Expatriate compensation comprises various allowances for international
relocation. Some common allowances are:
- Foreign service premiums – most common for employees on long-term assign-
ments (over one year), as an incentive to take the assignment. More often paid
to parent country nationals (PCNs) than to third country nationals (TCNs). - Hardship – in consideration of isolation, crime, natural hazards, political vio-
lence, based on government data upon which rates can be provided by consult-
ing organizations such as International SOS, a global medical and security
assistance company. - Relocation – compensation for costs such as transport, storage, temporary
accommodation, purchases of appliances and vehicles, associated with moving
to the host country. - Education – for assignees’ children. This may involve compensation for language
classes, books, and school fees. Home country boarding school fees may also be
involved for assignees who opt not to take their children to isolated and or polit-
ically violent locations. - Home leave – provision for the assignee and family to return home
periodically during the length of the assignment. (Dowling et al., 1999; Stanley,
2001)
Phil Stanley, the South East Asia Director of Organization Resources Counselors
(ORC), reported recently on trends in expatriate allowances. Recent research in
650 MNCs world-wide by ORC suggests that foreign service premiums are
increasingly being paid in lump sums rather than as ongoing salary payments,
and that even in longer-term assignments the premium payment continues.
Housing allowances are increasingly being made as ‘benefit-in-kind’ rather
than in cash. Over 80 per cent of respondents use tax equalization, a hypo-
thetical tax deduction based on the usual compensation, excluding expatriate
allowances, withheld by the MNC with the host country taxation liabilities
fully paid by the MNC (Stanley, 2001).
The basis for expatriate compensation is maintaining relativities with parent
country national colleagues and preserving parity of purchasing power; that is,
ensuring that the expatriate maintains the same standard of living that he or she
enjoyed at home. This has been most commonly achieved through applying the
Balance Sheet approach (Dowling et al., 1999; Stanley, 2001). It comprises the pay-
ment of a base salary consistent with home country rates, plus cost of living and
housing allowances reflecting home country standards, and provision for tax
equalization or tax protection and a reserve of, say, savings, social security and
investments. Costs incurred by the international assignee that exceed equivalent
costs in the home country are met by both the MNC and the assignee proportional
to preserving the assignee’s home country equivalent purchasing power.
314 International Human Resource Management