However the approach of recognizing country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, who traditionally look for the easy way, the simple way, the one-size-fits all way of dealing with far-flung employee groups. 

The headquarters staff will ask, "what difference does it make"?  Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?  The metrics below illustrate what they would wish to standardize for each country:

• Value (price) jobs irrespective of locale.  Some prefer to use the US dollar as a global "common denominator."

• The pay mix of base salary and incentives.  This presumes that everyone views the opportunity for variable pay in the same fashion.

• Universal date pay increases.  Every employee should have their performance review at the same time.

• Average pay increase percentages.  The percentage should be fixed with a global percentage, not country-specific.

Why Not?

Why doesn’t one size fit all?  Why can’t you treat all employees in the same fashion, no matter where they're working; they all belong to the same company.  Perhaps you should consider these points before reaching for that cookie cutter.

·         Economy:  When dealing with country-specific inflation rates ranging from flat to 20%+, do you really want to offer the same percentage salary increase?  What if one country's economy is struggling (US), while another remains relatively unscathed (Australia)?

·         Culture: In some regions job and income security needs command greater interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion.  For example, while China has a very aggressive sales compensation environment, India shows more interest in base salary and the CTC (cost-to-company) package than variable compensation.

·         Competition: Companies react to the cost of labor vs. the cost of living.  If their marketplace rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a different approach risk lower employee engagement and a talent drain.

·         Representation: National unions and Works Council impact on pay actions could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.

To be fair, varying practices according to country-specific conditions could cause a degree of consternation with the back office or headquarters staff and their computerized systems.  These are folks who like things neat and pretty, the path of least resistance.  "Where's my easy button"?  In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:

•      Tabulating global statistics when definitions or methods vary

•      Identifying global trends based on diverse conditions

•      Balancing the impact of cross border movement

If you force international operating units to convert their practices to an common format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the likelihood of over payments in some quarters while under paying the market in others – all for the sake of sameness and common report generation. This would serve up a combination of hurting employees while also harming the business.

So think about it.  The easy road of simplified administration is rarely an effective rationale when making proper business decisions.

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.  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 liberalmind1012

What the Oreo Cookie Can Teach Us about Employee Recognition & Rewards

Is your company global? If not global, do you have multigenerational and multi-cultural workforce? If so, then you likely experience many of the same stressors of global organizations in catering to local employee needs for appropriate compensation, benefits, recognition and rewards.

The greatest challenge of all is first understanding local needs. It’s all too easy for HQ to think they know what employees want (in any capacity). Truly understanding and catering to real local desires, however, is an entirely different matter.

This story in Smart Business about Mondelez International (formerly Kraft Foods) is a terrific illustration of my point. For our American readers, what do you think of when you hear “Oreo cookie*?” Chances are it’s not a small cookie sandwich, with a green-tea flavored crème filing that’s not very sweet. Yet that’s exactly what “Oreo” means to Chinese consumers today.

Mondelez was ready to stop selling traditional, American-style Oreo cookies in China because they were losing money on sales. The cookies were too big, too sweet and not at all appealing to Chinese consumers. Yet, by first listening to what Chinese consumers actually wanted and changing the product to align with those tastes, Chinese Oreo sales now account for nearly half of the  global Oreo business.

This is a powerful lesson for HR pros creating global employee recognition programs, too. Simply recreating your program as designed for the country where HQ is located will almost certainly guarantee failure on a global basis, especially when it comes to rewards (the horror stories are quite compelling). Local tastes and local needs dramatically vary. While I know why clocks are a terrible reward for Chinese employees, I was a bit surprised to learn the most popular reward item – as regularly selected by Chinese employees in their own neighborhoods from a vast selection of reward choice – is fancy baked goods.

My point – never assume your way is the best way for all employees everywhere (or from every generation). While you should always work hard to include all employees in your strategic, social recognition program, you must also work hard to ensure it’s a program that is rewarding to them.

How do you localize your global programs?

* Even writing “cookie” instead of “biscuit” was, for this native Irishman, a customization in honour of the home country of the Oreo. Simple localization of language and terminology can also be a powerful means of acknowledging the importance of local needs in global programs.

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Don't Do It: US-Centric Global Operations

Sounds like a contradiction in terms, doesn't it?  How can a company profess to have global operations while clinging to a US-centric mode of dealing with its overseas employees?

