NAVIGATING THE GLOBAL COMPENSATION CHALLENGE FOR INTERNATIONAL MOVES

Adele Yeargan, Head of Global Mobility, AIGEd Hannibal, Global Practice Leader , Mercer

• Talent Supply and Demand

• Basic Philosophy for Compensating International Assignments

• Challenges in Compensating Assignees from Developing Markets (in this presentation, “DMs”)

• Solutions

• AIG; A Case Study

• Managing Future Talent Compensation

• Key Takeaways

What We’ll Cover Today

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TALENT SUPPLY AND DEMAND

Contradictions in Global TalentShortages and Surpluses Coexist

• Only 25% of Indian and less than half of Brazilian and Chinese professionals considered employable by global standards

• 45 million new entrants in the global job market annually

• 300 million new jobs needed between now and 2015

• By 2030, the US will need to add around 25 million workers, and Western Europe around 45 million

• 214 million migrants worldwide; 40% move between developing countries

• Reverse “brain drain” – top talent increasingly returning to emerging markets

• Significant attrition at mid-career levels; employees move 2–3 times per year to advance career

• Labor laws and visas – complexity limits mobility and development

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WEF Highlights of Talent Mobility Research Findings Definition must expand to fit the new age of talent mobility

Talent Mobility: tal·ənt mō·bil·ətē

The movement of workers between organizations or among locationsof an international organization

The New Definition of Mobility The Need for a New Global Mindset

Career mobility Geographic mobility Position mobilityPeople move based on their experience and jobs.

People move where the jobs are.

Positions move where the talent is.

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Global Mobility Program Development Maturity Level on Mobility

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• First foreign operation

• Local packages

• Equity stake

• Few foreign operations, not integrated

• ‘Adolescence’• Adventurous

staff• Local plus

packages• Equity & non-

equity

• Growing inter-national maturity

• More HQ staff replaced by TCNs, local nationals

• Home-based balance sheet

• Career path focused

• Less equity focus

• Worldwide integration and planning

• Global talent sourcing with less emphasis on nationality

• Home-based balance sheet/globalist comp approach

• Well-developed career planning, repatriation process

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Building an Integrated Approach to Talent Mobility StrategySuccessful Outcomes Through Clearly Linked Programs

Audit Your Mobility Population!!!, HR service delivery, Outsourcing

TALENT

TOTALREWARDS

The right PEOPLE…Talent segmentation

Talent identification

Candidate profiles

Selection criteria

Selection process

in the right PLACES and ROLES…Identification of need and locations

Critical roles

Key skill requirements

PLANNINGat the right COST…Contract type

Remuneration, benefits, allowances and support

Funding arrangements

Management of other related costs

for the right length of TIME and RESULT…Assignment purpose

Type and length of assignment

Assignment lifecycle management

Transition management

INVESTMENT

BASIC PHILOSOPHY FOR COMPENSATING INTERNATIONAL

ASSIGNMENTS

Key drivers for international assignments:

• Skills gaps in international locations

• Management development

• Technology transfer

• Senior management role

• Training

Primary compensation design decision drivers:• Operational need• Cost• Motivation to accept assignment• Deploying key/core competitive resources• Administrative simplicity• Equitable treatment

Context for Increasing Global AssignmentsGlobal Mobility Key Drivers

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Philosophy for Compensating Mobile EmployeesThe ‘Home Build Up’ or ‘Balance Sheet’ Approach

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Context for Increasing Global AssignmentsWhy is it complex?

• Gross and net compensation varies between countries

• Purchasing power varies between countries

• Exchange rates change

• Tax structures differ

• Benefits and social security systems differ

• International moves disrupt employees lives

• Some locations are unattractive

• Language and culture differ

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|Home salary

Home salary balance sheet

HQ base

Inter-national scale

Hybrid/ expat “light”

Local plus

Local salary

Commuter assignments

Short-term assignments

Extended business trips

Permanent transfers

HQ secondments Locally hired foreigners

Global nomads/career expats Localized expatriates

Returnees“Prevailing wage” assignments

Net salary

x$

tax

x

tax

Philosophy for these Alternative Mobile EmployeesPay Approaches Vary from Traditional International Assignments

$

tax

Long-Term assignments13

Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %)

