The balance sheet is designed to keep assignees whole or ensure that they are no worse off during the assignment than they were at home. The balance sheet is underpinned by the principle of tax equalisation. Two minutes to understand local plus compensation approaches. The result may be a situation in which the documents. Reducing assignee compensation via localplus helps to minimise perceived inequities between expatriates working with local staff, many of whom perform. Pdf using new approaches in expatriate compensation to. The balance sheet approach to expatriate compensation is the most commonly used.
That is, individual transactions such as each sale, each purchase, and every expense are recorded into general ledger accounts. What is the transaction approach and balance sheet approach to measuring net income. Global compensation approaches balance sheet approach compensation plan that equalizes cost differences between identical international and homecountry assignments. Like in a balance sheet, the sum of items on the lefthand side lhs will equal the sum of items on the righthand side rhs. A second challenge is that expatriate compensation using the balancesheet approach. In a concise and straightforward manner, this guide presents the fundamental issues involved in global staffing, particularly in developing a corporate compensation approach for expatriate assignments. To sum, the balance sheet is the policy structure that employers use to protect an employees reserve.
Expatriate compensation the balance sheet approach abebooks. The balance sheet approach global hr management series. Compensation with initial emphasis on the traditional home country balance sheet approach, modifications to the approach and alternatives used by organizations with international operations. Executive pay a number of major corporations throughout the world have. Practical implications this article was intended to enhance understanding of expatriate compensation by collectively examining not only the how primary approaches but also the why. The concept of local plus compensation has grown increasingly popular over the past few years as companies look for a viable alternative to the homebased balance sheet compensation approach.
Within this framework, expatriate compensation is adjusted upward for higher costs of living, but is not adjusted downward if the cost of living in the host country is less than the home country frazee, 1998b. Compensation issues relating to expatriate managers. Generally, employers use a no loss approach when developing compensation packages. A second challenge is that expatriate compensation using the balancesheet approach is expens ive relative to the fact that a very sma ll proportion of a company s overa ll total. The balance sheet approach global hr management series by herod, roger and a great selection of related books, art and collectibles available now at. The balance sheet approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country and to provide incentives to offset qualitative differences between assignment locations. Decrypting expatriate compensation the balance sheet approach. Our expatriate compensation calculation is based on the home balance sheet approach and ensures your expatriates are neither worse or better off during an assignment. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Regardless of the compensation approach underlying your assignment. Designing competitive international compensation programs. Mercers balance sheet calculator makes the balance sheet process easy by integrating mercers powerful cost of living, tax, and quality of living solutions with the flexibility, speed, and accuracy you need to create international compensation statements as assignment patterns become more complex, companies are exploring ways to make their compensation approaches more.
Home based pay structure and the traditional balance sheet approach are still best practice for expatriate assignments because the assignment is intended to be temporary and the assignee is expected to return to the home country. The balance sheet approach to expatriate compensation is used to ensure employees are able to maintain their home purchasing power while on a temporary international assignment. The longheralded demise of the balance sheet approach has often been exaggerated, but the growing diversity of the assignee workforce, types of assignments, and cost containment imperative is forcing companies to reconsider their compensation approach or use more than one. Mercer consultants run the calculation for you, simplifying the process and alleviating the inconvenience of managing the details and data required to run such a calculation. What is the purpose of the balancesheet approach to expatriate compensation, and what are its four major components and their respective purposes. When negotiating an expat contract that is right for your needs and those of your family, it is important that you carefully consider several factors 8 december 2014 12. We are witnessing the emergence of new compensation challenges instead, due to the complexity of having to manage multiple types of assignments and. Findings a variety of factors can directly affect expatriate compensation, with three primary.
The balance sheet approach provides international employees with an expatriate compensation package that equalizes cost differences between the international assignment and the same assignment in the home country of the individual or the organization. Its important to occasionally reevaluate the effectiveness of your policy. When auditing an expatriate program, focus on key points continued 8 if the expatriate is performing the assigned job duties at or above an acceptable level, management is likely to reward this behavior with a merit increase, which boosts the individuals base pay. However, there is no doubt that this pay approach is expensive, given the range of allowances and benefits that are typically provided to assignees receiving this form of compensation delivery. In the context of expatriate compensation, what is the role of a balance sheet approach. The balancesheet approach is expensive relative to the. When auditing an expatriate program, focus on key points. The balance sheet is designed to keep assignees whole or ensure that they are no worse off during the assignment than. According to mercers 2017 wiapp survey, 79% of the companies globally and 49% of indian companies follow the balance sheet approach. The balance sheet approach breaks down an expatriates compensation into major expenditure categories such as housing, goods and services, income taxes, etc. Balance sheet approach mainly deals with two factors of compensation i. Expatriate compensation continued to be the primary focus of international personnel specialists. Expatriate compensation approaches there are a few methods commonly used to determine global compensation and they include but not limited to the following royle, 2011. Expatriates a new practical guide for determining expatriate.
Understand the more popular approaches to expat compensation. Dec 08, 2014 expatriate compensation packages expatriate compensation packages can vary enormously from company to company and location to location. The balance sheet approach is expensive relative to the. Basically, the balance sheet approach begins with the employees existing parentcompany compensation salary, benefits, and any other forms of monetary or nonmonetary remuneration. Nov 25, 2010 for example, fewer than 25% of companies compensating expatriates using a local plus compensation approach in singapore or an expatriate market rate approach in china enrol these staff in a local social security scheme partly due to residency restrictions. The balance sheet approach global hr management series human resource management online. The transaction approach to measuring net income is the traditional bookkeeping and accounting method. From an organizational perspective, thinking about expatriation often starts with thinking about expatriate compensation. Pdf using new approaches in expatriate compensation to improve. Balance sheet remuneration approach, which is a widely used expatriate remuneration approach for expatriates worldwide.