Sad to say though, it's easy; happens all the time.  And causes problems across the border with an alarming frequency.

One example of many

For example: Recently one of my US-based clients faced a challenge in a particular country regarding high employee separations coupled with difficulty in recruiting qualified staff.   The company was at a loss to understand the root cause of their problems, as they felt that they were providing a more generous reward package for employees then was their normal practice in the US.  The trouble is, they were looking at the problem from a US-centric perspective.

A quick study revealed that the clients’ international employees were indeed receiving a great deal more than their American counterparts.  However, in many areas they were in fact being given no more than the minimum benefit provisions that were mandated by statutory requirement.  They were receiving only what the company was compelled to grant.  How do you attract, motivate and retain quality staff when the message of your actions is that you are only willing to offer what government regulations say you must?

This client bemoaned having to grant four weeks of vacation upon hire, because it was the law, when their US employees received only two weeks after completing a full year of employment.  They thought they were being generous, and quite the global employer.

But then they discovered that common practice indicated that five or more weeks were the norm.   To their employees and prospective candidates they offered no more than what they were required to offer by law.  By ignoring competitive practice they were now paying a steep price in struggling to build and retain a quality staff.  They had earned a reputation in the local market as a “minimalist employer.”

And it's hard to dig yourself out of that hole.

Establishing the employee footprint

When American companies first establish operations overseas Human Resources faces a number of challenges that they are unaccustomed to dealing with at home.  Every country is a separate and unique entity, with differences in HR policies, practices, taxation, local competitiveness and statutory requirements, each of which must be acknowledged and addressed in order to develop and maintain a successful operation.  On top of that are the vagaries of the competitive marketplace, where the same job is paid differently from Rome to Oslo to Buenos Aires – and typically coupled with differing social charges and benefit coverage.

Choosing to operate under the guidance of U.S employment law and US-based corporate practices ("what we do at home") is a failed strategy.  Maintaining such a US focus (usually for ease of administration) will bring you grief; grief from your employees, from those you hope to hire, and most worrisome of all from local governments whose laws you may have ignored or bypassed.

Think how you would feel if elements of your own reward package, policies or procedures were based on European or Asian common practice.   That wouldn’t go over well with you, now would it?

If your organization has decided that your business strategy requires you to maintain a staff presence in a particular country, then I would advise you to treat that operation the way you would its U.S. counterpart; provide competitive terms and conditions that will attract and retain the right caliber of employee in that country – and ignore how their packages might compare with the US or other country counterparts.  If you are not willing to make that commitment, from an HR perspective you would be better off not to engage employees in that country.

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.  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 Oskay

Switzerland Pay - Great for Employees, Less So for Execs

In the past several months, Switzerland has made some interesting compensation headlines. Swiss voters recently passed a referendum on executive compensation that is more far-reaching and restrictive than anything we currently have in the U.S. This new set of rules was supported by a convincing 68% of voters. At nearly the same time, a UBS report from September 2012 shows that Swiss employees in Geneva and Zurich receive the highest net wages in the world. Does this tell us anything?

The highest paid employees in the world just voted for some of the most restrictive executive compensation reform we have seen to date. To be fair, Geneva and Zurich are among the most expensive cities in the world, but UBS reports they also have some of the lowest tax rates. I think it is telling when people who are doing relatively well compared to the rest of the world still have an issue with how much executives are making. I am just not sure what it is really telling us.

Are executives paid too much? Is there a misunderstanding of how and why executive pay came to be at its current levels? Has the media, or have politicians, flamed the fires of executive compensation unrest? Or are executives in some sort of compensation cold war, outspending each other to show their relevance and power? Let’s be honest, all of the above are far too simplistic, but each is believed by groups of employees, shareholders or others.

The new Swiss limitations on executives apply to publicly traded companies. Among the new rules is a requirement that pension funds vote in the interest of their members. They must also report how they voted. There are also annual say on pay votes, annual elections for directors and a ban on severance and golden parachute payments. Companies’ Articles of Association (similar to U.S. Articles of Incorporation) must add new details on compensation structure and rules for how compensation may be used for several groups and purposes. The final kicker is the potential for criminal penalties and fines if these rules are broken.

