CHAPTER 7 COMPENSATION PACKAGE
Now you are considering accepting an assignment overseas, and it is time to renegotiate your compensation package. Your living and working conditions may change dramatically, and the compensation package you accept should reflect your new responsibilities and your new living requirements. It is quite possible that your life abroad will involve expenses you do not incur at home. For example, the exchange rate in the target country may raise the real cost of living significantly; you may choose to send your children to a private school while abroad, requiring substantial tuition payments; you may need to hire servants to help you manage your household in a very unfamiliar culture; you may need to take costly security measures for yourself and your family. Your new compensation package should reflect such new conditions. Remember that whatever you agree to Stateside is probably what you will have to live with abroad, so take the time to think carefully about what you and your family will need to live comfortably and safely. You should review carefully all aspects of the benefits offered along with their implications. What you see and what you get could be different. Take pencil to paper to evaluate all offers on the table to determine if they make sense financially.
Compensation packages vary widely from company to company; they may even vary greatly among employees of the same company. The package you negotiate will also depend on your new responsibilities and the living conditions in the target country. It is not within the scope of this book to discuss or evaluate all the possible arrangements you might make. However, there are some specific categories of compensation that you should at least discuss in your negotiations. What follows is a brief discussion of these.
Salary overseas is often determined by the comparable local salary range of the foreign subsidiary. In specific countries in which the local salary ranges are not acceptable, the salary may be comparable to local market ranges of compensation for expatriates of comparable international companies in the host country.
In the determination of the remuneration package, the basis for net compensation will probably be the salary range for a comparable position in the US. The comparison of the net compensation will take into consideration the following: cost-of-living expenses, taxes, social security, pension, insurance, etc. Your net compensation should not be lower with an international assignment. Allowances should be made to adjust for inflation and currency fluctuations. Determine how often your company reviews the need for these adjustments.
Allowances may be either increased or decreased, depending on changes in remuneration levels, currency fluctuations, inflation, changes in tax laws, etc. In countries where inflation is consistently volatile, reviews by the company should be done frequently. A "location allowance," designed to offset certain differences between the US and the host country, may also be included in the package.
Moving a family anywhere, especially overseas, will involve costs that you haven't considered. Will your company provide additional funding in the form of an extra moving allowance or bonus?
Because of inevitable inconveniences that arise from each transfer, you may be entitled to an additional lump sum at the start of the foreign assignment, and another allowance upon returning to the US.
MEDICAL AND DENTAL PLANS
Will your company provide you and dependents with a medical/dental program and a supplemental medical/dental program that covers you abroad? Find out what reimbursement is in order.
SICK PAYWhat salary continuation, if any, is available for short-term absences due to illness? LIFE AND ACCIDENTAL DEATH OR DISMEMBERMENT
Will you be provided life insurance coverage?
PERSONAL PROPERTY INSURANCE
You will probably be required to purchase a personal property insurance policy in the host country. This can usually be arranged by the company, although the costs incurred may not be reimbursed.
Will you be penalized in pension benefits because of the foreign assignment? As a result, specific arrangements based on your own individual circumstances should be detailed in the agreement. The pension benefit level may be based on funds that accrued during the foreign assignment. The basis for these benefits can also include contributions and taxes that are either wholly or partially paid by the foreign subsidiary.
Unless stated otherwise in the agreement, the US base salary should determine the employee's benefits. In the event that the company implements a pension plan for the US subsidiary and because of legislation the foreign subsidiary is obligated to pay contributions to a designated pension plan, find out whether you might be required to reimburse the company for these payments.
ARRANGEMENTS FOR PRIMARY RESIDENCE IN THE HOME COUNTRY
If you own your current residence, you will need to decide what to do with it. Several options are open to you, and you should arrange a compensation package that will best support the option you choose. If you:
SELL THE PROPERTY
Determine who pays for realtor fees, closing costs, legal fees, and carrying charges. The guidelines for such reimbursements are usually determined by your company. In the event that the property is sold below the designated fair market price, will you be reimbursed for any difference? During the time that the property is on the market, who will pay the following expenses: carrying charges, mortgage interest, property insurance, real estate taxes, and maintenance costs related to grass cutting and snow plowing? If the company doesn't buy the house or is not responsible for its sale, you often become responsible for all costs after a period of time. Be sure to find out.
RENT THE PROPERTY
The company may provide reimbursement for expenses related to rental agencies or property management. You might also get reimbursed for any shortfall between the actual rent received and the actual carrying costs. Reimbursements may be limited to mortgage interest (net following applicable tax deductions), property insurance, real estate taxes, and utilities as long as an appropriate rental fee is charged.
KEEP THE PROPERTY VACANT
If every effort has been made to secure a tenant and this proves unsuccessful, then how long will you be reimbursed for carrying charges? Reimbursements are often limited to mortgage interest, property insurance, real estate taxes, utilities, and maintenance costs related to grass cutting and snow plowing.