Balance sheet approach sounds like a financial term and is well meant to reflect the principles of a financial balance sheet. Balance sheet approach to international compensation packages. It also explains the typical components of an expatriate remuneration package, as well as introduces the cost of living and hardship allowances. Sep 25, 2017 there also needs to be a means to prevent either payroll from duplicating the payment of compensation or expatriate allowance. Mercers balance sheet calculator makes the balance sheet process easy by integrating mercers powerful cost of living, tax, and quality of living solutions with the flexibility, speed, and accuracy you need to create international compensation statements. An i ncreasing number of countries now split expatriate compensation between the home and current country of residence currencies 4. What is the transaction approach and balance sheet approach. Expatriate compensation packages expatriate compensation packages can vary enormously from company to company and location to location.
Global enterprises require global compensation systems that allow the organization to maintain the flexibility and ease of transfer between countries. Jul 29, 20 traditional compensation systems for expatriates, such as the balance sheet approach and going rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer. With that approach, pay delivery should be split between the home and host location. Compensation system for multinational corporations. The predictions of the demise of the typical expatriate approach have been greatly exaggerated. Local plus compensation approaches continue to grow more prevalent. Explain the balance sheet approach to international compensation packages. Text in images, pdf files, word documents or other document types cannot be translated.
Alternative approaches to expatriate compensation eca. Today, most expatriate compensation strategies can be grouped into six general categories. This reference strongly emphasizes the critical importance of considering the differences in the cost of goods and services, housing, and income taxes in international. A balance sheet approach to financial crisis prepared by mark allen, christoph rosenberg, christian keller, brad setser, and nouriel roubini 1 authorized for distribution by timothy geithner december 2002 abstract the views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf policy. Nov 05, 2011 from an organizational perspective, thinking about expatriation often starts with thinking about expatriate compensation.
Global market approach compensation plan that attempts to be more comprehensive in providing base pay, incentives, benefits, and relocation. Expatriate compensation three expatriate compensation. The longheralded demise of the balance sheet approach has often been. Tax equalization, consistent with the balance sheet approach to expatriate compensation, is the methodology through which most employers meet these objectives. In this approach, employees continue to be paid their home salary, maintain the link to home benefits, and receive a series of allowances to balance host vs.
Balance sheet approach keeping an employee on the home countrys salary structure and also providing additional allowances b. Issues concerning allowances can be very challenging to a firm establishing an overall compensation policy, partly because of the various forms of. Expatriate balance sheet calculation need help determining expatriate compensation packages. Under the balance sheet approach, movement in either. If no private pension is possible this can be the most difficult problem to overcome. The balance sheet can work well as an expat compensation system, but there are instances in which an alternative would be a better choice. The most common approach used by organizations in international business is the home country approach, also referred to as the balance sheet approach. Many are in a battle to win external talent, and to retain internal talent. The balance sheet approach the balance sheet approach bsa or the home based approach is the most popular approach and it is used by. Overman 2000 commented that balance sheet approach is mainly employed for senior and midlevels expatriates transferred to foreign subsidiary that lasts from one year to five years wentland, 2003. Many predicted that the traditional homebased balance sheet approach would gradually disappear. Balance sheet approach starts with the understanding that an employee typically partitions their guaranteed cash compensation in four big buckets. Start by looking at the different options for expatriate compensation. Traditional compensation systems for expatriates, such as the balance sheet approach and going rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer.
Decrypting expatriate compensation the balance sheet. The most common approach used by organizations in international business is the home country approach, also referred to as the balance sheet approach suutari and tornikoski, 2000. Traditional balance sheet approach the traditional balance sheet approach to compensating expatriates has been used for years. Managers deciding whether to send an expatriate on assignment will find the total costsfrom the various allowances and differentials provided to expatriates to relocation costs to home leave trips to international schooling costs for the expatriates childrencarefully laid out in this practical summary. At any point you can go to an account such as salaries. I suggest that the first stop on our expatriate payroll tour should be to develop an understanding of the core of most expatriate policies the structure of policies that support the vast majority of international expatriate assignments is referred to in the mobility world as the balance sheet model this is poorly. The balance sheet approach to expatriate compensation the.
Compensation issues relating to expatriate managers 189 depending upon the assignment, actual hardship, tax consequences, and length of assignment. Even if you are required to file a state tax return while you are abroad, you might. A second challenge is that expatriate compensation using the balancesheet approach is expensive relative to the fact that a very small proportion of a companys overall total employee workforce e. The balance sheet approach to expatriate compensation. Broadly speaking, we can differentiate between two different approaches to expatriate compensation. It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. The balance sheet approach is one in which the employee who is posted abroad is maintained in the salary structure he enjoyed at home. International total compensation balance sheet approach. Localplus can be used as a proxy retrenchment tool for expatriates whose performance in the hostlocation no longer warrants the expense that the balancesheet approach demands. The balance sheet approach the basic objective is to keep the expatriate whole that is, maintaining relativity to pcn colleagues and compensating for the costs of an international assignment through maintenance of homecountry living standard plus a financial inducement to make the package attractive. As such, effort can be made to contain the cost of this remuneration policy.