These new rules may simply be a shot across the bow in the new battle to bring executive compensation levels into publicly acceptable ranges. Several other countries, including the U.S. and a few Western European countries, have incomplete rules on the books or in the works. Executives may find themselves boxed in by the many stakeholder and influencers with different perspectives on this issue.

A decade ago when the UK rolled out its Say on Pay rules, few consultants or companies believed that similar restrictions were likely to occur in the US. They were right for almost ten years. While we will not see aggressive new restrictions on executive pay in the immediate future, the approval and gradual acceptance of these rules across the Atlantic may be writing our future. In the past, rules like this have taken 5-10 year to reach our shores, but we all know that cycles are speeding up. We may well see restrictions like this sooner than expected. Are you ready, and will you support or oppose these efforts? 

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 Know That”, “GEOnomics 2011” and “Equity Alternatives.” 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 at @Performensation and @SayOnPay.

At the Comp Cafe, We're Counting the Days 'til 2021

Last week I mentioned a report called "Global Talent 2021: How the new geography of talent will transform human resource strategies" from Oxford Economics. I found it exciting and timely because the report describes a future that is already emerging around us. 

The changes that have begun are going to involve business and cultural shifts that were unimaginable fifteen years ago. Our businesses will be globally networked with employees shifting their employment from the U.S. to emerging markets and back again, as business needs or job opportunities arise. 

We'll need to track and explain to executives where to invest in talent and where to reduce investment as areas become less critical. These adjustments will be ongoing rather than epic events. And in this shifting employment environment, implementation of adaptable compensation practices will become as important as program design.

Here are a couple of the quotes from the report:

"Employers who are candid with their employees about how they rate relative to peers and what future leadership potential they possess may find their workers more motivated to develop new skills and master new techniques."

"Making employees feel more part of the conversation is critical to business success, and closely correlates to the overall health and prosperity of the company."

"Take a greater evidence-based approach to talent management. Employing workforce analytics to assess and segment talent, and using quantitative tools to indentify risk and integrate HR into business planning can lead to superior results."

Just wondering. Do any of these recommendations sound familiar to you? If you are a regular Compensation Cafe reader, you must have heard these suggestions repeatedly over the last four years.

Compensation Cafe writers are itchy for improvement. We're a group of cheeky, opinionated HR practitioners who spend a lot of time looking to the future. Each one of us is a big fan of evidence-based analysis for every and any HR strategy. We'll even give you ideas on how to pull it off.

"Our research reveals not only that tomorrow's landscape for global talent will be dramatically different than that of today, but that some countries and industries will need to adapt more quickly to accomodate these rapid shifts."

If you love this drama, keep reading the Compensation Cafe!

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret is Deputy Director of the International Association of Business Communicators (IABC) Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

What Motivates Creative People?

Until now creativity has been viewed as important but not essential for the survival of a company.  Companies instead have focused on efficiency, productivity, and continuous improvement to lead them to success.

But priorities are dramatically changing. In a Global CEO Survey conducted by IBM, CEOs identified "creativity" as the most important factor for the successful company of the future. 

By “creativity” they mean truly innovative skills found in jobs like architects, data scientists, designers, etc. ---- skills believed to have true strategic value.   Any employee can be creative in his/her work, but the result is not likely to be a “show-stopper” for the company as would the work results of this “creative group”.

Creative employees are different—certainly in the workplace.   Most of them just don’t care about the same things as other employees.  Because they are different, managers have had difficulty knowing how to motivate them.  None of the usual practices that work with other employees seem to work with them.

Creative employees are intrinsically motivated.  They set extraordinarily high standards for themselves.  Research has shown that management can’t get them to work harder or perform better by saying “here’s some more money”.  When extrinsic rewards are being dangled in front of them like carrots on a stick, they feel externally controlled — which becomes a negative for motivation. It’s almost like the more you pay them to do what they love, the less they will love it.

Of course companies need to pay them “enough” to satisfy them. If they don’t, compensation becomes a sore point and distraction.  In addition, they might have a spouse who is less interested in creativity than in paying the mortgage and saving for the kids’ college.

But if management really wants outstanding creative performance, the key is intrinsic motivation– the work itself. 

This is consistent with what I have been told by a couple of my creative friends who have started up companies and now are venture capitalists.  It’s not the money that motivates them (even though they usually make tons of it).  It’s the challenge, the “aha” moments, the discoveries that lead to significant breakthroughs that are the “highs” creative people live for. It’s almost addictive, and it’s absolutely the driver behind their success.

