Leadership Solutions from Read Solutions Group: What's in a standard (US) expat package?

Monday, January 07, 2008

What's in a standard (US) expat package?

Dear Curious Expat in China,

I know you are wondering whether you got a good deal with your expat package or not. Well, let's look at what you might normally find in today's expat package.

Normal cash compensation (base, bonus, incentives) - at a more senior level, some arrangements may be made on the structure of long-term incentives for tax effectiveness. Typically, your base salary will continue to be tied to the company's US pay scales or grades. The challenge you will have here is convincing whoever grades your job that it is the appropriate size (or at least, what you and your boss here think is appropriate). Frequently the scale associated with organization size and/or revenue is smaller than your peers at home. The challenge is that the complexity and performance demands are much higher. The complexity comes from the number of countries and regulatory environments, the range of cultures being managed across, and untold matrix layers. Growth targets are normally far in excess of home country requirements, travel and work hours long, and requirements to exercise your independent judgment, much steeper. Only you will be able to put together the argument on the scope of your role relative to your nominal home-country peers. Keep in mind as you do so that the challenges are obvious here, the results true accomplishments in a difficult environment; but seen from a distance, they look like normal accountabilities.

Foreign service premium - typically on the order of 10% to compensate for disruption in life, spousal job loss, etc. Paid net. Some companies pay on a monthly basis. Some in one or more lumps.

Hardship allowance - This is location dependent and is nominally based on amount of English spoken, level of medical care, safety, pollution, etc. Many companies are no longer deeming China tier 1 cities hardship locations, due to the availability of medical care, imported goods, comfortable housing, education, etc. If you don't want this to happen to you, be sure that you get your visitors out of the 5 star hotels, and even your housing, and expose them to some of the challenges of living and communicating in China.

Cost of living adjustment - The cost of living adjustment looks at the cost of purchasing a market basket of products and services relative to your home country. It is paid on a portion of your earnings - that piece that is estimated to be the amount necessary to buy these normal goods and services for a family of your size. For example, your normal home-based salary goes to a combination of taxes, housing, transportation, savings and then purchases of food, entertainment, medical services, liquor, etc. The COLA is applied to that estimated percentage of your income.

Transportation support - Depending on location, this can be anything from monthly taxi fare, to help buying a car, to a dedicated car and driver. In the latter case, the company may require the employee to contribute to the cost of the transportation support.

Housing support - A budgeted amount for a suitable house. Some plans allow for the employee to share in the difference if the rented home is under budget. Others, don't. Some companies pay for the rental and then take a housing deduction (amount tied to income and often looks something like a mortgage-sized payment). In the latter case then, the company typically picks up all utilities. Alternatively utilities may be included in cost of living.

A lump sum miscellaneous allowance - $5 - 10,000 - is often given to cover the "stuff" of moving. And therefore, bits and pieces of costs are not to be included on expense reports.

Electrical allowance - Another lump sum might be provided to support the purchase of 220 v small appliances. Normally these are then "owned" by the company, to be returned at the end of the assignment, or bought from the firm at a depreciated value.

Education for any kids, including application costs, tuition, uniforms, books and transportation. If you have young kids, be clear on the age where you can start to get tuition support, whether kindergarten, pre-K, or earlier.

Spousal assistance - Something like $5000 once or per year to provide for education, job search support, employment visas, etc. may be provided by companies that recognize that there are often two employees needing to be happy and fulfilled in the move.

Home leave - once per year for family, generally economy. Need to specify whether any extra vacation is used. College students are frequently entitled to one or two reverse home leaves per year.

Depending on location, possibly R&R trip.

How the house is handled stateside comes into play with the housing allowance. More often now, all rent is paid in the host location and the house stateside is your problem (sell, rent, whatever). Upon return, if you end up in a new location, domestic relocation benefits will apply.

Need to specify how big a shipment is allowed to host location; particularly are furnished places common or uncommon? Do people take everything (no storage), or only an airshipment (provide storage)?

Continuation of US service if needed for any pension/retirement benefits. Figure out whether there is continuation of Social Security payments.

Normal benefits, though with an international medical plan, along with a medical evacuation and security system, if needed, e.g., SOS.

And then tax handling, and particularly whether they will be equalized. Note equalization is a strange beast that includes other significant policy decisions affecting your ultimate finances. Will you be held to a state income tax? If so, which state? How will "equalized" deductions be calculated if home sale was one of the options on relocation? This since home mortgage interest tends to be one of the largest deductibles. Understand how taxes will be withheld, and when you are likely to see the first (and last) tax equalized submissions. A good, upfront estimate, of your tax bill is helpful, and this area can be filled with misunderstandings and large tax bills.

What happens if the employee severs the relationship? the company? and under what circumstances?

Any guarantees on repatriation? time of job on return? agreement about the nature of the work?

Many companies have unclear policies associated with repatriation, trying to fit the whole thing into a domestic relocation package. Try to gain some understanding of this up front, but if you fail to do so, influence, influence, influence. If your household goods are on a boat for 6 to 8 weeks, a 30 day temporary housing package will not be enough. If your household appliances have been in storage for multiple years, there may well be items that are no longer functional. Stand firm; this is not a domestic relocation. Ask for what you need.

Finally, relocation binders. Some companies hold expatriates hostage (my term, not theirs!) by requiring the employee to pay back the costs of the expatriation and repatriation expenses if the assignment is not complete, or the employee leaves the company shortly after return. OK, I can understand that if the employee jumps ship while on assignment, the company may be due something. However, holding the employee accountable for the cost of the repatriation is extortion is my humble opinion. Come on, you asked me to put my life (somewhat) on hold, go overseas, work in a challenging environment, deliver results, and then you treat my move home like a domestic relocation? No, not right. So beware if you see one of these, and negotiate before you sign.

Well, Curious Expat, hope you got most of your questions answered. If not, drop me a line at Sherry@ReadSolutionsGroup.com and I'll try to answer your questions.

What interesting quirk or perk do you have in your package?

...Coming soon, what to think about if localization comes up in the conversation.

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