The company should absorb the costs of packing and moving household items. In most cases, you should consult with a company-designated moving agent when arranging transportation and storage. Find out whether there are any weight or volume limits and whether your goods will be insured in transit. Your company should absorb the costs associated with the door-to-door shipping insurance for household items. Find out what procedures are followed in the event that a claim needs to be submitted and who pays for any insurance short fall. Your company usually does not ship items requiring special attention. The company does not pay for fines, duties, or other expenses resulting from undeclared goods. In the event that you choose to place household goods in storage, who pays the costs associated with storage? Are there any limits or deductibles? Find out who pays for household cleaning associated with the relocation.
TEMPORARY ACCOMMODATION AND FURNITURE
You should be reimbursed for appropriate living expenses associated with accommodations, meals, and necessary living expenses incurred while you arrange permanent housing or await the arrival of household furniture. Make sure you understand the time limit before you start paying personally.
TRANSITIONING FAMILY TO ASSIGNMENT LOCATION
In the event that your accompanying family's relocation schedule can not coincide with your transfer date, how often will you be allowed to return home and who pays?
TRAVELING TO HOST COUNTRY
You should be reimbursed for all documented traveling expenses incurred in relocating to the foreign destination. The same holds true for all documented expenses incurred during the return to US at the end of the assignment. Your company may also pay the expenses of a "reconnaissance trip" to the host country during which you can become familiar with your new office and make some arrangements for your life there (housing, schools, etc.).
Travel reservations are usually by air. When the itinerary involves non-stop flights of more than twelve hours, an overnight stop along with appropriate accommodations should be acceptable. You should be permitted to bring an appropriate amount of personal belongings in addition to the regular baggage.
HOUSING IN HOST COUNTRY
Your company should make sure that you and your family are housed in appropriate living quarters in the host country. Many a wife has gone home when the new home has appliances that don't work, no one to fix them, roofs that leak, heaters that don't heat. What is the true cost of shipping all the amenities? Housing costs should be based on host country housing norms as well as "expatriate" host country housing costs. Include the cost of utilities in your calculations.
Will personnel from the foreign subsidiary assist you in locating an appropriate apartment or house in the host country? Will the representatives from the foreign subsidiary also provide you with guidance regarding rental agreements and so forth?
During the course of the international assignment, it is strongly suggested that you refrain from purchasing a primary residence in the host country. In the event that you do proceed with purchasing a primary residence in the host country, will the company provide any reimbursement related to the purchase or subsequent sale, investment loss, real estate taxes or otherwise? The company may classify such a purchase as a personal investment.
Based on the circumstances, you may be provided with funds to defray education costs at an appropriate school. If so, all matters regarding school choices should be approved in advance by the company. The funds provided for education costs are often applicable for preparatory education only and usually don't include colleges, universities, or other higher education schooling. Reimbursed educational expenses usually include books, school fees, and transportation to and from school. Costs related to school uniforms or activities outside of the general school curriculum (sports, music, school trips, etc.) may or may not be covered.
In the event that sufficient educational facilities cannot be provided, you may decide to have the children attend a boarding school in a separate location. Under such circumstances, you should be reimbursed for tuition, books, registration, and boarding. You should receive advance approval from the company in order to qualify for reimbursement. Further, you may be reimbursed for an annual trip to the location of the boarding school. Check whether college students will be eligible for air fare reimbursement back to the foreign assignment.VACATION
If your assignment is outside the US, you should be entitled to an annual vacation. Find out requirements and guidelines. Your vacation time may be based on the number of months worked. Will your corporate seniority be considered by the foreign subsidiary?
Will you be eligible for home leave and accompanying airfare and auto rental? Is there reimbursement for unused home leave time?
You will probably have responsibility for handling all confidential affairs pertaining to family matters before leaving the US. Depending on company policy, the legal expenses you incur in this process may or may not be reimbursed. Also, see how much time off from your regular work schedule is permitted to handle arrangements relating to moving, visas, etc. This time off should not be deducted from your regular vacation time.
Your company should provide you with all pertinent information regarding the host country. Prior to leaving the US, you and your family should receive some cross-cultural training. Upon arrival in the host country, the foreign subsidiary may or may not provide an introduction program for you and your family.
Before departure, you and your family may be required to have a physical and dental examination, including any necessary vaccinations and inoculations. All related medical costs should be reimbursed. When assignments are located in regions that are hampered by intense weather climates or questionable hygienic standards, you and family members should have a complete physical on an annual basis. All costs incurred should be reimbursed.
SALE OF AUTOMOBILE
You may or may not want to take your car. What do you do for parts in a small foreign town that doesn't service an American automobile? If you sell your car, are you entitled to an appropriate cash adjustment in the event that the automobile is sold for a sum below the designated market value? Does your spouse's vehicle qualify for this coverage? What if you have a company car at home?
Determine whether you will be entitled to a company automobile. Who pays if you aren't entitled?
CLOSE RELATIVE'S ILLNESS OR DEATH BACK HOME
If there is severe illness or death in your immediate family, will the company pay for necessary travel costs?
What happens if you or a member of your accompanying family dies during the foreign assignment? Where will the body be shipped and who will pay for preparation and transportation?
Will fees related to club memberships be reimbursed?
Will you be entitled to (and/or expected to) employ servants in your new foreign residence? You may or may not be expected to provide for their health and well-being.