Example:  The wife of one of these friends tells the story of one of her husband’s “aha” moments.   He was in the shower when he had an “aha” moment ---- bolted from the shower and ran naked and dripping wet through the house to his office pumping his arms and singing at the top of his voice.  His path took him through the family room where she was entertaining some friends.   He was totally oblivious --- caught up in the high.

So how can management use the work itself to motivate creative employees?

1)Provide them the right work environment ---- free from bureaucratic excesses, administrative work, unrealistic/changing deadlines, company politics and micromanagement.  
2) Don’t make status check calls and keep track of what’s done/left to do. Spend time with them and really listen to what they have done. Try to understand how they approach and solve problems and what has worked/hasn’t worked.
3) Give them an important problem to solve that the company urgently needs solved. Let them know (if true) that no one else has been able to crack it. This can be a real motivator.

Being told what to do and how to do it with no tolerance of failure, little expectation of recognition, and arbitrary deadlines, can kill motivation. But providing a positive atmosphere where failures are examined constructively, where management really listens and success is recognized in unique ways, can result in spectacular results.

It takes work.  But isn’t it worth it?   CEOs seem to think so. 

What has your experience been in trying to motivate “creatives”?  Any successes you can share?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

What Payroll Would You Like To Be On --- Argentina? U.S? Taiwan?

I once dealt with a company that had 20 employees in Argentina when inflation was running rampant at ~40%.

Management was thinking of putting all 20 on the U.S. payroll to stabilize their pay.  They agreed it would only be temporary.  When inflation subsided they would be transferred back to their own payroll.

As if to rationalize it, they announced they already had a Managing Director (MD) in Taiwan on the U.S. payroll.  He was paid 100% of his salary and bonus in US$. Argentina                                                                                                                      
I reminded them of a time when inflation in the U.S. was running ~15%-18% and merit budgets were ~10%.  Most companies I knew of didn’t make any special adjustments for it.  They explained to employees that they were paid based on market rates for jobs.  Cost of labor — not cost of living.  There was no thought then of putting everyone on another country’s payroll because of inflation.

Most of the companies I have dealt with believe employees should have to live with all the ups and downs of their own country’s economy, cost of living, etc.   They believe they aren’t responsible for bridging any pay-inflation gap by either increasing pay or transferring employees to other payrolls.  

In a case of hyper-inflation --- example 200% --- a company might decide to pay a temporary premium on top of salary, but inflation would have to be truly extreme.  They would also want to know if competitors were doing the same thing.  The downside of this arrangement would be the difficulty of weaning employees off the premium once inflation was under control.

Taiwan                                                                                                                     
The MD in Taiwan was key and had doubled revenues in the two years he had been in his role.   For this reason management agreed to his request and didn’t push too hard for an explanation.  They were afraid to deny his request for fear of losing him.   
                                                                                           
If he had been working in the U.S. part of the time on an ongoing basis, it would be no problem to put him on a split payroll --- U.S. and Taiwan.  In reality he was not working in the U.S. at all.  

Bottom Line                                                                                                                    
In both cases the company was setting a precedent for similar situations in the future.  But the real problems were the tax and legal issues.

As far as taxes, in both cases the governments of Taiwan and Argentina were/would be cheated out of revenue from payroll taxes.  The company would have difficulty filing paperwork at the end of the year.  In addition there could be U.S. tax issues as well.

As far as legal issues, the company was not contributing to government mandated benefit programs in Taiwan and would not be contributing in Argentina.   That meant the employees would not be covered.  Trying to access them in the future would alert government officials to the fact they were working in but not being paid from their home country.

The company could continue contributing to the mandated benefits – but if the government looked closely enough they would ask why neither the employees nor company were paying taxes.   So continuing to contribute to benefits might be problematic too.

After weighing all the facts, the company decided it just wasn’t worth it.  The likelihood of getting caught was great, and the cost of penalties could be substantial. 

In order to reinforce my warnings I had a tax specialist from their public auditing firm talk with them.  I asked him to use the worst case scenario in discussing the penalty cost.  He did and it scared them silly.
 
It’s easy to cave in to employee requests.  No one wants to be a bad guy.   But think ahead.   Assume there will be ramifications, then check with a subject matter expert. International legal and tax regulations can be very complicated, and are constantly changing.  