Assignment locations 2000 2006 2008 2010

Middle East 5% 10% 15% 22%

Western Europe 27% 29% 20% 19%

U.S./Canada 21% 17% 15% 18%

Asia Pacific 19% 16% 18% 15%

China 6% 9% 9% 9%

Latin America 8% 5% 4% 5%

Africa 3% 5% 9% 4%

Japan 2% 2% 2% 2%

Source: Mercer’s/ORC’s Worldwide Survey of International Assignment Policies and Practices14

Source of Expatriates 2000 2006 2008 2010

Western Europe 33% 31% 28% 24%

Asia Pacific 3% 13% 12% 23%

U.S./Canada 28% 27% 23% 22%

Japan 27% 17% 15% 16%

Latin America 3% 3% 3% 4%

Africa 1% 1% 12% 2%

Middle East 1% 2% 1% 2%

China 0% 1% 1% 1%

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Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %)

Philosophy for Compensatin Mobile EmployeesTransfers from Less-developed (developing) Countries

• Home country pay structure

• Moves from Developing Markets (DMs) to developed countries

• Moves from one DM to another

• Disparity of base pay levels between home and assignment location

• Pay disparity does not equal cost-of-living disparity

• Limitations of conventional pay approaches

• Repatriation to a developing country

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Philosophy for Compensating Mobile EmployeesKey Questions

• What are the job levels of transferees?

• What is the nature and length of assignments?

• What is the economic level of the home country?

• What is the economic level of the assignment country?

• What are the cost differences between the two countries?

• What is the salary structure of the home country?

• How well do host peers tolerate pay disparities?

• Should a lower standard of living carry over on assignment?

• Does a consistent compensation approach for all expatriates matter?

• How many such transfers are you likely to have?17

Philosophy for Compensating Expatriates from DMsElements of Compensation

• Pay delivery practices:– Number of months’ pay– Variable pay– Other allowances

• Statutory requirements:– Extra month’s bonus– Profit sharing– Vacation pay– Transportation allowances– Social security– Termination indemnities

• Local executive perks & benefits:– Supplementary pension plans– Housing allowance/loans– Representation allowances– Dual employment contracts– Car and drivers

• Executive perquisites

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Base Pay

GuaranteedCash

Base Pay

Guaranteed Cash

Short-TermIncentives

Base Pay

OtherBenefits & LT Incentives

Total Cash Compensation

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Philosophy for Compensating Expatriates from DMsCompensation Levels

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Challenges in Compensation Assignees from DMsIncome Disparities Among Employee Levels

Entry level Executive

Salary level

Developing location

Developed location

Challenges in Compensating Assignees from DMsMarket Salaries/GM Salary as Multiple of Secretary

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SOLUTIONS

SolutionsLocal Salary + Expatriate Allowances/Benefits

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SolutionsDifferential + Position Allowance

Home Budget

DifferentialEquivalent PeerSpendable Income

Position Allowance

Home Budget

Host Country Peer Budget

Differential

Host-CountrySpendable

Host-Country Peer Spendable

AIGTRANSFORMING TO FACILITATE

(AND DRIVE) A MOBILE WORKFORCE STRATEGY

Establish an Operational Foundation: Global Compensation & Global Mobility

Implement a

Global Job

Grade Structur

e

• A company-wide initiative to establish GJG• Gave us a clearly defined structure for TDC (Total Direct

Compensation: Base, Short & Long Term Incentive)

Establish a Home

of Record

Philosophy

• Defined Home of Record for all employees• Where the employee was last employed as a local (if

applicable)

Transition all

Assignees to one Policy

Worldwide

• All assignees transitioned to the new mobility policy• Scorecard used to calculate the changes based on GJG & TDC

Create a Vision for Workforce Mobility

Design a CoE

Delivery Model

• Design the optimal delivery model for Mobility at AIG• Align and Integrate to the HR Vision

Execute the

Design Plan

• Write business case with project plan, secure budget • Deploy resources to manage change as well as “BAU”

Knowledge

Transfer,

Communication

s

• Perform RFP, Selection, Contracting, Implementation• In-house team(s) transformed• Regular stakeholder communications

Build the Policy Format for all Mobility Programs

Assess the

Business Needs

• Constantly listen to business leaders and passionate stakeholders• Look future-forward: what are the business drivers and initiatives

