What are your biggest compensation challenges when transferring employees or hiring international candidates? Contact us for further insights and support.
Pitfalls:
- Expats may feel disappointed if disposable income is lower than expected or affected by currency fluctuations and inflation.
- Higher gross salary than local market:
- Local peers may feel undervalued and disengaged.
- Increased costs for the local company, potentially leading to pay raises for local peers.
- Expats may be reluctant to move to high-tax, high-cost countries.
- Focus on gross compensation may cause salary inflation over consecutive assignments, pricing expats out of the market.
Strategies:
A) Focus on Net Compensation
Jane’s lower gross compensation may be offset by lower taxes and cost-of-living, resulting in similar financial outcomes. This could improve her morale without affecting internal equity or the local company’s costs. If her local net compensation is lower than in her home country, a net compensation agreement could protect her financial position during temporary assignments, easing reintegration or future transfers.
B) “Best of Home and Host” Gross Compensation
Expats retain their home country gross salary or receive the local market salary, whichever is higher.
Advantages:
- Easy to implement and communicate.
Regardless of the approach, expertise, transparency, and good communication are essential to avoid overspending on unhappy expats, losing local talent, and facing higher turnover due to perceived unfairness.