Remember.  As the saying goes:  “A little risk management now can save a lot of fan cleaning later”!

I understand some of you may work/may have worked for companies that do pay adjustments for inflation in other countries.   What has worked/not worked?  Please share your experiences with us.

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in
Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

The Revolt Against Executive Pay

"It is difficult to get a man to understand something when his salary depends on his not understanding it." ----- Upton Sinclair

In case you didn't see the news article recently, on March 3, 68% of voters in Switzerland overwhelmingly backed an initiative to give shareholders of Swiss listed companies whose shares are publicly traded a binding say on executive pay.

It includes a ban on "golden parachutes" and any bonuses for buying or selling corporations.  Breaching the rules can lead to a fine of up to six years’ salary and up to three years in prison. 

Swiss businesses had better hope that this law goes far enough.  Says the Economist, “The country’s Young Socialists are demanding that senior executives’ pay be capped at 12 times that of the lowest-paid worker.”

But the news doesn’t stop with Switzerland.  Excessive executive compensation is also being discussed in the EU. The EU has agreed in principle to impose a strict limit on executive bonuses for banks. It would limit bonuses to one times base salary, or double that if shareholders agree by a two-third majority. These bonus rules would also be valid for branches of foreign companies within the EU.   It will affect the UK even though the UK currently has a non-binding say on pay.

The Netherlands is talking about a 20% cap on executive bonuses.  

In Germany the government has announced it will shortly introduce a law to regulate management salaries.  One possibility being discussed is capping salaries. 

OK let’s talk about the U.S.  Our “say on pay” legislation is non-binding.  Why are we not seeing changes? Let’s look at two reasons why:

1) Corporate governance

U.S:   CEO duality allows the CEO to also be the Chairman of the Board which dilutes the oversight function of the Board.   In addition the CEO/Chairman influences the selection of Board members --- some of which serve on the Compensation Committee which determines CEO pay.

UK:   There are long established norms of good corporate governance which do  not include the practice of CEO duality.  It is a rarity in the UK.

Germany:  CEO duality doesn’t exist in Germany.  Also in large German firms half of the board members must be employees which creates a wider range of interests than just financial.

France:  CEO duality exists.  However, the power of the French CEO is offset by  large and powerful shareholders represented by the Board.

Japan:  The Chairman of the Board is usually a retired CEO or retired  government official.  The Chairman’s interests are broad and represent a wider range of company interests than just shareholder value.

2)  Culture

U.S. and UK:  There is greater tolerance for high CEO pay in countries that have individualistic cultures based on pay for performance and personal achievements.

Japan:  On the opposite end of the continuum is Japan which is a collectivistic society. Boards in Japan are less tolerant of high CEO pay since it is likely to produce social tension.   The ratio of CEO base pay to worker pay here is probably the lowest in the world.

Germany and France:  Germany and France represent the middle ground with the U.S. and UK on the high end representing individualist values, and Japan on the low end representing collectivist values.

Will U.S. companies follow other developed countries and reform their executive pay programs? 

These questions might need to be addressed first:

1)  Will corporate governance rules change to ban CEO duality?
2)  Will Boards of Directors change performance measures of CEOs to include non-financial measures?
3)  Can CEOs be weaned from their entitlement mentality?

There is a lot of talk about changing the measurements used for executive pay.  But this is not likely to succeed unless the culture/mentality regarding executive pay changes first.
 
So how do we break through this logjam?  If there is no reform, it may start raising questions about the U.S. stewardship capabilities of CEOs, boards and even shareholders themselves.

What do you think?  

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Do I Have To?

Recently a US client asked me to explain why I recommended that they create an international assignment letter for their expatriates.  They only had a few employees overseas and previously had resisted the call to what they described as “playing the lawyer card.”  They felt that management could effectively deal with the circumstances of each expatriate situation 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.

It's not unusual for small companies 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, in most cases such casual and hurried arrangements have proven painful and expensive experiences for all concerned.

• The shock employees and their families faced when they came to grips with actually living in a foreign country, vs. simply visiting. 

• The constancy of unforeseen and confusing localized situations (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction for the employee that they lost focus on the job.

• Relationships with headquarters suffered as the employee asked for more and more consideration to redress what they considered coverage gaps in their terms and conditions. 

Providing an assignment letter is a smart idea.