Beta Test

Programs

Regionally and

Globally

• Regional, country or project based tests provide insights, help refine final state• Hard to perform Global tests, may need to “extrapolate” from smaller markets

Socialize,

Secure Leaders

hip Approva

l, Roll out

• Build relationships with those who will champion change – sometimes your harshest critics

• Align changes to other initiatives for support and momentum: i.e.: Global Policy projects, Organizational Effectiveness restructuring, Geographic Optimization

Create a Framework that Can Easily Flex – the Mobility Program should be as Dynamic as your Business Needs & be able to Manage Global Complexities from Compliance to Employee Profiles to Talent Development

Policies

Standards

Guidelines

Procedures

MANAGING FUTURE TALENT COMPENSATION

Segmenting Assignees: Four-box ModelCurrent Assignees by Category (Median Values)

Emerging/High-Potential TalentInternational learning/ development to

grow next generation of leaders

Strategic Business LeadersFill mission-critical roles and deliver

specific, strategic business results

N=199N=28N=20

20%20%15%

N=251N=37N=21

40%30%60%

17%17% have a specific policy for this category38%

21%14% have a specific policy for this category48%

Career-Building VolunteersInternational experience to fulfill personal objectives

(opportunistic, employee-driven moves)

Seasoned Technical ExpertsProviding specialist skill/expertise to fill local gap

or to complete a specific project/task

N=108N=14N=8

10%10%10%

N=247N=38N=24

40%55%35%

13% 3% have a specific policy for this category20%

19% 16% have a specific policy for this category52%D

EVEL

OPM

ENTA

L VA

LUE

BUSINESS VALUESource: Worldwide Policies and Practices Survey

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Taking It to the Next LevelIntra-company Collaboration – Mercer Point of View

• Developing an integrated strategy for global talent mobility

• Guiding principles shape strategy, design, and measurement

Locations Quantity & Duration

Lifecycle Management

PLANNING Purpose & Skill Requirements

Talent Supply & Demand

Elements and Purpose

Performance and Risk

Equity, Choice, Flexibility

TOTAL REWARDS

Communication & Transparency

Comparators & Positioning

Segmentation Performance Requirements

Leadership Capabilities

TALENT Employee Value Proposition

Key Roles

Governance & Accountability Administration Oversight &

AdvisoryINVESTMENT

Success Measures

Affordability & Sustainability

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Exec. Level LT IA Policy Intra-Regional Local Plus

Relocation allowance X X

Home sale closing costs X X

Pre-move house- hunting trip X

Economy class airfare X

Business Class airfare X X X

Housing deduction X

COLA X

Dependent education

Tax prep X

Transportation X

Core benefit Discretionary benefit X Not applicable

Pre-

Mov

eO

n-As

sign

men

tCase StudyFlex Policy Example

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Case StudyFlex Policy Example

Policy Core/Flex Elements

Compensation Home country compensation guideline

Benefits Home country compensation guideline

Work Authorization Temporary visas/work permits; no permanent ones

Healthcare International Plan

Tax Preparation Core

Dependent Education Core

Emergency Leave Core

Home Auto Loss on Sale Optional

Cost-of-Living Differential Expatriate or EPI Index

Tax Equalization Optional

Home Leave Optional – Economy Class

Host Country Transportation Optional

Cultural Orientation Optional/On-line

Core

Optional

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Key Takeways What We Covered Today

Organizations will continue to source talent globally

• Become part of the talent conversation

• Ongoing need to validate mobility program philosophy

• Educate mobility staff on pay challenges from countries with disparate compensation levels

• Establish a “Watch List” of problematic countries

• Audit, evaluate, and evolve your Mobility policies

• Implement Mobility Workforce Planning programs

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Per diems

Daily living allowance for groceries, meals out, recreation, transportation, incidentals

Normally one fixed per diem established per location, but practices vary

Customize allowance per what is provided at assignment location

For example, does accommodation have cooking facilities? Is transportation provided?

For example, does accommodation have cooking facilities? Is transportation provided?

Don’t hesitate to contact us!

Ed HannibalChicago+ 1 312 917 9297ed.hannibal@mercer.com

Adele YearganNew York+ 1 212 770 8254Adele.yeargan@aig.com

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