• Protection: Confirming the assignment terms & conditions 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 their affected family members.  Clarifying the assignment terms and conditions ensures a smooth assignment for all parties involved.

• Cost control: Define company-paid expenses and conversely what they will not cover.  An understanding will mitigate issues from arising once the expatriate reaches the host country. 

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

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

When you court the inherent risks that accompany an undocumented assignment, you should be prepared for:

• Unplanned additional costs

• Constant re-negotiations with the expatriate

• Disgruntled employees and / or affected family members

• Greater risk of assignment failure

Short cuts usually limit the financial and emotional protection the expatriates are going to rely on - at the same time that the company has committed a substantial amount of money to place them far from home. 

When preparing an international assignment letter, you should include the following (as applicable):

• 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 the frequency of review.

• Benefit coverage: How will home country benefit protections be handled in the host country.

• Relocation: The policy coverage for the employee’s residence, to include movement of household goods overseas.

• Property management: What will happen to the home country residence?

• Tax preparation: Assistance provided in both countries.

• Home leave: How often, and in what circumstances?

• Schooling, language, cultural orientation.

• Repatriation: Strike a balance between the employee’s concerns and the company’s natural vagueness for what the future might bring.

These represent only a portion of the questions that your expatriate candidate will have.  Should your company consider taking a casual approach to sending an employee overseas, 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.  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 Leeks

How I Learned to Shut Up and Listen

I had a manager once that didn't know anything about international HR.  In fact, he had never visited any of the company's locations overseas.

After I was hired we took a trip to some overseas sites.  Before we left the U.S. I told him to keep his talking to a minimum and focus on listening.  He nodded and then proceeded to talk non-stop everywhere we went.   At the end of the trip he commented, "I sure am glad I went on this trip.  I learned so much."   Hmmmmmm . . . . .

I can look back on it now and laugh.  But in retrospect I acted in a similar fashion when I began my stint in International HR.

Both of the following examples happened a long time ago when I acted more like my manager than I would like to admit.  But I gradually changed when I realized that I could learn a lot if I kept my mouth shut and listened.

Example 1:  A manufacturing site in Malaysia wanted to reduce its healthcare costs.  The HR manager developed a scatter gram that showed locations where large numbers of employees lived.  She then identified clinics/hospitals in those geographic areas, visited 4-5 and made a pitch for special, lower fees.  In return she committed that our employees would not go to clinics outside the “network”. Due to the volume of employees, the clinics agreed.  The result?  Lower healthcare costs.

This HR manager had very little knowledge of PPO’s and HMO’s in the U.S.  She just came up with the idea herself.  Made sense.  I was really impressed. The fact that it surprised me spoke volumes.  I had this belief that I (representing Corporate) was there to teach her --- that new ideas just didn’t come from an overseas site --- only from Corporate.  Corporate HR was smarter than local HR.

Example 2:  A manufacturing plant in Bangkok was reconfigured and the old equipment was replaced with new computerized equipment.   The production operators were trained to run them.   Whereas before they all stood in a row and each operator connected Part A to Part B --- each of them was now responsible for keeping  3-5 machines up and running and doing minor maintenance on them.

HR realized that these new skills meant the jobs couldn’t be matched in compensation surveys.   They were neither traditional production operator jobs nor were they full-fledged technician jobs. 

They were somewhere in between.  So the HR manager decided to introduce what, back then, we would have called “skill-based pay”.    Pay for these jobs was pegged at the operator level with additional pay for extra skills. 

Keep in mind this was manufacturing – and manufacturing has pretty basic jobs --- production/assembly operators, technicians, manufacturing and quality engineers. The operator jobs were so standard in Bangkok that it was a true anomaly at the time to introduce an “operator plus” job.  None of the competitor manufacturing sites had them.   Hybrid jobs just didn’t exist then. 

Once again I was surprised at HR’s ingenuity.  And once again I had to face my old engrained beliefs.  A light bulb went off --- just maybe Corporate doesn’t have a monopoly on creative ideas.

Maybe none of you have ever experienced this.   Maybe I'm the only one arrogant enough to think Corporate had all the answers.  I have to tell you it was a very humbling experience. 

The world is full of great ideas ---- and if you keep your mouth shut and your ears open like I do now, believe me you’ll learn something!

P.S.  Hey --- when you do, feel free to pass it on! 

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in
Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.